REWARD MANAGEMENT

• Many times the organization reward system

is one of the most effective motivation
tools that managers have at their disposal.
• Employees often interpret the design and
use of the organizational reward system as
a reflection of management attitudes,
intentions and the entire organizational
climate.
Organizational reward system

• It is concerned with the selection of the

types of rewards to be used by the
organization.
• It goes as far as considering an
organization’s integrated policies,
processes and practices for reward for its
workers in relation to their contribution to
the organization, skill and competence and
their market value
 Components of an organisation
reward system
• Organizational rewards include all types of
rewards received as a result of employment
by an organization.
• Intrinsic Rewards
• These are rewards that are internal to the
individual and are normally derived from
involvement in certain activities or tasks.
• Examples; Achievement, feelings of
accomplishment, informal recognition, job sati
sfaction, personal growth, status etc.
Extrinsic Rewards
• These are directly controlled and distributed
by the organization, are more tangible than
intrinsic rewards.
• Examples; Formal recognition like long serving
award, fringe benefits, incentive payments,
pay, promotion, social relationships (staff pub)
work environment etc
 Factors to consider in selection of
rewards

• In the reward system management, the

selection of rewards should be regarded as
crucial.
• Organizations should pay attention to what
employees regard or perceive as meaningful
rewards, not necessarily what management
perceives.
• It has been observed that most organizations
offer the same mix of rewards to all employees
• yet a number of things like sex, age, marital
status, number of dependants and years of
service have been found to have an effect on
the employee preferences for rewards.
• Managers should therefore consider this.
• I t has also been observed that whereas there may be
an intrinsic reward resulting from a reward, in most
cases employees consider only the tangible benefit
associated with the reward
 Job satisfaction and Rewards
• Job satisfaction is an individual’s general
attitude about the job.
• The organizational reward system often has a
significant impact on the level of employees’
job satisfaction.
• In addition to their direct impact, the manner
in which the extrinsic rewards are dispersed
can affect the intrinsic rewards of the
recipients e.g. an increase in pay across the
board, is hard to derive any feeling of
accomplishment from the reward.
• However if pay rises are related to performance an
employee is more likely to experience feelings of
accomplishment and satisfaction.
Factors affecting job satisfaction
• Attitude towards group work
• General working conditions
• Attitude towards the company
• Monetary benefits
• Attitude toward supervision
• Individual’s state of mind about work itself and life in
general
• A person’s attitude towards the job whether positive
or negative.
 Others
• Health, age, level of aspiration, social status.
• N.B a satisfied worker is not always a good
worker.
 Difference between pay and employee
compensation
• Employee compensation refers to all extrinsic rewards
that an employee receives in exchange for their work.
• Compensation is composed of the base wage or
salary, any incentive or bonuses and any benefits.
• Employee compensation refers to all forms of
pay or rewards going to employees and arising
from employment. It has 2 main components.
• These are direct financial payments in the
form of wages, salaries, incentives,
commissions and bonuses and there are
indirect payments in the form of financial
benefits like employer paid insurance and
vacations.
• Pay
• Refers to only the actual shillings/dollars that an
employee receives in exchange of his work.
 Base Pay/ Basic pay
• Base pay or basic pay is the fixed salary or
wage an employee receives for his work on an
hourly, weekly or monthly basis.
• It provides a platform for determining
additional payments related to performance,
competence and skill.
• It may also govern pension entitlements and
life insurance when related to pay.
• The basic pay levels for jobs reflect the internal
and the external factors that relate to a
particular job.
• The internal factors may be measured by job
evaluation which places job in a hierarchy.
• Tracking market rates may assess the external
factors.
• Alternatively levels of pay may be agreed
through negotiation (collective bargaining with
trade unions) or by individual agreements.
• The base rate for a job is sometimes regarded
as the rate for a competent or skilled person
Additions to base pay

• Additional financial rewards may be provided

which are related to performance, skill,
competence & experience.
• Special allowances may also be paid. If such
payments are not consolidated into base pay
they are described as variable pay.
•
Types of additional pay
• Individual performance related pay;
Increases to base pay or bonuses are
determined by performance assessment and
ratings.
• Incentives; Payments are linked to the
achievement of previously set targets.
• These targets are designed to motivate
people to achieve higher levels of
performance. The targets are quantified in
terms of output or sales.
Additional pay
• Bonuses; Rewards for successful performance are
paid as lump sum related to the results obtained by
individuals, teams or the organization.
• Commission; A special incentive is given to sale’s
representatives on the basis of a percentage of the
sales they generate.
• Service –related pay; pay that increases by fixed
increments on a scale depending on service in the
job.
• Skill- based pay; this is pay that varies according
to the level of skill achieved by the individual.
• Competence–related pay; the pay that varies
according to the level of competence achieved by
the individual.
• Allowances; these are elements of pay that are
provided as a separate sum of money for such
aspects of employment as overtime, shift
working, call-outs, etc.
Establishing pay rates

