Rewards are techniques used by business managers to help attract, retain and motivate employees to work in a more effective and efficient manner. Michael Armstrong (2002) states that:
Rewards are all about how people are being rewarded according to their value to an organisation. It is concerned with both financial and non-financial rewards embracing the philosophies, strategies, plans, and processes used by the organisations to develop and maintain reward systems.
Where performance levels are concerned, rewards within a business have been used as a means of motivating or leading people to reach their full potential. According to an Annual Survey Report on Reward Management (2007) an individual's performance in an organisation is determined by the following factors: the ability to perform, the environmental context of performance and the motivation to perform.
Rewards are used on the basis of meeting the needs of both the organisation and its stakeholders as well as being regarded as the fundamental expression of the employment relationship (Armstrong, 2007). The aim behind rewards is to develop a performance culture and to help attract and retain the high quality people the organisation requires as well as to motivate and obtain their commitment and engagement.
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Elements of Reward Management consist of Basic Pay and Contingent Pay. Base or Basic Pay is 'the amount of pay that constitutes the rate of the job' (Armstrong, 2007). It is mainly influenced through internal and external relativities where the internal for example is based on job evaluation and tracking market rates are assessed through external relativities. Contingent Pay deals with any additional financial rewards in accordance to the employee's performance, competence, contribution or experience.
In today's modern society, people have become 'the most important determinant of Organisational Success' (Armstrong, 2007), since only through them can a manager operate his or her business and reach goals. It is therefore quite natural to express a form of reward to the employee within the workforce when great practise of effort or contribution is expressed.
Rewards as motivators
Research has shown that a business' ongoing success largely depends on having motivated employees who are both productive and creative; therefore motivation plays a major role in employee performance (Department of Economic Development, Tourism and the Arts, 2007).
Rewards are a part of motivation that can be linked Porter and Lawler's Expectancy theory, a theory which was originally formulated by Victor Vroom. Porter and Lawler explain in their theory that 'expectancy is the probability that [an] action or effort will lead to an outcome' (Armstrong, 2007). It is often the case that when people place effort into something, they expect a reward in return. This in a sense can help motivate the employee to not only put effort in his or her work but to also work in an effective and efficient manner. This is why motivation can be seen as a means of satisfying needs, where an employee can be rewarded either financially or non-financially.
Porter and Lawler emphasise the importance of satisfying needs such as security, social esteem, autonomy and self-actualisation in order to further enhance performance levels. Therefore is it up to the manager to see that specific rewards are given accordingly so as to fit the needs of the individual.
They further explain why extrinsic financial motivation (bonus scheme) can only work when both effort and reward is clear and that the value of the reward is worth the effort (Armstrong, 2007). They also argue that intrinsic motivation can be more powerful than extrinsic motivation since they are more controllable and can also rely on past experiences that further indicate the extent to which positive and beneficial results are more likely to be obtained through their behaviour.
Extrinsic Rewards are rewards which serve financial incentives such as salary, different working conditions and supervision. Intrinsic rewards however deal with intangible things that satisfy the psychological needs of the individual such as achievement, recognition and challenge.
Monetary incentives are known to have a bigger effect on the employee but it does not necessarily mean that its effect will be permanent.
It is therefore up to the manager to determine which rewards will achieve the values of the business in the long run. Through research and case studies, it has been recorded that most rewards were not able to achieve the best results in the long run after all extrinsic rewards alone for instance cannot always achieve self actualisation needs as they do not offer challenge.
Mahen Tampoe's research study
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According to a study conducted by Mahen Tampoe, the 'Developing Rewards Strategies to Motivate and Compensate Knowledge Workers', 'current reward strategies fail to excite the intrinsic motivational drives'. His main target were the knowledge workers, such as scientists, managers or doctors; the people who apply the understanding of both practical and theoretical challenges that help produce outcomes which have personal, commercial and social values.
Before this study was executed, Tampoe realised the general key characteristics of the knowledge workers so as to recognise how rewards can mostly affect their needs and wants. As a part of their workplace, knowledge workers do not work in an environment which involves routine or repetition. They are independent themselves and aim at meeting operational or strategic targets as part of their problem-solving activities. They are also amenable to self-management, and continuously develop their knowledge and skills in their own area of expertise. Therefore, knowledge workers are more susceptible to be motivated by intrinsic rewards rather than just the extrinsic.
