The managing and motivation of human capital


In term of the above question, the reward and awarding employees with merits issues is an honourable concept on the part of any management. "Reward management is the process of developing and implementing strategies, policies and systems which help the organisation achieve its objectives by obtaining and keeping the people it needs by increasing their commitment and motivation. (Armstrong and Murlis; 1998)"

The reward management is an aspect of HRM that involves not only base pay, but also an incentive plan and fringe benefits on the achievement of the objective. Level of reward may be based on different a criterion that involves both the strategy and the practice of pay system i.e. fixed level of pay and reward linked to performance. Inside an organisation, reward management has been used as a tool, variously described merits issues as bonus schemes, merit- based pay, or performance- related pay that lead to the development of improved performance. However, every company needs a strategic reward system for employees that address mainly these four areas: compensation, benefits, recognition and appreciation. Reward systems are much more than just bonus plans and stock options or a simple thank you.

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Therefore, managing in today's complex work environment isn't as easy as it sounds. Of course, it never was; but any numbers of factors are making it even more challenging. It's the same with recognizing and rewarding employees. First of all, we have to understand the importance of recognition in its broadest sense and the value of reward systems in monetary and non- monetary terms. The world characterized by increased global competition, and a rapidly changing business environment, the concept of employee has changed. Employees are the main resources of the business; many companies and organization are forced to continuously revaluate how they work. In fact, organization claims their employees are the most important resources that the management of them makes significant differences to business success.


For most organisations, success is dependent upon the efforts of the employees. Yet, Employees must not only be paid wages, but also the other financial burdens associated with their employment. Most managers have to delegate because in having to work done through other people, it is essential that managers understand what motivates an employee to act positively in the interest of the organisation. In order to improve the productivity, the manager must encourage workers to produce to a consistently high level by giving low basic wages and high incentive payment for exceeding targets; otherwise the efficiency of the whole firm may be affected.

Many firms try to stimulate workers by paying annual dividend that depends on the level of profits. For example (I); According to mail online, John Lewis 70,000 staff were rewarded with eight weeks wage bonus after profit surge 10 percent. In large organisations, these rewards make employees look at the profit in a positive light. It helps employees developing a strong sense of identity with the firm and performs the best work that can assist to foster a team mentality.


In a competitive business climate, a strong economy has resulted from the employees that the reward and recognition programs are the only method of motivating employees to change work habits and key behaviours to benefit a business. Reward strategies are techniques which organisations can apply in order to secure various behaviours and values from a workforce that can generate to be committed and loyal to the organisation. According to Armstrong (2002), reward is now 'about how people are rewarded in accordance with their value to the organisation' (2003) and as such can no longer be seen as the mere administration of set procedures and policies. As we can note from the model and maps of HRM, reward system are seen as one of the four key policy choices; they are commitment, competence, congruence and cost effectiveness. Rewarding specific behaviours can make a big difference to your company and more challenging.


Pay level:

Lead, meet, and lag

Pay at risk:

Supplementary income

Increase motivation

Creates uncertainty

Internal vs. External job pricing:

Internal equity focus - job worth

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External competitiveness

Performance - contingent pay:

Commission or merit pay

Salary fluctuations

Enhances perception and motivation

Skilled based pay:

Encourage training

Increase flexibility

Based on skill/ knowledge

Benefit system flexibility:

Employees select benefits

Controls costs

Protects diverse interests

Seniority - based pay:

Promotes company loyalty

Based on LOS

Job require company - specific knowledge

Benefit level:

Based on job classification



Remuneration payable is paid to an employee's usually referred to his wages that includes basic pay and certain allowance like clearness allowance, house rent allowance etc. When business owners think of reward systems, they typically put remuneration or compensation at the top of the list. More companies are moving toward more of a reward-based compensation style, also called as Incentive Compensation.

Innovations in Compensation Systems are as follows:

Incentive Compensation Plan

Skill-Based or Knowledge-Based Compensation

Team-Based Compensation

Performance-Based Compensation

Examples (II):

ASDA has paid compensation to 37 Asian workers at its Lutter worth store in Leicestershire in a racial discrimination case. The supermarket group agreed to pay £750 to each employee after they were asked to produce documents proving that they had the right to work in the UK.

TESCO supermarket is to pay nearly £30,000 compensation after an employee had his finger cut off in an attempt to fix a machine, it has been revealed.


Benefits are a form of compensation paid by employers to employees over and above the amount of pay specified as a base salary or hourly rate of pay. Benefits are a portion of a total compensation package for employees. A complete, common set of benefits includes:

paid time off such as PTO, sick days, and vacation days,

health insurance,

life insurance,

dental insurance,

vision insurance,

paid prescriptions,

retirement benefits: plan or a pension,

flexible spending accounts, and

Long term and short term disability insurance.

