Reward management is concerned with
the formulation and implementation of strategies and policies that aim to reward people fairly,
equitably and consistently in accordance with their value to the organization. [1]
Reward management consists of analysing and controlling
employee remuneration, compensation and all of the other benefits for the employees. Reward
management aims to create and efficiently operate a reward structure for an organisation. Reward
structure usually consists of pay policy and practices, salary and payroll administration, total reward,
minimum wage, executive pay and team reward.[1]
Contents
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1History
2Objective
3Types of rewards
4Motivation theories
5Job evaluation
6Performance appraisal
7See also
8References
History[edit]
Reward management is a popular management topic. Reward management was developed on the
basis of psychologists' behavioral research. Psychologists started studying behavior in the early
1900s; one of the first psychologists to study behavior was Sigmund Freud and his work was called
the Psychoanalytic Theory. Many other behavioral psychologists improved and added onto his work.
With the improvements in the behavioral research and theories, psychologists started looking at how
people reacted to rewards and what motivated them to do what they were doing, and as a result of
this, psychologists started creating motivational theories, which is very closely affiliated with reward
management.[2]
Defining motivation as "the degree to which an individual wants and choose to engage in certain
specific behaviours", to which Vroom (quoted in Mitchell, 1982) adds that performance = ability x
motivation. To have an efficient Reward System then, is mandatory that employees know exactly
what their task is, have the skills to do it, have the necessary motivation and work in an environment
allowing the transformation of intended actions into an actual behaviour. From the company point of
view instead, an effective performance appraisal has to be present, in order to let motivation be a
major contributor to the rewarded performance. [3]
Objective[edit]
Reward management deals with processes, policies and strategies which are required to guarantee
that the contribution of employees to the business is recognized by all means. Objective of reward
management is to reward employees fairly, equitably and consistently in correlation to the value of
these individuals to the organization. Reward system exists in order to motivate employees to work
towards achieving strategic goals which are set by entities. Reward management is not only
concerned with pay and employee benefits. It is equally concerned with non-financial rewards such
as recognition, training, development and increased job responsibility.[4]
Kerr (1995) brings to attention how Reward Management is an easily understandable concept in
theory, but how its practical application results often difficult. The author, in fact, points up how
frequently the company creates a Reward System hoping to reward a specific behavior, but ending
up rewarding another one. The example made is the one of a company giving an annual merit
increase to all its employees, differentiating just between an "outstanding" (+5%), "above average"
(+4%) and "negligent" (+3%) workers. Because the difference between the percentage increasing
was so slight, what the company obtained from the employees was indifference to the extra
percentage point for a superlative job or the loss of one point for an irresponsible behavior. In the
following table other common management errors are summarized. [5]
Types of rewards[edit]
See also: Reward system, Intrinsic motivation, and Extrinsic motivation
Rewards serve many purposes in organisations. They serve to build a better employment deal, hold
on to good employees and to reduce turnover.[6]
The principal goal is to increase people's willingness to work in ones company, to enhance their
productivity.[7]
Most people assimilate "rewards", with salary raise or bonuses, but this is only one kind of reward,
Extrinsic reward. Studies proves that salespeople prefer pay raises because they feel frustrated by
their inability to obtain other rewards,[8] but this behavior can be modified by applying a complete
reward strategy.
There are two kinds of rewards:
Extrinsic rewards: concrete rewards that employee receive.
Bonuses: Usually annually, Bonuses motivates the employee to put in all endeavours
and efforts during the year to achieve more than a satisfactory appraisal that increases the
chance of earning several salaries as lump sum. The scheme of bonuses varies within
organizations; some organizations ensure fixed bonuses which eliminate the element of
asymmetric information, conversely, other organizations deal with bonuses in terms of
performance which is subjective and may develop some sort of bias which may discourage
employees and create setback. Therefore, managers must be extra cautious and unbiased.
Salary raise: Is achieved after hard work and effort of employees, attaining and
acquiring new skills or academic certificates and as appreciation for employees duty (yearly
increments) in an organization. This type of reward is beneficial for the reason that it
motivates employees in developing their skills and competence which is also an investment
for the organization due to increased productivity and performance. This type of reward
offers long-term satisfaction to employees. Nevertheless, managers must also be fair and
equal with employees serving the organization and eliminate the possibility of adverse
selection where some employees can be treated superior or inferior to others.
Gifts: Are considered short-term. Mainly presented as a token of appreciation for an
achievement or obtaining an organizations desired goal. Any employee would appreciate a
tangible matter that boosts their self-esteem for the reason of recognition and appreciation
from the management. This type of reward basically provides a clear vision of the
employees correct path and motivates employee into stabilising or increasing their efforts to
achieve higher returns and attainments.