Financial rewards are still essential, however they played a small part in the case since the people who contributed and supported the research study, were already well paid in their jobs and were seeking to achieve self-actualisation needs. According to Tampoe, financial incentives are applied with the law of diminishing returns, where one factor of production is increased whilst the other is held constant; therefore the output per unit of the variable factor eventually diminishes (Sloman, 2006). When intrinsic rewards are concerned however, the law of escalating returns apply. It seems that intrinsic incentives achieve more results; therefore it is important to design a strategy where managers can help optimise both inherent and intrinsic motivational drivers, as seen from the Expectancy theory so as to increase performance levels. It is true however that most managers tend to reward the job itself rather than the individual, which in a sense does not necessarily contribute to the effort adopted by the individual in order to achieve a specific task. It is also an issue that employees are not always aware of the reason behind their reward or are not convinced of the reason behind their reward.
It is necessary for a manager to be aware of his or her employees because by making the move to acknowledge and understand them, the employees will feel more satisfied. Tampoe's solution is to define what the company itself values by creating a climate for success that will indefinitely meet the objectives of the business and reward those who are able to sustain the climate for success. He also argues that it is especially important to reward the individual and enhance their knowledge value instead of rewarding just his or her contribution.
The Cedar Foundation
If we look to another case, we see that one Chief Executive has dedicated a lot of time and attention in acknowledging issues involving the importance behind both motivating and rewarding his staff resulting to system that recognises and rewards achievements within the workplace.
Stephen Matthews is the Chief Executive of an organisation called the Cedar Foundation that provides special services for people with disabilities. His challenge within the organisation was to provide ongoing stability when dealing with changes and to also encourage his Senior Managers to continuously feel motivated by providing them more intrinsic rewards rather than just financial.
Stephen explains that: "We have two approaches to staff rewards. The first is to hold recognition events. These are fun days out for high achieving staff with an emphasis on team building.
"The second approach is to give employees opportunities to present their work at conferences and networking events."
As we can see, Stephen takes good care in knowing what his employees require and also recognise their professionalism that has a great impact in the working environment. As a result of this case, Stephen has managed to raise satisfaction levels up to 90 per cent and minimise sick leave levels. He says that "this is almost certainly because our staff are happier, so the way they handle customers has improved."
Managers are responsible for delivering the objectives of the business to their staff and ensuring that these goals are met and must therefore provide guidance to the employees so that they will work in an effective and efficient manner. The manager must understand needs of his employees and do his best on valuing their achievements and reward their commitments so as to further encourage satisfaction and improvements within the business. According to Sandra O'Neal, it is important to 'embrace everything that employees value in the employment relationship', and Total Rewards does just that.
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According to Manus and Graham, Total Rewards 'includes all types of rewards - indirect as well as direct, and intrinsic as well as extrinsic'. They benefit from both the tangible and intangible which as a result helps 'maximise a wide range of reward initiatives on motivation, commitment and job engagement' (Armstrong, 11edn). It does not only cover elements like salaries or benefits but also includes the intangible non-cash elements such as career opportunities as well as the process of learning and development.
Line Managers are the ones who are responsible in implementing total reward policies. With proper training, Line managers can recognise achievement, enhance skills and increase autonomy as well as leave room for development. According to Armstrong, Reward Professionals can partner with line managers and help them to deliver total reward strategies into practise.
Not all managers are aware or mainly understand of their employees, which can explain the reasons behind staff turnover, sick leaves or low production levels. No matter what the reward, it is up to the manager to decide what is the best technique to use on the individual. Rewards themselves are not the only cause for making or breaking performance levels, more importantly, it is the managers themselves who can determine a specific performance through the process of giving out rewards. With special training they can use rewards accordingly and help their employees work effectively and efficiently and keep them satisfied at the same time. By rewarding the right things to the right people will help to convey the right message about what is important in terms of behaviours and outcomes and as a result enlighten the employee to achieve effective and efficient performance levels.