Example (III):

As Tesco is currently leading the pack as the UK's largest supermarket chain, "The business is very committed to giving people peace of mind and security through some benefits like:

Staff housing and voluntary benefits

Christmas benefits

Employee Share Schemes

Benefits communication

All employees also receive a 10% discount on their shopping at Tesco.

Benefits box also includes:

Pension, Healthcare, Holiday, Work-life balance policies, Company car and Share schemes etc.


Recognition means acknowledging your employees for specific accomplishments achieved, actions taken or attitudes exemplified through their behaviour. Meanwhile, appreciation centres on expressing gratitude to someone for his or her actions. Showing appreciation to your employees is the best way done through simple expressions and statements by telling them how much their contribution valued for the organisation. . For example, you might send small surprises and tokens of the appreciation in front of the employee's co-workers or team, specifying what they've done that has positively impacted the organization. The worst mistake a boss can make is not to say "well done", john Ashcroft, and British executive.

For example (IV):

Like many other successful companies, "GREGGS" the UK's largest independent retail bakers also has its own technique to recognise and appreciate its employees. The way to show is by "nominating your star". It usually refers to the formal program expressing of appreciation for a job well- done. Every nominated will receive a special recognition card.

Source; personal experience, Gregg's handbook

Many big companies also reward their employees with many ways to recognize hard work, boost morale and support employee loyalty. Such as: by giving employee incentive pins, gold foil recognition folders, annual recognition program, diamond employee of the program, rising star employee of the month program etc.


Promotion can be viewed as a reward for long service, recognition of loyalty, or as reward for experience. Therefore, it tends to increase the feeling of security among the staff. Promoting any employees within a business is a good practice and a powerful employee motivator. The benefits of promotion are serving as an incentive for better work performance, enhance morale and create a sense of individual achievement and recognition. The promotion of a staff along increases with responsibilities, increase in salary, provides sufficient direction to begin with the new position and new job description.

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Example (v):

ABC computer services names Alan peter as a vice president of the operation on the base of his B.S. and M.S. degrees in computer science from Rutgers University. He will be responsible for spearheading ABC's effort to streamline information systems operations for its government.



There are two types of incentive plans - premium and bonus plan. Under premium plans, extra payment is made for the completion of the standard task in a shorter period than the standard time. Whereas, in bonus plan extra payment dependent on the production of larger work unit than the standard task within the standard time.

Example (VI):

Dell Computer Corporation: On March 1, the board directors of the company unanimously approved the adoption of the executive incentive bonus plan to its employees. The plan was approved by the company's stockholders at the company's annual meeting. The purpose of the plan is to provide significant cash rewards for continuing profitable growth and motivate short - term performance of the year.



Once the employee have done their jobs and been appraised, they expect to be paid. The basic factor that determines pay rates is compensation. It refers to all forms of pay going to employee and arising from their employment. It has two main compensations, i.e. direct financial pays in the form of wages, salaries, incentive, commission and bonuses. And the indirect financial payments pay is in the form of financial benefits. Such as: unemployment insurance, retirement insurances, health and social security etc. However, incentive plans ties the compensation of the workers directly with the work done. There are different types of financial reward systems. Such as:



Piecework means working in return for a payment per unit produced. The payment itself is known as piece rate as it is paid to each individual worker in a unit of time. Such as, item per hour or item per day. There are two types of piece work. They are; straight piece work, which is paid to a person for each items that he or she makes or sell with a strict proportionality. And standard hour plans is paid hourly rate. He or she is also paid extra percentage for exceeding the standard per hour a day.

For example (VII):

Piece work is used extensively in small - scale manufacturing such as jeans or jewellery, garment manufacturing etc. Like, employees get to take the products in their home and paid them for each piece they completed. Day by day, the workers can relied upon to work fast enough to earn a living wage.

3a.2. MERIT PAY:

Merit pay in the broadest sense is the salaries or provides compensation to reward an employee based on his or her higher levels of performance. It comes in many different forms including merit based salary and other incentive pay.

For example (IX):

Many firm, like Tesco, Spartech Corporation holds formal programs such as employee of the month, annual awards and recognitions meeting to recognize and thank selected employees for their contribution to the firm. In this program, much manager praise, approve, appreciate the best employees for the job well done by using the various reward methods. Such as; employee recognition, gift certificates, cash rewards, training programs, merchandise incentives and many others.


According to Austin business journal by Alan Buhler, U.S. companies spend about $ 27 billion a year to motivate and reward the superior performance of their employees. These types of incentives are given in various methods to the employees. Such as, salary plan, commission plan, and combination plan. These incentives are fixed with salaries with occasional incentives in the form of bonuses, sale contest prize etc. The companies pay these incentives and rewards to salespeople based only on result to keep morale high among them.