Promotion: Quite similar to the former type of reward. Promotions tend to effect the
long-term satisfaction of employees. This can be done by elevating the employee to a higher
stage and offering a title with increased accountability and responsibility due to employee
efforts, behaviour and period serving a specific organization. This type of reward is vital for
the main reason of redundancy and routine. The employee is motivated in this type of
reward to contribute all his efforts in order to gain managements trust and acquire their
delegation and responsibility. The issue revolved around promotion is adverse selection and
managers must be fair and reasonable in promoting their employees.
Other kinds of tangible rewards
Intrinsic rewards: tend to give personal satisfaction to individual [9]
Information / feedback: Also a significant type of reward that successful and effective
managers never neglect. This type of rewards offers guidance to employees whether
positive (remain on track) or negative (guidance to the correct path). This also creates a
bond and adds value to the relationship of managers and employees.
Recognition: Is recognizing an employees performance by verbal appreciation. This
type of reward may take the presence of being formal for example meeting or informal such
as a "pat on the back" to boost employees self-esteem and happiness which will result in
additional contributing efforts.
Trust/empowerment: in any society or organization, trust is a vital aspect between
living individuals in order to add value to any relationship. This form of reliance is essential in
order to complete tasks successfully. Also, takes place in empowerment when managers
delegate tasks to employees. This adds importance to an employee where his decisions and
actions are reflected. Therefore, this reward may benefit organizations for the idea of two
minds better than one.
Intrinsic rewards makes the employee feel better in the organization, while Extrinsic rewards focus
on the performance and activities of the employee in order to attain a certain outcome. The principal
difficulty is to find a balance between employees' performance (extrinsic) and happiness (intrinsic). [10]
The reward also needs to be according to the employees personality. For instance, a sports fan will
be really happy to get some tickets for the next big match. However a mother who passes all her
time with her children, may not use them and therefore they will be wasted.
When rewarding one, the manager needs to choose if he wants to rewards an Individual, a Team or
a whole Organization. One will choose the reward scope in harmony with the work that has been
achieved.
Individual
Base pay, incentives, benefits
Rewards attendance, performance, competence
Team: team bonus, rewards group cooperation
Organization: profit-sharing, shares, gain-sharing
Motivation theories[edit]
An interpretation of Maslow's hierarchy of needs, represented as a pyramid with the more basic needs at the
bottom[11]
Motivational theories are split into two groups as process and content theories. Content theories
endeavor to name and analyze the factors which motivate people to perform better and more
efficiently while process theories concentrate on how different types of personal traits interfere and
impact the human behavior.[12] Content theories are highly related with extrinsic rewards, things that
are concrete like bonuses and will help improve employees' physiological circumstances whereas
process theories are concerned with intrinsic rewards, such as recognition and respect, which will
help boost employees confidence in the work place and improve job satisfaction. [13]
A famous content theory would be Maslow's Hierarchy of Needs, [14] and a famous process theory
would be the equity theory.[15]
Theories of motivation provide a theoretical basis for reward management though some of the best
known ones have emerged from the psychology discipline. Perhaps the first and best known of
these comes from the work of Abraham Maslow.[16] Maslows Hierarchy of Needs describes a pyramid
comprising a series of layers from at the base the most fundamental physiological needs such as
food, water, shelter and sex, rising to the apex where self-actualisation needs included morality and
creativity. Maslow saw these levels of needs being fulfilled one at a time in sequence from bottom to
top. Employment and the resources it brings are classed under safety needs (level 2) while the
workplace may also contribute to a sense of belonging (level 3) and recognition at work can satisfy
the need for self-esteem (level 4).
Frederick Herzbergs motivator-hygiene theory, first published in 1959, argues that an employees
job satisfaction or dissatisfaction is influenced by two distinct sets of factors and also that satisfaction
and dissatisfaction were not at opposite ends of the same continuum but instead needed to be
measured separately. The two sets of factors are motivator factors and hygiene factors. According to
Herzberg, real motivation comes from the work itself, from completing tasks, while the role of reward
is to prevent dissatisfaction arising.[17]
Expectancy Theory is the theory which posits that we select our behaviour based on the desirability
of expected outcomes of the action. It was most prominently used in a work context by Victor
Vroom [18] who sought to establish the relationship between performance, motivation and ability and
expressed it as a multiplicative one where performance equals motivation x ability. There are a lot
of attractions for this kind of approach, particularly for employers who can target their motivation
effort and anticipate a definable mathematical return for them. As this is a cognitive process theory it
relies on the way employees perceive rewards These three theories plus variants of them have been
used in countless research studies and continue to inform the practice of reward management up to
the present day.