1. Conduct a salary survey

• It is aimed at determining prevailing wage
rates. A good salary survey should provide
specific wage rates for specific jobs.
• Salary surveys play an important role in
pricing jobs, almost every employer carries out
an informal salary survey.
• Employers use salary survey in a number of
ways, survey data is used to price benchmark
jobs that anchor the employer’s pay scale and
around which its other jobs are slotted based
on their relative worth to the firm.
• A number of employers’ positions are priced
directly in the market place based on a formal
or informal survey of what comparable firms
are paying for comparable jobs.
• Salary surveys can be formal or informal.
Informal telephone surveys are good for
quickly checking on a relatively small number
of easily identified and quickly recognized jobs
e.g. cashier
• Other employers use a formal questionnaire to
collect compensation information from other
employers such a questionnaire inquires about
things like number of employees, overtime
policies, starting salaries and paid vacations.
Commercial, professional and Government
surveys
• Many employers also rely on surveys
published by various consulting firms,
professional associations or government
agencies.
• Internet surveys are also becoming very
common.
2. Determine the worth of each job; which calls for job
evaluation
• Job Evaluation
• Job analysis provides information that makes
comparison of jobs possible.
• If an organization is to have an equitable
compensation programme jobs that have
similar demands in terms of skills, education
and other personal characteristics should be
placed in common compensation groups.
• Job evaluation help in specifying the relative
value/worth of each job in the organization.
• Job valuation is made possible by the data
generated from job analysis.
• Job evaluation is the name given to any activity,
which sets out to make a systematic comparison
between jobs to assess their relative worth, for the
purpose of establishing a rational pay structure.

• It aims at reducing reliance on arbitrary methods of

pay determination by introducing an element of
objectivity in the way jobs are compared.
• Every job evaluation method requires at least some
basic analysis in order to provide factual information
about the jobs concerned.
Compensable factors
• Skill; experience, education, ability
• Responsibilities; Fiscal, supervisory
• Effort; mental, physical
• Working conditions; Location, hazards, extremes in
environment
3.Group similar jobs into pay grades
• Once the relative worth of each job is
determined, the committee can turn to the
task of assigning pay rates to each job but it
will usually want to first group jobs into pay
grades.
• This is done to avoid a hundreds of pay rates.
• A pay grade is comprised of jobs of
approximately equal difficulty or importance
as determined by job evaluation
4.Price each grade
• Assign pay rates to your pay grades.
• Assigning pay rates to each pay grade (or to
each job) is usually accomplished with a wage
curve.
• The wage curve depicts graphically the pay
rates currently being paid for jobs in each pay
grade, relative to the points or rankings
assigned to each job or grade by the job
evaluation.
• Pay rates are shown in the vertical axis and pay
grades (in terms of points) on the horizontal
axis.
• The wage curve shows the relationship
between the value of job as determined by job
evaluation methods and the current average
pay rates for your grade
• If there is reason to believe that the present
pay rates are substantially out of step with the
prevailing market pay rates for these jobs,
benchmark jobs within each pay grade are
chosen and priced via a compensation survey.
 Qualities of effective rewards

