Reward Management – Definition, Types and Benefits (2022)

Reward Management

Introduction

Performance becomes a key to the employer once an employee is appointed and allocated rightfully. For the employee, the natural expectation is to be rewarded. This article discusses the concept and practice of reward management. It defines the vision and briefly outlines its scope and approaches. Its application will further explore its strengths and challenges and suggest possible ways to overcome them. 

There is no disagreement with the view that employees need to be recognized or appreciated for every work they have contributed or achieved for their employer. An organization’s reward management systems contribute to its success by providing a framework of reward systems that help attract, retain, and engage people responsible for carrying out the organization’s activities to achieve its goals and objectives.

What is a Reward?

A reward can be described as a form of appreciation, both monitory and non-monitory, to individuals for their contribution to the organization. These can be salary, recognition, performance-related pay, bonuses, housing allowance, or promotion. Mondy talks of compensation administration in place of reward. He views it as one of the management’s most challenging human resource areas.

Dessler, on the other hand, sees the award as employee compensation for all types of salaried employees receive and arises from their employment. According to Bratton and Gold, rewards are all forms of financial returns, and tangible service and benefits employees receive as part of an employment relationship. Looking at all these definitions, the reward can be summarised as an employer’s approach in terms of forms. And volumes of appreciation for employees’ contributions towards the organizational performance and realization of its goals.

Reward Management

Reward management is concerned with formulating and implementing strategies and policies to reward people fairly, equitably, and consistently according to their value to the organization. Perkins and White view reward management as the combined action an employer may take to specify what levels of employee rewards will be offered based on what criteria and data available and how the offer will be regulated over time.

They also point out that there is a need for both parties to be clear of the links between the organization’s goals and values which have to be understood and acted upon by both parties to the employment relationship. Rewards play an essential role in the organization’s ability to attract and retain high-performing employees. Based on the views of reward management stated above, it is clear that rewards are an essential element of organizational success. If they are correctly handled, they can make the organization more effective. If not handled properly, they can bring down an organization because they will not feel motivated and cannot give their best.

Objectives of Rewards

The following are some of the significant aims of rewards:

  1. Attract and retain high-performing employees- once you reward people for their efforts, they feel valued and recognized and hence feel the sense of belonging and cannot move out of the organization because they feel part of the family.
  2. Motivate employees- rewards help achieve motivation to a more significant extent because they bring out that enthusiasm and drive for people to achieve more so that they receive more rewards.
  3. Enhance the organization’s corporate reputation as a caring or good organization to be branded as an employer of choice. This helps the organization attract the best possible candidates whenever it wants to recruit.
  4. Achieve fairness for the contributions that people make to the organization. Rewards are another way of making people feel fairly treated. People are committed to the organization once they feel treated reasonably. 
  5. Driving change- pay can be explicitly used as one of the tools stimulating and implementing change management.
  6. Reward system aims at enhancing the motivation of individual employees 

On the other hand, maintains that reward management has the following aims:

  1. Reward people for the value they create.
  2. Reward the right things to convey the right message about what is vital in terms of behaviour and outcomes.
  3. Develop a performance culture.
  4. Help to attract and retain the high-quality people the organization needs.
  5. Develop a positive employment relationship and a psychological contract.

Types of Rewards

There are two kinds of rewards- extrinsic rewards and intrinsic rewards.

Extrinsic rewards include:

Bonuses

The scheme of bonuses varies from one organization to another. Others are fixed in that employees will get their rewards if the organization gets higher or lower profits at the end of the year. For others, dividends are paid when the organization has performed well and made huge profits.

Salary Raises

This is achieved after employees’ hard work and effort, attaining and acquiring new skills or academic certificates as appreciation for employees’ duty in an organization. This motivates employees, thereby having the potential to offer long-term satisfaction. 

Gifts

Short-term awards are presented as a token of appreciation for achieving the organization’s desired goal. Any employee would appreciate any form of recognition and deep appreciation from management. 

This provides a clear vision of the employee’s correct path or direction for increasing their efforts to achieve higher attainments.

Promotion

It elevates the employee to a higher level and gives the title with increased pay, liability and responsibility due to the employee’s efforts affecting the long-term satisfaction of the employee. In this type of reward, the employee is motivated to contribute to management’s trust and acquire their delegation and responsibility. 

Intrinsic rewards include:

Recognition

This is the act of recognizing an employee’s performance by verbal appreciation. This type of award can lead to a formal meeting for realizing someone or an informal action such as a “slap on the back” to boost employees’ self-esteem and happiness, which can result in additional contribution efforts.

Trust and empowerment

Trustor empowerment in organizations between the manager and the employee adds value to the relationship. A highly trusted employee will not experience strict supervision. Such an employee shall enjoy a lot of autonomy or freedom in their work performance than a less trusted employee who might face strict control. Empowerment occurs when managers delegate tasks to employees, thereby adding importance to an employee where his decisions and actions are reflected. 

Total Reward 

Total reward involves viewing reward management as a combination of tangible and intangible, extrinsic and intrinsic ingredients that help make work and jobs’ rewarding’ in the broadest sense of the word. Total reward comprises pay, contingent pay, bonuses, incentives, share ownership, profit-sharing, pension, holidays, healthcare, other perks, and flexibility; learning, and development, training, and career development; leadership, organizational values, voice, recognition, achievement, job design and work-life balance.

