Reward Systems in Organizations

Total reward entails a strategy that brings together both extrinsic and intrinsic rewards. These are tools that can be used for attracting, motivating and retaining employees. The components of total reward include compensation, performance recognition, benefits, and developmental and career opportunities. Compensation entails salary and wages, restricted stock schemes and employee profit sharing. When an employee’s compensation is favourable, they are likely to remain in an organisation for a foreseeable future. Benefits on the other hand, entail welfare and healthcare plans; things like dental, medical and life insurance. Such benefits would help employees save some significant amount. Performance recognition on its part includes the offering of service awards and other awards like employee of the month. Developmental and career opportunities include coaching and mentoring, job training and learning opportunities among others. All these components are meant to make employees feel comfortable and remain within the organisation for as long as possible.

There exists a relationship between motivation and reward. This can be easily elaborated using the Maslow Hierarchy of Needs and Herzberg’s Two Factors Theories. According to Maslow, employees are motivated by way of satisfying their needs. These needs are organised in a hierarchy whereby lower-order needs are satisfied before higher-order needs. The relationship between motivation and reward here is showcased in that lower paid employees are motivated by the prospect of higher monetary rewards. The needs higher in the hierarchy will tend to become important the moment lower level needs have already been fulfilled. On the other hand according to Herzberg, motivator factors tend to affect job satisfaction. The relationship between motivation and reward is viewed under financial reward though this is only a temporary motivator. Other motivators include recognition for achievement, responsibility, growth and development among others.

Pay structure comes in different types. Narrow-graded, broad banding, broad-graded, pay spines and career families pay structures. Narrow-graded pay structures entail a large number of grades containing jobs of equivalent worth sandwiched into each of the grades.  Progression comes through service increments. Broad-banding has a smaller number of pay bands and greater flexibility compared to traditional graded structures. Broad-graded pay structure on the other hand, entails fewer grades. It also offers a greater scope for individual employees so that they can progress along a pay grade. Career families put more emphasis on career progression and career paths. Pay spines are somewhat similar to narrow-graded pay structures. They tend to allow for service-related pay progression.

Management of reward schemes is characterized by a variety of risks. These risks include extrinsic rewards that entail indirect financial payments, direct financial payments, incentive programs, benefits, and working conditions. Intrinsic rewards are also included in this pool of risks. This type of risk includes empowerment, recognition, role development, sense of contribution and personal fulfilment. Operational risk is also highly prevalent as a result of poor implementation, inaccuracy of benchmark data, poor implementation and system inaccuracy or inefficiency. This is coupled with financial risk that emanates from reduced profitability, poor value for money and organisation’s inability to meet reward payments. Management of reward schemes also involves behavioural risk. The risk arises when there is no motivation or engagement of employees, when there is a misalignment of reward strategy to employee behaviours and needs, in case of unproductive organisational activity among others. Strategic risk might also arise in instances where the reward system does not align with the organisation’s goals, in case there is the inability to attract and retain the appropriate employees, generation of adverse publicity and when the reward schemes conflict with other HR activities and policies.

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