Job evaluation[edit]
Job evaluation is closely related to reward management. It is important to understand and identify a
job's order of importance. Job evaluation is the process in which jobs are systematically assessed to
one another within an organization in order to define the worth and value of the job, to ensure the
principle of equal pay for equal work. In the United Kingdom, it is now illegal to discriminate workers'
pay levels and benefits, employment terms and conditions and promotion opportunities. [19] Job
evaluation is one method that can be adopted by companies in order to make sure that
discrimination is eliminated and that the work performed is rewarded with fair pay scales. This
system carries crucial importance for managers to decide which rewards should be handed out by
what amount and to whom. Job evaluation provides the basis for grading, pay structure, grading jobs
in the structure and managing job and pay relativities. [20]
It has been said that fairness and objectivity are the core principles using an assessment of the
nature and size of the job each is employed to carry out.[21]
There are many different methods of job evaluation which can be used, but the three simplest
methods are ranking, classification and factor comparison.[22]However, there are more complex
variations of methods such as the point method which uses scales to measure job factors. This
method does not rank employees against one another but looks at the job as a whole. A
disadvantage of these methods of job evaluation are that they are very static and it would be very
difficult to perform a job evaluation quickly if it was needed.[citation needed]
An advisory company named ACAS stated that there were five main reasons why employers look at
performing a job evaluation. These include: When deciding on a pay scale: Making sure that the
current system is fair and equal for employees, Deciding on benefits such as bonuses, Comparing
pay against other companies and reviewing all jobs after a major company pay change.
[23]
Employees need to feel that they are being paid a fair wage compared to the same job with the
competition. If this is true it may help reduce staff turnover which is very beneficial for employers as it
reduces the cost of hiring new staff.
Research regarding job evaluation has mainly been conducted using qualitative data collection
methods such as interviews, large scale surveys and basic experimental methods. Therefore, there
is a large gap for research on job evaluation collecting quantitative data for a more statistical
analysis. A comparison between public and private sectors and the methods of job evaluation is
another area that should be considered for further research.
However, is job evaluation enough? Steinburg (1999) [24] stated that very few organisations take into
account that job evaluation should also look at emotional labour that may be used by employees.
Performance appraisal[edit]
See also: Performance appraisal
Performance appraisal is the method in which an employees job performance is evaluated and
reviewed.[25] This compares employee work behaviour with the organisations pre-set standards to
provide feedback on job performance. Performance appraisals are a form of motivation through
either positive or negative reinforcement, depending on outcome. Typically this information is gained
through interview and questionnaire functions annually, executed among management of larger
organisations primarily, as a method of motivation to gain full potential of staff. [26] The goal of which is
to align and manage all organisational resources "to achieve highest possible performance" by
improving your current staff through encouragement, setting targets and improving on past mistakes.
[27]
Edward Lawler of the University of Southern California unveiled research showing that 93%
percent of companies use annual appraisal [28]
Performance appraisal was set up in the first place, as a justification for the pay of an employee. If
his performance was seen as insufficient, his pay would be cut down. However, if it was seen of a
higher quality, he could receive a pay rise. Performance appraisals have been described as a
"flawed system", One must ask, can an entire years work be reviewed at one point in time? It has
been argued that the time, money and energy needed is not comparable to its effectiveness. [29] There
are various appraisal methods.
Some of these include rank and yank by which an organisation ranks its employees against each
other and terminates the employment of the employee who finishes at bottom place. That
corresponds to the yanking. Then there is the critical incident technique by which the organisation
collects information and observes human behaviour that have a strong impact either positive or
negative on an activity or procedure.
Each employee is different and can bring in something special to the organisation. Each employee
has a specific job to fulfil. Performance appraisals are needed in order to understand how every
employee can produce the best performance.
Improve performance: performance improvement is the notion of measuring the productivity
of a certain procedure, and then finding solutions in order for the productivity to rise, the
capability of the employees and their effectiveness. [30]
Increase motivation: Performance appraisal is used as a motivation tool. An employee's
efficiency can be proven if the targets he was set, have been achieved. The employee will be
motivated to do even better and his performance will rise in the near future. [31]
Identify training/development needs: The fundamental step of training and development is
establishing the organisational needs for the employees at this time and in the near future. A few
questions may be asked in the process: What can an employee learn in order to be more
productive? In which field is training most necessary? And finally who should benefit from the
training most?
The effectiveness of an employee is the key factor for the employer, because the profit the company
or organisation makes depends on the employees' productiveness.
The training and development needs should begin with an assessment of the company as it lies
currently, how it operates and what each employee is best at. This assessment will enable the
training to be based on certain factors which seem most important. Knowledge of the organisation's
strategic plan and its needs for the future must help the training to bring the company up a step on
the ladder.[32] In using a performance appraisal, an organisation can build an employee profile of poor
performances which allows a reduced risk of legal implications for redundancies. Seeing additional
benefit, as the company can decide who is worthy of promotion or bonus. [29]
Manage careers: career management . Managing your career efficiently involves a list of
various factors which need to be referred to as often as possible: taking into account the goals
you have giving yourself all along your professional career, allowing yourself to have a
comfortable lifestyle and by feeling some level of personal accomplishment when you look back
at to what you have done. These three factors are key to a productive career.
