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What is Reward System in HRM?

The achievement and benefit received by employees for their job performance in an organization
are known as reward. Employees join the organization within certain expectation of reward.
Some may be expecting for better salary and wages i.e., economic rewards while other may be
seeking for facilities like accommodation, transportation, health, safety and other benefits as
reward. Thus, economic and non economic benefits provided by organization to employees for
their job performance regardless of their expectation is known as reward. Employees must be
communicated about the reward provision in an advance.
Matching the reward system with the level of performance for each job assigned in organization
is known as reward management. To make effective reward management, an organization has to
prepare an appropriate reward system. Attractive and transparent reward system must have
quality to motivate and empower the dedicated and reliable employees. Reward management
will also assist in planning the long term financial management.
The Role of a Reward in Employee Motivation
earning a paycheck and doing work that makes them proud. The offer of an additional reward
gives an employee that extra motivation to go above and beyond. Some rewards may cost
money, whereas others are investments in time and effort. All can contribute to a more pleasant
work environment
Incentive

Employees must know that hard work and a high level of achievement will be rewarded
financially. According to Microsoft's Business website, a policy that offers incentives in exchange
for achievement can motivate all employees to prove their worth. When worker productivity
goes up, the bottom line often increases far in excess of the monetary rewards distributed.
Uniting the Team

Employees are motivated by a workplace atmosphere of mutual respect. A reward emphasizes

your respect for your employee and encourages fellow employees to show respect to each other.
When the team is united, the lines of communication are open, and employees are likely to share
good ideas and put forth additional effort in the interest of the company's success. The Business
Research Lab points out that rewards motivate employees to see the company's mission as their
own. Instead of working for his own financial benefit, an employee who is amply rewarded is
more likely to personalize the company mission.
Employee Retention

An employee who has been rewarded is often more motivated to remain with the company. It
can cost a business quite a bit to deal with the loss of old employees and the training of new
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ones. Rewards, given to employees who are considering leaving the company, may increase your
employee retention statistics and decrease your long-term training costs.
Self-Motivation

A good manager can encourage an employee to work harder and better from time to time, but a
reward can go a long way toward building employee self-motivation. According to Carter
McNamara, writing for the Free Management Library, the most effective rewards are tailored to
an employee's needs. When deciding what kind of rewards to give to employees, think of their
needs. An employee with children, for example, may be highly motivated to achieve more in the
workplace if you offer him additional time off to spend with his family.
Objectives of Reward Management
Support the organization’s strategy
Recruit & retain
Motivate employees
Internal & external equity
Strengthen psychological contract
Financially sustainable
Comply with legislation
Efficiently administered
Basic Types of Reward
 Extrinsic rewards
– satisfy basic needs: survival, security
– Pay, conditions, treatment
 Intrinsic rewards
– satisfy higher needs: esteem , development

Intrinsic Rewards and Extrinsic Rewards

 Intrinsic rewards

Intrinsic rewards are the satisfaction that an individual obtains from the job itself. It means, they
are the factors of esteem and self-actualization needs of the employees. The satisfaction one gets
from the job itself are its intrinsic rewards. These satisfactions are self-initiated rewards, such as
having pride in one’s work, having a feeling of accomplishment, or being part of a team. These
satisfactions are self-initiated rewards and are fulfilled internally by the employees. These
rewards consist of having a pride in work, having a feeling of accomplishment, or being a part of
the team etc.

 Extrinsic Rewards
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Extrinsic rewards are the benefits provided externally. These rewards are provided in term of
money and fringe benefits. Extrinsic rewards include money, promotions, and fringe benefits.
Their common thread is that extrinsic rewards are external to the job and come from an outside
source, mainly, management. These rewards are necessary to fulfill physiological and safety needs
of the employees. Such rewards are the results of management policies and procedures of the
organization.

Financial Rewards and Non-financial Rewards

 Financial Rewards

A financial reward means those direct and indirect payments that enhance an employee’s well
being. Rewards may or may not enhance the employees financial well being. If they do they can
do this directly through wages, bonuses, profit sharing, and the like, or indirectly through
supportive benefits such as pension plans, paid vacations, paid sick leaves and purchase
discounts. Financial rewards make employee financially sound so that he/she can fulfill his/her
material desire. Direct payment consists of salary, wages, commissions, incentives, bonus,
allowances etc. Indirect payment includes pensions, medical insurance, paid leaves, paid sick
leaves, purchases, discounts etc.

 Non-financial Rewards

Non-financial rewards are those employee benefits that do not enhance an employee’s financial
well-being. Non-financial rewards are potentially at the disposal of the organization. They do not
increase the employee’s financial position, instead of making the employee’s life better off the job,
non-financial rewards emphasize making life on the job more attractive. However, such rewards
provide more job satisfaction. Preferred lunch hours, preferred office furnishing, parking spaces,
impressive job title, desired work assignments, business cards, own secretary etc. are some of its
examples.