• Research indicates that rewards work best

when the points below are considered.
1. Importance
• Rewards should be important to persons
receiving them.
• Never assume a particular reward is universally
important to all employees, money for
example can have a very different meaning to
different people.
• Money may represent basic security and love,
power, a measure of one’s achievements or
merely the means to a comfortable life style.
• To some employees a pay raise would be very
important to other employees in the same job
and at the same salary level, might prefer an
extra week of vacation.
• Research has indicated that preference for
rewards will be significantly affected by age,
marital status and the number of children an
employee has.
• A good reward system should be designed to
offer heterogeneous rewards to a
heterogeneous labor force.
• One effort to broaden the idea of
individualizing rewards has been labeled
cafeteria compensation.
• Whereas the traditional system allows for the
same mix of fringe benefits, cafeteria
compensation allows each employee to
choose the mix of the total compensation
package.
• Advantages of cafeteria compensation
• It allows employees to customize their own
compensation package.
• It is easy to estimate how much the
organization is spending on compensating
employees since money is spent on only the
rewards that employees want.
• Disadvantages
• i) Employees tend to think in short range rather than
long-range terms.
• This causes future problems e.g. it is difficult to inform
a widow that your husband preferred vacation periods
to life insurance coverage
• Difficult to administer
2.Equitable distribution
• Employees desire rewards that are distributed
in what seems to be an equitable manner.
• This means fairness among the organization’s
employees and fairness relative to what
people get for doing a similar job in another
organization.
• Employees tend to make comparisons
between themselves and their peers.
• Employees perceive what they get from a job
situation in relation to what they must put
into.
• Equity theory recognizes that individuals are
concerned not only with the absolute amount
of money they are paid for their efforts but
also with the relationship of this amount to
what others are paid.
• They make judgment as to the relationship between
their inputs and outcomes of others.
• Based on their inputs such as effort, education, and
competence, they compare outcomes such as salary
levels, raises and other factors.
• When people perceive the imbalance in their input-
output ratio relative to others, tension is created.
• Perceptions of the under rewarded is difficult to
correct this always result in reducing effort, fighting
the system, engaging in increased absenteeism or
performing other undesirable behaviors.
3.Visibility
A reward that is not visible to the employee
may fail to get the desired motivating effect
from the employee.
• On the other hand a truly visible reward gets
recognition not only of individual employees
but also of their peers.
• Doing the following can increase visibility of
rewards;
• Well publicized bonuses
• Allocating annual salary increases in a lump sum
rather than spreading them out over the entire year
• Eliminating the secrecy surrounding pay by openly
communicating everyone’s compensation.
• Some organizations have successfully maximized the
value of rewards by making them both impressive in
size & highly visible
4.Flexibility
• An effective reward is one that has the
flexibility to vary with changes in performance.
• An effective reward would be flexible in terms
of the amount given and whether it is given to
everyone in the organization.
• The annual performance bonus for instance
offers high flexibility.
• It can be adjusted upward or downward or
eliminated each year depending on some
measure of performance.
• Additionally it can be given selectively to those
employees who have done a superior job.
• Another attribute of a flexible reward is that it
should be given frequently without losing
importance.
• Giving rewards frequently is often helpful for
sustaining extrinsic motivation, yet some
rewards diminish in importance when used
over time. E.g. use of praise is a flexible reward
in that its amount can be varied in allocations
and among individuals but it loses importance
if it is over used.
5. Low cost
• Rewards are not free goods and the
organization must consider the costs along
with the benefits from any reward.
• A high cost reward cannot be given out very
often for it reduces organizational
effectiveness as a result of its cost.
• The lowest cost reward should be preferable to
management unless there is a reason to refuse
it.
Criteria on which rewards should be
distributed.
• Most organizations believe their rewards system is
designed to pay off for merit.
• The problem is that there are differing definitions of
merit.
• Deserving rewards may consider things like
intelligence, effort, or seniority.
• The problem is that what is deserving may differ
from what is excellent.
• Defining excellency is not easy. Excellency does not
mean performance, that is why there is need for
measuring performance, to set standards.
1. Performance
• The allocation of rewards on the basis of
performance is a respected concept in most
organizations.
• Performance is concerned with results.
Performance measurement asks questions like
did you get the job done?
• To reward people in the organization based on
performance requires some agreed upon
criterion for defining performance.
• The rewards should be allocated based on job
productivity. Another difficulty in measuring
performance is differentiating between
quantity and quality.
• Output generated may be high but the
performance standards may be low.
• Where there are no controls in place, quantity
always replaces quality, therefore need for
controls should be given attention
2.Effort
• The rewarding effort represents an example of
rewarding as a means rather than an end.
• In organizations where performance is generally of
low caliber rewarding of effort may be the only
criterion by which to differentiate rewards.
• In many cases effort can count more than actual
performance.
• Employees who are clearly perceived by their
superiors to be working at less than their optimum
can often expect to be rewarded less than other
employees who while producing less, are giving out
greater effort.
3.Seniority
• Seniority, job rights, and tenure dominate most civil
service systems;
• there is evidence in many organizations whereby
length of time on the job is a major factor in
determining the allocation of rewards.
• Seniority is easy to determine relative to other
