Management Essays – Reward System

Reward System

Abstract

In an organization, human resource is one of the most important sources. Rewards and incentive could be referred as a performance linked compensation paid to improve motivation and productivity of the employees. In this paper, we are discussing about the rewards systems and criteria for evaluating the performance of the employees to pay rewards. It is related to the direct and indirect profitability of the organization. It implies monetary inducements offered to employees to perform beyond acceptance standard.

By means of the following paper, I am going to summarize the various parameters that are associated with the design of reward programs in an organization.

Introduction

A reward could be anything that attracts an employee’s attention and stimulate him to work with zeal and enthusiasm. According to Burack, an incentive or reward scheme could be defined as a plan or program to motivate the performance of an individual or a group. An incentive program is most frequently built on monetary rewards (incentive pay or monetary bonus), but it may also include a variety of non-monetary rewards or prizes (Burack, 1985).

On the other hand, French says, the term incentive or reward system has a limited meaning that excludes many kinds of inducements offered to people to perform work, or to work up to or beyond acceptable standards. It does not include: wages and salary payments and merit pay, over-time payments, pay for holiday work or differential according to shifts, i.e. all payments which could be considered incentives to perform work at undesirable times; and premium pay for performing dangerous tasks. It is related with wage payment plans, which tie wages directly or indirectly to standards of productivity or to the profitability of the organization or to both criteria (French 1974).

The use of reward system assumes that people’s actions are related to their skills and ability to achieve important longer run goals. Even though many organizations, by choice or tradition or contract, allocate rewards and non-performance system criteria, rewards should be regarded as the “pay off” for performance.

Important Features of a Reward Plan for an Organization

• A reward plan may consist of both monetary and non-monetary elements. Mixed elements can provide the diversity needed to match the needs of individual employees.
• The timing, accuracy and frequency of incentives are the very basis of a successful incentive plans.
• The plan requires that it should be properly communicated to the employees to encourage individual performance, provide feedback and encourage redirection.

Criteria for Rewarding the Performance

It is believed by most of the employees that they are paid less than the actual worth of their work. There is an existence of natural differences between what the companies pay out as compensation and what employees think should be received by them. A turnover results in the situation when this difference becomes very big and some other better opportunity is received by the employee. The compensation, wages or salary paid to an employee as a return for the services rendered by the employee in the organization, is termed as “Pay” (Mathew, 2003).

The features of the reward system are contingencies, which affect the suitability and design of the reward to varying degrees. The effective use of the rewards and criteria for rewarding depends on the three variables: the individual, work situation and reward plan.

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The individual and the Rewards: different people value things differently. Enlightened managers realize that all people do not attach the same value to monetary incentives, bonuses, prizes or trips. Employees view these things differently because of age, marital status, economic need and future objectives. However, even though employee reactions to rewards vary greatly, rewards must have some redeeming merits. For example, there might be a number of monetary and non-monetary reward programs to motive employees (Mamoria &Gankar, 2002). Money gifts, certificates, praises or merit pay are of the continuous parade of promotions.

• The work Situation: This is made up of four important elements (Gupta, 2007):
• Technology, machine or work system: If speed of equipment operation can be varied it can establish range of the rewards.
• Satisfying job assignments: A worker’s job may incorporate a number of activities that he finds satisfying. Rewards may take the form of earned time-off, greater flexibility in hours worked, extended vacation time and other privileges than an individual’s values.
• Feedbacks: A worker needs to see the connection between his work and rewards. These responses provide important reinforcement.
• Equity: A worker considers fairness or reasonableness as a part of the exchange for his work.

Designing a Reward System and Recognition Solution

In an organization, it is very essential to design the reward system in an appropriate and effective manner so that the employees would never feel that they are worthless and valueless for the organization. In order to design the reward system, some guidelines should be followed, which are as follows:

• Ensure that efforts and awards are directly related and observable to all the members of the organization.
• The reward must be valuable to the employees and should be based on realistic and reliable standards. The rewards must be clearly identified and should have some meaning for the employees.
• The reward plan should be easily understood by the workers so that they can easily calculate personal cost benefits for various levels of effort put by them.
• The standard upon which the plan is to be based, should be effective, i.e., they would should satisfy some conditions such as standards are viewed as fair by the subordinates, they should be set high, but reasonable (i.e., there should be about 50-50 chance at reaching it), they should be specific and complete, etc.
• The standard should be viewed as a contract with the employees. Once the plan is operational, great caution should be exercised before decreasing the size of the reward in any way.
• Specific policies and rules concerning how employees will be paid and the rules for attaining the standards and rewards should be clear to both the managers and employees.
• The reward plan can be more effective if high performance is encouraged and reinforced by management and subordinates. Reinforcement, in terms of point accumulated or rewards given should be frequent as possible, preferably daily or weekly.
• Employee participation may be useful for increasing the effectiveness of rewards plans.

Types of Rewards

Rewards could be classified into two categories: monetary or non-monetary rewards.

Monetary Rewards: Monetary reward often appears as important. A company must be willing and able to give certain employees very large raise and/ or bonus if pay is to motivate performance. Some meaningful monetary rewards are:

• Employee of the Month
• Team of the Month
• Years of Service
• Bonus for overtime, weekend work, occasions, etc.

Non-Monetary Rewards: Many factors, which are not related to the money, can also serve as attention-getters. The creation of such rewards is only limited by manager’s ingenuity and ability to access payoffs that individuals within the organization find desirable and which are under the manager’s jurisdiction (Mamoria & Gankar, 2002). Some examples of non-monetary rewards are as follows: employees could be motivated with the availability of a paneled office, a carpeted floor and wall paintings, a large desk and aristocratic furniture or a private bathroom, impressive job title, their own visiting cards, their own secretary and telephone, or a well located parking place with their name clearly painted underneath the Reserved sign, etc. Persons interested in enhancing their reputations and receiving recognition in the eyes of others may respond to verbal praise or to publicized awards.

Conclusion

Rewards, in general could be described as important motivators. Their effectiveness depends upon three factors: drives, preference value and satisfying value of goal objects. While budgetary restrictions and temporary improvements in performance place a limit on the potency of money as a motivator, non-financial incentives involve only human ingenuity as investment and also insure a relatively stable acceleration in output. Monetary rewards imply external motivation, non-monetary incentives involve internal motivation. Both are important. It is a judicious mix up of the two that tends to cement rewards with motivation.

References

• Burack, E.H. (1985), Linking corporate business and human resource planning: strategic issues and concerns. Journal of Human Resource Planning 8(3): pp.133-45.
• French W.L. (1987). The Personnel Management Process: Human Resource Administration (6^th Edition). Boston: Houghton Mifflin.
• Gupta, C.B. (2007), Human Resource Management (3^rd Edition), New Delhi: Sultan Chand and Sons.
• Mamoria, C.B. & Gankar, S.V. (2002). Personnel Management (22^nd Edition). Mumbai: Himalaya Publishing House.
• Mathew, M.J. (2003). Fundamentals of Organizational Theory and Behavior (1^st Edition). Jaipur: RBSA Publishers.