Performance-Based Rewards and Membership Based Rewards

 Performance-Based Rewards

Performance-based rewards are such benefits which are provided on the basis of an employee’s
job performance ability. The reward depends upon the performance of an individual in the actual
work floor. Performance-based rewards are exemplified by the use of commission, piecework pay
plans, incentive systems, group bonuses, or other forms of merit pay plans. These rewards are
exemplified by the use of commissions, piecework pay plans, incentive systems, group bonuses,
or other forms of merit pay plans.

 Membership Based Rewards

Membership based rewards are those rewards that are paid on the basis of being a member of an
organization. membership based rewards include the cost of living increases, profit sharing,
benefits, and salary increases attributable to labor market conditions, seniority or time in rank,
credentials (such as a college degree or a graduate diploma), or future potential (the recent M.B.A.
from a prestigious university). It means the basis of allocating rewards is employee’s
organizational membership. Hence, the reward goes to all employees irrespective of their
performance.
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Reward management
1. Reward management 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. According to Michael Armstrong,
“reward management deals with the strategies, policies and processes required to ensure that
the contribution of the people to the organization is recognized by both financial and non-
financial means.” The main objective of reward management is to attract and retain skilled
manpower, maximize productivity, achieve organizational goals and ultimately, support for job
satisfaction among employees.
2. Aims of Reward Management Consideration of value Fulfil common goals Focus on behaviour
and outcomes Attract and retain quality employees Motivate employees High performance
culture
3. Types of rewards • Pay • Fringe benefits • Job security • Good working environment •
Supportive supervision • Status, promotion • Recognition, praise Extrinsic rewards •
Achievement • Involvement • Independency • Participation • Self-responsibility • Facing
challenges • Self development • Work itself Intrinsic rewards • Pay • Allowances • Fringe benefits
• Bonus • Profit sharing • Piece rate system • Retirement benefits • Prize, awards Financial
rewards • Achievement • Recognition • Appreciation • Respect • Praise • Affiliation •
Independency • participation Non-financial rewards Performance based rewards Membership
based rewards
4. Extrinsic and intrinsic rewards Extrinsic rewards Intrinsic rewards Extrinsic reward are
direct indirect financial and non financial reward that are external to the job and come from
outside source mainly management. It is related with job context. Extrinsic reward focuses on
optimum use of human resource, maximize productivity and achieve predetermined objective.
Intrinsic reward are the personal satisfaction of employees derived directly from their jobs. It is
related with job content. Intrinsic reward focuses on job satisfaction high level of motivation of
employees.
5. Extrinsic rewards • Achievement • Involvement • Independency • Participation • Self-
responsibility • Facing challenges • Self development • Work itself Intrinsic rewards • Pay •
Fringe benefits • Job security • Good working environment • Supportive supervision • Status,
promotion • Recognition, praise
6. FINANCIAL AND NON-FINANCIAL REWARDS FINANCIAL REWARDS Financial rewards
are monetary rewards in order to enhance employees financial wellbeing. They are tangible and
fulfill financial need of employees. NON-FINANCIAL REWARDS Non financial rewards are non
monetary incentives created to add attraction to life on the job. They are intangible and fulfill
psychological need of employees.
7. • Pay • Allowances • Fringe benefits • Bonus • Profit sharing • Piece rate system • Retirement
benefits • Prize, awards Financial rewards • Achievement • Recognition • Appreciation • Respect
• Praise • Affiliation • Independency • participation Non-financial rewards
8. Performance based Performance and membership rewards Membership based • Performance
based reward are strategy to provide reward to employees on the basis of their performance. It
means employees having high level of performance would get better incentives vice versa. It
implies incentives in terms of piece rate wage, commission on sales, bonus on high production,
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share of profit etc. • Performance based reward encourage competition between employees and
may even lead to conflicting priorities. • created to maximize productivity and achieve desired
goals. • Membership based reward are strategy to provide reward to employees on the basis of
team performance. every member of a team is equally rewarded in terms of incentives.. It
implies incentives such as profit sharing, bonus, merit benefits, skills incentives and so on. •
Team encourage collaboration and cooperation to achieve shares and goals. • created to achieve
synergetic effect from team members.

9. Performance based  Piece work  Commission  Incentive plans  Performance bonus  Merit
pay plans Implied membership based Cost of living increases Labor market adjustment Time
in rank increases Profit sharing Explicit membership based  Protection programs  Pay for
time not worked  Services and prerequisites Explicit membership based  Preferred office
furnishings  Preferred lunch hours  Assigned parking spacing  Preferred work assignments 
Business cards  Own secretary  Impressive titles Financial Non-financial Participation in
decision making  Greater job freedom and discretion  More responsibility  More interesting
work  Opportunities for growth  Diversity of activities Rewards Intrinsic Extrinsic
10. • Service Benefits oPersonal Service, Family service • Other job related Benefits oFlexible
work schedule, Cafeteria Benefits

