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.
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.
History 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.
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.
Objective 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 systems exist in order to motivate employees to work towards achieving strategic goals which are set by entities as well as aligning the actions of employees to reflect the culture, aims and beliefs a business or organisation wishes to uphold. 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. Ultimately, Reward Management is a tool that uses various types of Employee Motivation to align the strategic and cultural goals of an employee, or group of employees, with the tactical targets set by a business or organisation.
Kerr (1995) brings to attention how Reward Management is an easily understandable concept in theory, but how its practical application results often differ. The author, in fact, points up how frequently the company creates a Reward System hoping to reward a specific behaviour, 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. As 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 behaviour. In the following table other common management errors are summarised.Kerr, S. 1995. An academy classic. On the folly of rewarding A, while hoping for B. The Academy of Management Executive. [E-journal]. 9(1), 7-14. Available at: http://www.executivemanagementskills.com/pdf/folly.pdf. Accessed: 5 March 2014.
Güngör (2011) discusses Reward Management Systems and its applications within organisations. A firms Reward Management System may contain the organisation's processes, practices and policies which correspond to the employees contributions or abilities. The application of these are the relevant types of rewards which are given out to those who meet the criteria of the system. This study in to employee performance found a significant and positive relationship between Reward Management Systems and Employee performance
Types of rewards
Rewards serve many purposes in organisations. They serve to build a better employment deal, hold on to good employees and to reduce employee turnover.
The principal goal is to increase people's willingness to work in one's company, to enhance their productivity and align their actions with the strategic goals and cultural beliefs of the Organisation or Business.
In its simplest form, reward is composed of three fundamental pillars. These being, Basic Pay, Variable Pay and Benefits. The first fundamental of reward begins with basic pay or salary. This is an agreed upon amount of money, awarded to an employee in exchange for an agreed upon service, outlined within the relevant employment contract or Earnings Based Agreement (EBA). Basic pay is fixed, consistent and guaranteed. Another form of reward is variable pay. Variable pay in a traditional sense is a performance-based method of reward and can take many forms. Unlike basic pay, variable pay may be inconsistent as suggested by its name. Variable pay may be linked to factors such as output, attitude, or other Key Performance Indicators. Variable pay may come in the form of commissions, bonus's, or profit-sharing plans. Benefits are also used as a reward. Benefits are tangible items that may include company vehicles, shares in the company or holiday pay entitlements to incentivise employees. However, These three pillars of reward only apply to one kind of reward, extrinsic reward. Extrinsic rewards: concrete rewards that employees receive. Salary: A fixed payment amount, delivered on a consistent basis in exchange for the service provided to a business or organisation. 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 employee's correct path and motivates employee into stabilising or increasing their efforts to achieve higher returns and attainments. Monetary gifts, such as Gift cards are also more likely to be used for luxury purchases and can build an emotional bond with the organisation. 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. Intrinsic reward: are satisfaction one gets from the job itself. these may include having pride in one's work, having a feeling of accomplishment or being part of the team programmes like job enrichment, shorter working weeks, flex time and job rotation that provide interesting and challenging jobs can also offer intrinsic rewards. Non financial reward: are desirable things that are at the disposal of the organisation for employees. These rewards don't increase the employee's financial well-being but instead make the employee's life on the job more attractive. Some of these rewards may include a carpeted floor, a large walnut desk, a private bathroom, impressive job title and reserved parking. Other kinds of tangible rewards
Studies have proven that salespeople prefer pay raises because they feel frustrated by their inability to obtain other rewards, but this behaviour can be modified by applying a complete reward strategy. A method of applying a complete reward strategy is by pairing the use of extrinsic rewards with that of intrinsic rewards. Intrinsic rewards: tend to give personal satisfaction to an individual. 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 employee's 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).
Regardless of the form, the reward needs to be tailored according to the employee's 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