In this plan, all or most employee can participate and generally ties the reward to some measure of the company's wide performance.


Profit- sharing refers to the strategy providing a staff with a share of the firm's annual profit. This put the staff in the same position as shareholders as in effort, they are paid annual dividend because the idea behind profit sharing is to reward the employees for their contribution to a company's achieved goal. Profit sharing payments are generally made only if the company has been profitable for the time period specified, it encourages the staff to think about the whole business, not just their own job. Profit sharing usually occurs annually after the final results for the annual company profitability have been calculated. The positive impact of profit sharing makes it easier for staff to accept the changes in working practices and install in the employee a sense of partnership with the organization. As staff can see the profit positively, while profit is only one goal of a company may have and is.

For example (X):

For profit sharing is more of a financial reward than incentives. It may encourage people to work harder or smarter. The employees can develop a strong sense of identity with the company and its fortunes. It can represent a substantial bonus on top of regular earning. In such case, john Lewis partnership pays annual bonus that can be worth over 20 % of an employee's earning. In other hand, Tesco, the profit share amount is no more than £ 100 or so.

3c.2. ESOP - employee stock ownership:

A corporation contributes share of its own stock to employees after a certain length of employment or they can buy shares at any time. These additional contributions are made annually where the business is owned entirely by its employees. The main purpose of an ESOP is to reward and motivate employees. The trust distributes the stock of employees on retirement when the employees leave the company, they receive their share options, and the company must be able to buy them back their full market value.


An incentive plan is designed to encourage co operation, involvement and sharing of the benefits. It mainly focuses on employee's involvement, company's mission and purpose. The Scanlon plan includes an employee suggestion program, a committee system and a formula based bonus system. It also focuses on the variables over which the organization and its employees have some control.


Gain sharing is a group incentive that engages employees in a common effort to achieve productivity objectives and share the gains. A successful gain sharing program relies on two factors i.e. formula and training. A sound formula is based on an examination of the company's past performance through which gain is measured and payout is made.


Bonus programs usually reward individual accomplishment and are frequently used in sales organizations to encourage salespersons to generate additional business or higher profits. Indeed, increasing numbers of businesses have switched from individual bonus programs to one which rewards contributions to corporate performance at group, departmental, or company-wide levels. According to some experts, Bonuses are generally short-term motivators that are designed to stimulate performance of employees and are tied to the company profitability. However, bonuses are a perfectly legitimate means of rewarding outstanding performance and be a powerful tool to encourage future top-level efforts.


I totally agree rewarding is a good idea. I have noticed from my own job experience that rewarding system is one of the good motivator for employees. I think companies would be more profitable if they encourage employees to bring forth their ideas on how to make the company more efficient and productive. Both reward and recognition programs have their own place in business. Many businesses use bonus for their employees.

Example (XI)

"Chicago ball bearing Company" sold their operation and decided to share the wealth with their employees. Some employees received a few thousand dollars and while other got six figures.

Sources: /home/headlines/35295444.html

Example (XII):

According to the study done by the American management association, there are approximately 2,500 companies using gain sharing. In 1991, a study by the U.S. General Accounting Office found that with gain sharing the average company productivity improved by 17 percent in the first year. Some examples of successful gain sharing programs are as follows:

The Super Sack Manufacturing Corporation in Texas, which has improved productivity by 88.5 percent over five years, according to manufacturing vice president David Kellen berger.

General Tire's in Mount Vernon, Illinois, where the plan has generated $30 million - $20 million over five year period then was paid out to workers in the form of bonuses, said Floyd Brookman, coordinator of the program.

Timken's Fair crest Steel Plant, where gain sharing targeted plant wide improvements and replaced old incentive systems that paid only for individual piece-work operations, said Tim Chapin, senior human resources executive.


Example (XIII):

According to independent business, Tesco's recent £2bn annual pre- tax profit has triggered windfalls of £220m for staff and director at the grocery chain. The company's annual report reveals 150,000 workers from check out staff to the board will share the money through incentive bonuses and share schemes.

Source: www.

Example (XIV):

On the basis of times online, around 117, 000 Sainsbury's staff will share a £ 47 million bonus this year, after the supermarket group met a designed target over a three year. The total sale has risen by 5.8 percent to £ 19.3 billion per tax.


Example (XV):

According to business week, the temporary chief operating officer named Tim cook earns us dollar 5 million cash bonus plus stock that could be worth nearly $ 17 million for the six months. Along with the cash, cook was also awarded with 75,000 restricted pieces of stock. The stock is worth nearly $ 17 million.