We develop Performance Management Systems tailored to the specific needs of each

organization and Reward Systems that enhance employee performance, motivation and
retention, creating a contemporary and complete performance and reward framework.
companies define their strategy on performance and reward management.
Performance Management Systems
 Enforce alignment with company’s Strategic Objectives (Key Performance Indicators,
Targets, etc.), promoting desirable behaviors and a culture of continuous development based
on company’s vision, values and strategy.
 Design flexible, easy to implement Performance Management Systems.
 Implement the system, providing them with the necessary support throughout all stages.
For Reward Management Systems
 Evaluate the importance of each job position with clear criteria.
 Decide how to remunerate employees according to their performance and the relative value of
their position.
 Develop Systems that include both Fixed and Variable Remuneration (bonus schemes), long-
term incentives (various share schemes) aiming at rewarding and retaining employees, as
well as benefits (company cars, health & pension benefits, etc.) based on company’s needs.
 Ensure external competitiveness and alignment with the market
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 Design effective Voluntary Exit and Employee Reduction Schemes that ensure the fair
treatment of the employees leaving the company and also protect the companies’ brand name
in the market.
Organizational Policies and Reward Systems

Broadly, speaking, organizational policies related to how employees are rewarded

have a greater bearing on the development of the reward systems when compared
with the inputs that the HR function and the Line Managers provide. In other words,
the overall edifice of the reward systems stands on the foundation built by the organizational
policies and the specifics are left to the HR function and the Line Managers.

Of course, it goes without saying that whereas the basic components have to in tune with
organizational policies, the variable pay and the components that are specific to individual
bands of employees are at the discretion of the division or the group that the employees belong.
Further, the yearly bonus and the pay hikes are again dependent on the organizational policies,
which are broadly related to industry standards and the growth of the company in the previous
year.

In conclusion, Reward management means ascertaining and providing the reward to an

employee according to their job performance and maintaining the record of this. This will
motivate employees to make their effort in achieving organizational goal. Reward management
assists in making different identification among the like minded organizations. Appropriate, up
to date, transparent and competitive reward management will provide high morale to the
employees. They feel proud to be associated with the organization. Reward can be considered as
a benefit, facility and career development. Reward managements should match with the job
performance level, employee’s requirement and overall organizational capacity.
global perspective on reward
Despite some change over time, global economics and corporate agendas have not been able to
make much of a dent in the national characteristics of HR and reward. The question is: why?

Relative levels of socio-economic development remain highly influential. We still differentiate

between “developed” and “developing” economies (underlining the assumption that the latter will
follow in the footsteps of the former), according to their broad reward characteristics: large, deep,
established, more complex markets where significant market shares need to be retained versus
smaller, fast-growing, possibly unstable markets where market shares are expected to be won. The
extent of diversity amongst labour markets remains underappreciated by global employers who
attempt to rollout global reward plans – levelling structures, bonus schemes, retirement plans –
across unique markets without modification.

The latest Towers Watson Global 50 Remuneration Planning Report indicates several persistent
global pay trends for 2015 and beyond.

THE VALUE OF CASH

Remaining “competitive with the market” is a longstanding hallmark of compensation management
amongst multinationals. However, what a company needs to do in order to remain “competitive”
even in basic salary terms can vary across markets. In developed markets (the right side of the
graph), wage levels are much higher but broadly align with the annual average wage. This also
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means that multinational employers in developed markets distinguish themselves less by salary,
necessitating the use of other means to attract and retain talent. In contrast, developing markets (the
left side of the graph) where multinationals are comparatively higher than the average national wage,
pay levels are likely to play a greater role in attracting talent when competing with local employers. A
possible reason for this difference can be found in long-term inflation levels, a common element
used by multinationals to budget pay and judge market competitiveness.

DEMOGRAPHIC DRIVERS
Established practice for multinationals is to use formal pay structures to manage compensation,
founded upon corporate assumptions and values. Although market structures can vary wildly,
particularly in their “slope” (the % spread from top to bottom at median). Developed markets tend to
illustrate rather homogeneous behaviour with flatter slopes (typically between 400% and 600%).
Meanwhile developing markets illustrate significantly steeper slopes and mixed behaviour. In this
sample, developing market base pay slopes varied from 800% to over 2500%. It is difficult to ignore
the demographic trend in the background: developed markets have a working population mostly
aged late-thirties to mid-forties and life expectancies between 75 and 80 years -- a relatively mature
population with both significant career investment coupled with noteworthy post-employment life.
This is largely reflected in the statutory systems of these countries and typical package
compositions. Developing economy workforces are more varied in terms of age and life
expectancies, thus state-level social security and employee priorities vary greatly. For example,
post-retirement security is a growing need in much of Central Europe, which has a similar
demographic composition to developed Western Europe, but is fairly low on the agenda in Saudi
Arabia (low average age, long life expectancy and generous social security). Demographics will
likely be the stage upon which reward programmes will recite their lines for some time to come