What Factors Are Affecting the Compensation

Reward schemes for employees and management

A major part of performance management involves managing employees and managers, as their performance will have a major effect on the performance of the organization as a whole. This article looks at how reward schemes can be used to influence the behavior of employees.

MEANING OF REWARD SCHEMES

A broad definition of reward schemes is provided by Bratton:

‘Reward system refers to all the monetary, non-monetary and psychological payments that an organization provides for its employees in exchange for the work they perform.’

Rewards schemes may include extrinsic and intrinsic rewards. Extrinsic rewards are items such as financial payments and working conditions that the employee receives as part of the job. Intrinsic rewards relate to satisfaction that is derived from actually performing the job such as personal fulfillment, and a sense of contributing something to society. Many people who work for charities, for example, work for much lower salaries than they might achieve if they worked for commercial organizations. In doing so, they are exchanging extrinsic rewards for the intrinsic reward of doing something that they believe is good for society.

OBJECTIVES OF A REWARD SCHEME

What do organizations hope to achieve from a reward scheme? The following are among the most important objectives:

1. To support the goals of the organization by aligning the goals of employees with these.

2. To ensure that the organization is able to recruit and retain sufficient number of employees with the right skills.

3. To motivate employees.

4. To align the risk preferences of managers and employees with those of the organization.

5. To comply with legal regulations.

6. To be ethical.

7. To be affordable and easy to administer.

ALIGNING THE GOALS OF THE ORGANISATION AND EMPLOYEES

The reward scheme should support the organization’s goals. At the strategic level, the reward scheme must be...