Stein pointed out that a comprehensive communication strategy is needed to help employees understand the total value invested by the organization in its approach to rewarding. According to Mathis and Jackson, communication and satisfaction are linked. For instance, employees often do not fully understand their health benefits, which can cause individual dissatisfaction. Employers can use various means, including videos, CDs, e-mail, electronic alerts, newsletters, and employee meetings, to communicate benefits to employees. 

Reward Management

Approaches to Reward Management

To conduct an effective reward management scheme, writers agree on the value of job evaluation, market pricing, and grade and pay structure.

Job evaluation

This is a systematic and formal process for defining the relative worth and size of jobs within an organization to establish internal relativities. This approach is what Bratton and Gold call internal equity. It is done in two ways: Analytical and Non-Analytical schemes. Analytical scheme evaluates the job based on breaking whole jobs into several defined elements or factors such as responsibility, decisions, and the knowledge and skill required. The non-analytical job evaluation scheme involves the comparison of whole jobs to rank them in grades without reference to their elements or factors. 

Market pricing 

This is also known as external competitiveness, which refers to comparisons of the organization’s pay relative to the gain of competitive organizations. The organization has three options: being a pay leader, matching the market rate, or lagging competitive organizations. Describes such organizations that adopt this method as market-driven. Such organizations attract top-class employees at whatever cost without regard to their level in the hierarchy. Individuals negotiate their salaries and other benefits, and the same is based on how successful one was in the negotiation. People can be in similar positions with similar qualifications but get different benefits.

Grade and pay structures

This is a framework within which an organization’s pay policy can be implemented. A grade structure consists of a hierarchy of grades bands or levels into which groups of broadly comparable jobs are placed. Therefore, the grade structure becomes a pay structure when paying ranges are attached to each grade. As Bratton and Gold state, jobs in each category are considered equal for pay purposes; they have about the same number of points. Each grade will have its pay range, and all the jobs within the stage have the same content.

This, among the three approaches, appears to be the best as it combines elements of the job evaluation and the market price analysis approaches. On the other hand, it also allows for consistency to be attained in the rewards management process by the organization.

Benefits of a Robust Reward System

Several benefits accrue to organizations that have a robust reward management system. 

  1. The reward management system serves to enforce positive effort by members of the organization in terms of the desired behaviour. A state that rewards the right things conveys the right message about essential behaviour and output-wise. 
  2. Rewards also help attract and retain high-quality people the organization needs to achieve its goals. Poor rewards lead to high employee turnover rates as employees may opt to work for competing organizations that offer better reward packages.
  3. A sound reward management system motivates people and obtains their commitment and engagement towards attaining the organization’s goals. There is a positive correlation between employee satisfaction of personal goals and organizational goals.
  4. Reward management also helps to ensure consistency of the rewards process, thereby ensuring fairness in the employee reward programs.

Challenges

Reward management systems face several challenges which directly impact on its effectiveness as follows:

  1. People respond in different ways to any form of motivation. It cannot be assumed that a specific set of rewards will motivate all employees equally. As points out, a bundle of reward systems may inspire some while demotivating others.
  2. Financial rewards may motivate only those who receive them and demotivate those who do not. 
  3. Disparities in market price analysis schemes may cause demotivation to those who cannot negotiate or those who joined the organization when market rates were running low. This can make equally talented people leave the organization and opt for better rewards.
  4. The reward schemes are dependent on accurate and reliable methods of measuring performance, contribution, competence, and skill, which might not exist. 
  5. Performance appraisals in organizations depend on the judgment of managers, which in the absence of reliable criteria can be biased, inconsistent, and ill-informed, thereby causing deep grievances in reward systems

Some of the ways which may be used to minimize the challenges are:

  1. Involving all stakeholders, including managers, employees, and employee representatives, such as union and government agents, in designing the reward scheme. 
  2. Organisations must strive to create an atmosphere of trust in the organization. States that reward programs are more likely to work smoothly where there is trust, involvement, and commitment to fairness. 
  3. Line managers, on the other hand, have to be equipped with the necessary skills to manage the system. This helps them execute their duties with a degree of impartiality, objectivity, and effectiveness. 
  4. There should be an accurate, consistent, and fair assessment of the performance contributions. Pay differences must be genuinely related to the performance of individuals, and such differences should be visible enough.
  5. The purpose, methodology, and effect of the scheme should be communicated and understood by all organization members. This will help build trust between the organization and its employees. 
  6. Rewards must be attainable and worth attaining. The rewards should be commensurate with one’s contribution and value to the organization and should be within the organization’s reach while attracting the right people to the organization.

Conclusion

Reward management aims to align and manage all organizational resources to achieve the highest possible performance by improving current staff through encouragement, setting targets, and improving on past mistakes. The challenges of reward management include reward being unable to attract critical skills, inability to change compensation, and employees not understanding or appreciating the bounty. Though money or financial incentives are seen as the best source of motivation, it is essential to note that they cannot motivate all people all the time.

Therefore, reward management systems have to be designed in such a way as to provide the best mix of all kinds of motivation according to the needs of the organization and its members. Organizations need to put in efforts that aim to manage the rewarding process very effectively and efficiently to avoid losing the most valuable resources that could have contributed effectively toward achieving the organizational goals. If employees are appropriately rewarded, then the retention rate will be high.

However, where they are not adequately rewarded, the turnover rate is very high, making hiring costly through frequent recruitment, let alone the negative impacts that low rewards can have on the organization.

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