Employee Reward Systems

Reward systems have been studied intensely and appeared in the literature on economics, psychology, and sociology in particular. Other disciplines have also conducted studies on reward systems and the role they play in business. This is because reward systems have such an impact throughout organisations. The design and context in which reward systems operate decide what impact the systems will have.

Whenever there is a change in business practices or the business itself, a new approach to reward systems is necessary because often the old ones will not be sufficient in a changing environment.

An organisation must strive to ensure the reward system is fair across-the-board so that all departments have rewards that suit their workloads.

The most important elements to designing a reward system are:

• Pinpointing the strategic elements of rewards and how they connect to other aspects of human resources
• Assessing and revising the elements that make up the reward package
• Creating basic pay structures through job evaluation systems, market tracking and competence assessments
• Determining which aspects of pay for performance schemes should be used and under which conditions
• Constructing a benefits package that suits the needs of both the organisation and the employees

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The ability to reward members is an important attribute of work organisation, the most important of these rewards being pay increases, promotions, fringe benefits and increased status. The ways rewards are allocated have a deep effect on the quality of work-life for employees and the effectiveness of organisations.

Reward systems are most effective in four ways:

1. Motivate employees to perform effectively
2. Motivate potential candidates to apply to join the organisation
3. Motivate employees to come to work
4. Motivate individuals by clearly showing their position in the organisation’s structure

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Setting up an effective reward system relies on several principles:

• Giving value to the reward system. Employees usually prefer certain types of rewards, and these can differ. Many employees prefer cash rewards. Some employees like to see their names in the company newsletter while others prefer public recognition and award ceremonies.
• Making the reward system simple to understand. Too many complicated procedures for evaluating performance, including forms, and reviews by several levels of management, will lead to confusion. The system must be easy to understand. This is the only way it will be effective.
• Decide on performance standards within the control of the team.
• Ensure the reward system is fair and effective.
• Ensure participation in the reward system.
• Involve people in the rewarding process.

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Different types of rewards are used by different organisations. These types include recognition, money, plaques, citations, special assignments or parties, and celebrations. There are also other types of rewards. Many companies reward in the form of pay, incentives and awards. Most people prefer bonuses in salary or wages. This pay system has rewards for the company as well as it usually (but, not always) comes with an increase in employee motivation. Companies also use incentives and awards.

However, it is not only money that motivates people. Studies show that there are other things important to achieve satisfying rewards, as mentioned below:

• Satisfaction with reward is not only related to how much is received but how much the individual feels should be received. If less than expected is received, individuals usually feel dissatisfied. In some cases, when they receive more than what they expect, they may feel guilty and/or uncomfortable.
• Comparison plays a big part and people’s feelings of satisfaction can be influenced by comparisons with what happens to others. These comparisons are made both inside and outside the organisations they work in and are usually made with people in similar jobs.
• As well as the obvious outer rewards employees receive (e.g. pay, promotion, and status symbols) they also usually experience inner feelings that are rewarding to them. Feelings of competence, achievement, personal growth, and self-esteem are among them. Overall, job satisfaction is determined by both how people feel about their intrinsic rewards and how they feel about their outer rewards.
• The rewards people want and how important rewards are to them differ from person to person. Some feel money is the most important, while others feel interesting work and job content is important. People are often able to find examples to support their point of view.
• Usually, the outer rewards such as pay and awards are important and satisfying because they will most likely lead to other rewards, or because to some people the symbolic value is of importance.

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In order to be effective, reward systems must relate to performance. The criteria for getting rewards must be very clear and it is necessary for employees to know if they are on track to receiving rewards. The perception of rewards as being fair is also necessary. Those employees who work harder should receive greater rewards than poor performers. Furthermore, for any company to attract, motivate, and keep qualified and competent staff, they must offer rewards comparable to their competitors.