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Reward management refers to reward people fairly, equitably and consistently based on their value to the organization. The purpose of reward system is to support business goals and also to attract, recruit and retain good employees. Compensate and rewarding employees is very important. Fairness, high visibility and consistency are also important. To be fair, an employer must not favour one employee over another. Managers should know that employee satisfaction is essential to promote healthy teamwork and increase productivity. Managers should try to find ways to bring out the strengths in every employee and take a hard look for a better way to use their talents.
The Importance of Reward Management System
Motivated employees are very important to an organization's success. It is important to understand what motivates people and it will help to bring out the best in people. Motivated employees are more productive and they help organizations to survive. Motivation can be achieved through various forms that include positive reinforcement, negative reinforcement which is discipline and punishment. But perhaps, reward system is the major source of motivation nowadays. Employees who feel that their work and efforts are appreciated and will be rewarded are highly motivated.
There are many theories within the field of employee motivation. These include McClelland Motivation Theory, Frederick Herzberg's motivation-hygiene theory, Vroom's theory and Douglas McGregor's Theory X and Theory Y. Vroom's theory is based on the belief that employee's effort will lead to effective performance and performance will lead to certain rewards (Vroom, 1964). The theory argues an employee will be motivated to perform better when they believed that their performance and efforts will lead to a reward. Rewards may be either positive or negative. Employee will be highly motivated if the reward is positive and less likely to be motivated if the reward is negative.
Few conditions that are necessary for employee motivation are employees must believe that a good performance will lead to rewards. For example, accomplish of certain goals will lead to a bonus. Next, the rewards offered are attractive enough. Employees may want different rewards such as promotions or fringe benefits and finally employees must believe a certain level of individual effort will lead to achieving the corporation's standards of performance.
Attraction and Retention
Attraction and retention of better performing people is not an easy task for an organization. Organization that offers the most and attractive rewards tend to attract and retain the most employees. The reason is because higher reward level will automatically increase the satisfaction of employees. In general, that companies that fail to reward their employees tend to have higher turn over rate.
The Best Way to Reward Employees
Every organization needs a strategic reward system that includes these four elements: compensation, benefits, recognition and appreciation. The main problem with reward systems in many firms is they often miss out one or more element which is usually recognition or appreciation
Rewarding employee's performance is not as challenging as rewarding specific behavior. Questions like "Why am I compensating him/her?" and "Which behavior should be rewarded?" can help employers to overcome this obstacles. For example, which employee should we reward, the one that came to work early and staying late or the one that came up with new idea that help to complete the work. There is a huge difference between this two. Firstly, a manager needs to identify which behaviors that is important to the company. The first thing that comes to the manager's mind when it comes to reward system is to compensate them. It is normal because since not much people are willing to work for free. But an incentive compensation plan and some type of long-term reward should be included.
In strategic reward system, another type of reward is benefits. Companies that do not offer attractive benefits than their competitors will have difficulty in attracting and retaining their quality employees. This is the reason an increasing number of firms are offering attractive benefits.
However, recognition and appreciation are both important and cannot be missed out. Individuals like to be told whether they are doing great or bad, it is better to tell and let them know. Recognition means acknowledging someone for specific accomplishments achieved, actions taken or attitudes exemplified through their behavior (Sarvadi, nd). Recognizing employees can even be something as simple as a "thank-you" (Cadena, 2007). Meanwhile, appreciation is to express gratitude to someone for their actions (Sarvadi, nd). For example, managers could send a "thank you" note to how much they value them and their contribution. The combination of recognition and appreciation is another approach to express appreciation by praising employee in front of the employee's co-workers of what he or she have done that has positively impacted the organization.
Developing Reward System
Lawler (1984) laid down a nine-point framework for taking strategic role of reward and organizational development. These nine points will be used as a basis for analyzing past decisions and laying out future policy. According to Lawler's (1984) model the strategic issues in a reward system includes base of rewards, performance and incentivisation, market position, internal versus external comparison, centralized versus de-centralized reward, degree of pay hierarchy, reward mix, process issues and reward systems on the consequences and integration. The main choices upon which base pay are to be used are the job the person does, the personal contribution they make within a job and the level of skill and knowledge that people have within it. The pay will be based on the performance of the job. Skills and knowledge are important to adapt to market forces, services and products for organization. Because of several organizations have used skill based pay to encourage and support wider investment in training and development.
Performance appraisal is another way to reward employees. Through performance Appraisal managers can identify weaknesses and strengths of every employees as well as opportunities for improvement and development. Meanwhile, the appraisal results are used to identify employees that have performed well. This is a fair method of which employees should get pay increases, bonuses or even promotion.
Rewards and Employee Satisfaction
It is not as simple as we think to gain employees' satisfaction. It is something that an organization must learn to handle or manage: The individual's satisfaction with the rewards is closely related to the contribution of employees towards the organization and how much they will get in return (Newman, 2009). Employees often compare their contribution to the company or input such as their efforts and performance with the reward they received which is the output such as intrinsic and extrinsic rewards. This will lead to satisfaction or dissatisfaction of employees.
Moreover, employee tends to compare among each other with same job and organization that will also affect their satisfaction (Newman, 2009). Employees often compare their input or output ratio with others. People vary considerably in how they weigh various inputs in that comparison. They compare their strong points with others, such as skills and their best performance. They also tend to overrate their own abilities and performance which is more than the rating they receive from their manager.
In addition, misperceive the rewards gain by others may cause employees to be dissatisfied (Newman, 2009). Misperceptions of the performance and rewards of others also occur because organization that does not clearly stated out accurate information about the salary or performance of others will cause misperception of rewards of others.
Lastly, overall satisfaction must not only depend of either one of the reward (Newman, 2009). It should be from a mix both intrinsic and extrinsic reward. Intrinsic rewards and extrinsic rewards are both important in ensuring employees satisfaction. Employees who are well paid for repetitious and boring work will dissatisfy them because of the lack of intrinsic rewards. Where as, employees who are paid poorly for challenging job may be dissatisfied with extrinsic rewards.