The Importance of Reward systems in workplace

 

Being recognized, appreciated, valued, and cared for by the organizations in return for employee commitment (emotionally, physically, and cognitively) to get a quality output for an organization is important for the businesses to remain strong in the challenging business world.   (Schultz, 2006 as cited in Franco-Santos and Gomez-Mejia, 2015; Riasat et al., 2016; Hassan et al. 2013 cited in Saad et al., 2014; Nawaz et al. 2014 cited in Saad et al., 2014; Hassan et al. 2013 cited in Saad et al., 2014; Hoole and Hotz, 2016). According to Pavlov (1927, cited in Franco-Santos and Gomez-Mejia, 2015) and Skinner (1953, cited in Franco-Santos and Gomez-Mejia, 2015), when an employee is rewarded for a job well done, the chances of having more quality outputs from that employee increases. Motivated employees work towards achieving organizational goals more than the ones who are not (Riasat et al., 2016). To win the increasing talent employee hunt in the competitive business world, organizations should work on developing strategic reward systems, which can directly affect the employee satisfaction levels positively to retain, be motivated, be innovative, and highly engaged in what they do (Saad, Masood ul and Muhammad, 2014; Hoole and Hotz, 2016).  

It has been evident that employees in the 21st century do not agree with the traditional rewarding methods, (Hoole and Hotz, 2016). Traditional reward systems, which are designed based on base pay, wages, equity among employees, etc. play a role in motivating and satisfying employees at the employment level. However, it is no longer sufficient to retain and motivate key talents. As Kerrin and Oliver (2002) further explain in their study, to build a strategic reward system, organizations should pay attention to choosing the correct rewarding method as shown in Figure 01. The organizations should look at:

a) To whom (Individual or collective) the reward should be given, to avoid jealousy among the co-workers.

b) The type of reward (financial or Non-financial) will improve the satisfaction level of the employees.

c) The size of the reward (Large or Small) by considering the amount of organizational savings.

d) Frequency of reward (regularly or occasionally) to keep the employees' motivation high at all times.

Figure 01: The Choices of reward (Kerrin and Oliver, 2002)

Intrinsic and Extrinsic rewarding systems should be considered by the organizations because research shows that one method alone does not help the organizations to come up with a competitive strategic reward system that satisfies their employees' needs. In accordance with the conceptual framework (Figure 02) by Riasat et al. (2016), Intrinsic and Extrinsic rewards act as individual components, which affect the performance and satisfaction of employees with the help of a good reward system.

Figure 02: Conceptual Framework (Riasat et al., 2016)

According to Mahaney & Lederer (2006, as cited in Hoole, and Hotz, 2016), Intrinsic rewards talk about an employee’s job itself. Intrinsic rewards include job satisfaction, the freedom to do the work in innovative ways, growth opportunities, responsibility, self–esteem, appreciation, etc. (Mottaz, 1985 as cited in Hoole and Hotz, 2016; Riasat et al., 2016). Whereas Extrinsic rewards include pay salaries, working environment, job security, bonuses, etc. (Riasat et al., 2016; Mahaney & Lederer, 2006 cited in Hoole, and Hotz, 2016). Goldsmith et al. (2000, as cited in Hoole, and Hotz, 2016) call out the fact that extrinsic rewards are the ones that the employees use to compare benefits within the organizations and therefore they play a major role in employee outcomes. Nevertheless, Amabile, (1993 as cited in Franco-Santos and Gomez-Mejia, 2015) shows that when extrinsic rewards are high in an organization, intrinsic rewards tend to come down and employees become more money-oriented. However, both these reward methods are important and need to exist together. It is the organization's responsibility to not load up but to balance these two rewards to get the best out of employees (Franco-Santos and Gomez-Mejia, 2015). This is where reward management comes into action.

The findings of Scott et al. (2010), show that the managers of organizations are responsible for developing the right reward management systems with the input of their subordinates. A good reward management system directly benefits both employees and the employer; it improves the team spirit of the organization and creates a loyal group of employees (MBA Knowledge Base, 2015). Nevertheless, most organizations still do not realize the importance of a good reward system. Harris (2001), explains in his survey that 78% of the employees' expectations were not addressed even though the organizations create strategies to reward them. Harris (2001) calls out the fact that the organizations 'hidden agenda' (Figure 03) concept does not corporate being truthful to the jobholders and do not reward the employees for what they do. Even though organizations identify middle - managers as the “critical communicators” to create good reward systems, the opportunity has been taken out from them with the huge workload that comes with the “hidden agenda” concept (Harris, 2001).  This has a huge impact on organizations losing top talents and it will lead the organizations to struggle in terms of survival.

Figure 03: middle manages perceptions of organizational initiatives on individual performance-related pay (Harris, 2001)

Finally, it is of utmost importance for organizations to work toward creating competitive strategic reward systems to improve employee satisfaction levels. Organizations should research several reward methods when they build a reward system, which should not only highlight monetary benefits for the employees. Organizations should move out from the traditional rewarding methods and move into “Total reward systems” which include a combination of all the reward methods to attract, retain, motivate and satisfy employees.  As Franco-Santos and Gomez-Mejia (2015) highlights in their study Reward systems are the key to building employer-employee relationships. And it is the organizational top – management’s responsibility to be truthful to the employees, and give the line managers the opportunity to be productive and good listeners. Give the jobholders the due respect and reward them so that the employees will give their best to become highly engaged. This will lead the organizations to become successful in the competitive business world.

References

  Franco-Santos, M. and Gomez-Mejia, L., 2015. Reward Systems. Wiley Encyclopedia of Management,  pp.1-6. 

Hoole, C. and Hotz, G., 2016. The impact of a total reward system of work engagement. SA Journal of Industrial Psychology, 42(1), pp.1-14. 

Harris, L., 2001. Rewarding employee performance: line managers' values, beliefs and perspectives. International Journal of Human Resource Management, 12(7), pp.1182-1192. 

Kerrin, M. and Oliver, N., 2002. Collective and individual improvement activities: the role of reward systems. Personnel review. 

MBA Knowledge Base. (2015). The Importance of Reward Management. [online] Available at: https://www.mbaknol.com/human-resource-management/the-importance-of-reward-management/#:~:text=Motivation%20%E2%80%93%20A%20reward%20system%20will. [Accessed: 3 April 2022]

Riasat, F., Aslam, S. and Nisar, Q.A., 2016. Do intrinsic and extrinsic rewards influence the job satisfaction and job performance? Mediating role of reward system. Journal of Management Info, 11(1), pp.16-34. 

Scott, D., McMullen, T., Royal, M. and Stark, M., 2010. The impact of rewards programs on employee engagement. Retrieved March, 18, p.2014. 

Saad, H., Masood ul, H. and Muhammad, S. (2014). Measuring the Impact of Perceived Organization Support, Psychological Empowerment and Rewards on Employees’ Satisfaction: Testing the Mediating Impact of Employee Engagement. World Applied Sciences Journal, 30(5), pp.652–660.