criteria.
• Seniority represents an easily quantifiable criterion
that can be substituted for performance.
• This has a limitation in that seniority does not
necessarily mean performance.
3.Skills held
• This is also common in organizations. In some
cases regardless whether the skills are used,
those individuals who possess the highest
skills or talents will be rewarded
commensurately.
• Where this criterion is followed, people are
always aiming at attaining more and more
academic qualifications.
• Similarly the requirement that an individual
has to pass certain skill tasks by demonstrating
an acceptable score in order to maintain a
particular position in the organization is also
another form of using skills as a reward
criterion
• (take secretary requirement to demonstrate
120 words per minute in order to be promoted
to administrative secretary yet this speed may
not be necessary because no boss ever
dictates to her for there is a dictating machine-
the skill is irrelevant.
• When individuals enter an organization their skill is
usually a major determinant of the compensation
they will receive.
• In this case the market place or competition has
acted to make skills a major element in the reward
package.
• The relationship of demand and supply for particular
skills in the community can significantly influence
the rewards the organization must give to acquire
particular skills.
• Those skills that are in short supply on a national
basis are usually also in short supply in the local
communities, therefore to acquire individuals with
those skills we are required to pay more
4. Job difficulty
• Jobs that are difficult to perform,
require working odd hours or are
undesirable due to stress or unpleasant
working conditions
• Such jobs may have to carry with them
rewards that are higher in order to
attract workers to these activities.
5.Discretionary time
• The greater the discretion called for on job, all other
things being equal the greater the impact of mistakes
and the greater the need for good judgment.
• In a job that has been completely programmed, where
each step has been procedurised and there is no room
for decision-making by the incumbent – there is little
discretionary time.
• Such jobs require less judgment and lower rewards can
be offered to attract people to take these positions.
• As discretion time increases greater judgmental abilities
are needed and rewards must be expanded in the same
proportion.
 Benefits and services
Legally required Benefits
• Certain benefits must be supplied by the
organization for its employees regardless of whether
it wants to or not.
• The hiring of any employee will require the
organization to pay social security premiums,
unemployment compensation, worker’s
compensation and state disability premiums.
• The payment of these costs by the organization
provides the employee with financial protection at
retirement, termination, or as a result of injury.
• It also provides benefits to the worker’s dependants
in case of his or her death.
1. Social security fund
• Social security Fund is financed by
contributions made by the employee and
matched by the employer; computed as a
percentage of the employee’s earnings
• social security is intended to protect and care
for the aged and ensure a minimum living
standard for them.
• A member is allowed to receive this benefit
after the age of 50 years.
2.Unemployment compensation
• Unemployment compensation laws provide
benefits to employees who are without a job,
who have worked a minimum number of
weeks, who submit an application for
unemployment compensation to their state
Employment agency.
• The aim of unemployment compensation is to
provide an income to individuals who have lost
a job through no fault of their own (e.g.
layoffs, plant closings).
3.Worker’s compensation
• most states have some type of worker’s
compensation to compensate employees or their
families for death or permanent or total disability
resulting from job-related endeavors.
• The rationale for worker’s compensation is to
protect employees and attribute the cost of
occupational accidents to the organization.
• This accountability factor considers worker’s
compensation costs as part of the labor expenses
incurred in meeting the organization’s objectives.
• The entire cost of workers compensation is borne by
the organization
• The organization then protects itself by covering its
risks through public, private-external, or private
internal insurance programs.
• Some states provide an insurance system for the
handling of worker’s compensation. These may be
voluntary or required.
• Some organizations cover their worker’s
compensation risks by purchasing insurance from
private insurance companies.
• Most of the worker’s compensation laws state that
the injured employee will be compensated either by
a monetary allocation or by the payment of medical
expenses or a combination of the two.
4.State disability laws
• State disability laws provide income supplements for
short illnesses.
• These payments are designed to continue to provide
a portion of income should an employee have an
illness or injury that prevents him from working
beyond the period that would be covered under a
sick- leave plan.
• State disability plans are totally funded by employer
contributions
Voluntary benefits
• These include the payments to employees for
time spent off the job.
• The major ones are rest periods, holidays,
vacation, sick leaves and leaves of absence.
1.Rest periods
• These are common among office jobs and
those jobs requiring heavy exertion, high
repetition, or diligent concentration.
• The nature of these jobs requires breaks during the day to
allow the worker rest, so that they allow workers some
mental and physical diversion from their work.
• Rest periods are not free to the employer.
• The costs of coffee and lunch breaks are significant costs to
an organization if computed over a long period.
 2. Holidays
• Certain days of the year are stipulated as paid
holidays.
• Examples include Labor Day, Christmas and
New year’s day etc act to break the workweek.
• Some industries acknowledge special days as
ones for which employees are paid but do not
have to work.
 Others services & benefits
3.Vacations
4.Pension programs
5.Capital accumulation plans
6.Sick leaves
7.Leaves of absence
8. Pension programs and insurance
8. Counseling services
9. Children care centers
10. Lunch, tea cafeteria
11. Transport
N.B. Employees expect extras
• Services
• Social and recreational events.
• Counseling
• Credit unions
• Housing
• Educational assistance in form of tuition refunds for employees who
take job related courses.