Example (XVI):

In 2008 profit sharing, Audi distributes an average of euro 5,300 per employee. Audi has decided to take some of its profit, around 222 million euro and distribute it among 45,000 employees in Ingolstadt and neckarsulm operation for employee's profit sharing plan. The 5,300 euro is equates to $8, 138 USD.


Example (XVII):

Around 43,000 employees working in Audi's production facilities with operating profit of 2.77 billion Euros and up to 2.5. %.. Therefore, requires paying 157 million Euros in bonuses to its workers. The profit - sharing bonuses to each employee is about 3, 600 Euros.


Example (XVIII):

May 6, nearly 500 workers at Procter and gamble were awarded with employee 2 bonus days off. The reward given on the basis for the higher sales and profit and increase in customer products giant's stock market price.


Example (XIX):

Greggs the largest bakery store believes that the people are the most important part of the business. The reward and benefits provided to employees are as follows:

Holidays- 21 day's holiday a year.

Discount- that is 50% off most of the Greggs produces products.

Profit share- as the part of the schemes, profit is paid twice a year, June and December based on the length of service and earnings.

Pension scheme: The employees are eligible to join pension scheme after six months of service.

Incentives: after the completion of 12 month service, the company provides free life assurance throughout the whole career.


Small business owners should first determine desired employee behaviours, skills, and accomplishments that will support their business goals. By rewarding and recognizing your entire workforce with employee of the month awards, individual employee awards and year-round motivational solutions can make them give outstanding performance. Here are some ways to encourage your employees:

Praise something your co-worker has done well. Identify the specific actions that you found admirable.

Say "thank you" for the hard work and contribution.

Offer staff members flexible scheduling for the holidays.

If you can afford to, give staff money that is End of the year bonuses, attendance bonuses, quarterly bonuses and gift certificates.

Engage in spontaneous, innovation behaviour on behalf of the firm.


The overall aim of the rewarding system is to establish a high performance of the company in which the individuals and teams takes responsibility for the continuous improvement of business processes with their own skills and ability.

To main the harmony within the organization.

To promote well being of employment and working groups.

To enable individuals and groups to put in their best.

Management satisfies employees by providing them different incentives as income, power, position, prestige etc.

Maximizing the potential of individual and teams to benefits themselves and the organization, focusing on achievement of their objective. "West Bromwich building society".


Employees are rewarded for assuming roles, displaying values, exhibiting behaviours. Such as- in relation to flexibility, customer's orientation, product quality and pursing performance objectives etc, here are some of the factors from management point of view, to consider before rewarding employees, as follows:

Length of service

Practical ability

General attitudes and loyalty

Education and knowledge

Character and personality of the employees

Leadership and effort

Communication skills

Reward those employees for achieving desired results.

Demonstrate great customer service

Done something extra special that has made a difference on the shop performance

Pay for performance, brilliant skill or competence

Been given great feedback from a customer

Flexibility within a broad banded structure

Paying for employees ideas, initiative and innovations

Adaptability and compliance

Workflow management

Presentation skill

Interpersonal skills

In term of fairness, equity and consistency etc

Therefore, the principle reason for employee reward is the acknowledging that employees come to work for more than money. It means paying for the employees range, depth, and for the unique skills and knowledge rather than for the job title that he or she holds. The management can also use 360 - degree appraisals to focus on the individual performance. The idea behind this approach is to support the top management who themselves take part in giving and receiving feedback and to encourage the employees benefits from feedback gathered from a questionnaires. 360 - Degree is not limited to pay but its main purpose is developmental that includes all the members of the company and designed to obtained comments from all the direction that intended to give more complete and comprehensive picture of individual's performance and contribution.


In conclusion, employees are motivated by both intrinsic and extrinsic rewards. To be effective, the reward system must recognize both sources of motivation. All reward systems are based on the assumptions of attracting, retaining and motivating people. Rewarding provide greater variety identity, significance, autonomy, discretion and feedback. The organization can achieve success with a total reward approach, such as- Financial rewards that motivate employees and influence the level of performance. In fact, reward management is one of the most fundamentally important parts of HRM activities and has been identified as key levels in all HRM models. It is essential to consider the rewards and strategies to ensure the system is effective and motivates the employees for the desired behaviour. Any performance management system must be tied to compensation or other different sort of rewards that is based on performance of the individual. Rewarding performance should always be ongoing managerial activity that included both the non- financial and financial mechanisms. Some of the primary ones are as below:

Praise and recognition from top level management - supervisors

Enrolling with challenging work assignments to the employees.

Professional growth and development opportunities

Give benefits like paid leave, sick leave, vacation and holidays

Progression through salary range 

Merit increases

Promotion and lateral moves

Administrative salary supplements

Informal rewards