Reward System Design for Our Organization a Essay

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Reward System Design for our organization

A fair financial reward system is immensely important for any organization and we are thus planning to not only adopt a reward system which is based on merit and performance but which is also inherently fair. After discussing the five important components of the new design, we shall discuss how a reward system can be fair as well.

Following are five important components of the 'Reward System' which we need to consider for designing a new reward system for our company.

Direct Compensation: Direct compensation is generally considered the basic pay that employees get in return to their service. These may include direct wages, overtime, penalty rates, holiday and long service leave, training, meals, pay-roll tax etc. This is indeed the basic component of the reward system and can be considered a foundation for all other incentives. Whatever the wage system is, it should be attractive enough for employees to satisfy their basic needs.

Indirect Compensation: Apart from basic salary, other benefits must also form a critical part of the reward system that we need to have in our company. The basic wage or pay is the main component of compensation, but fringe benefits and cash and non-cash benefits have also become crucial in the overall employee package and may heavily influence the employee performance. Increase in other benefits also helps employees in those countries in which there are high personal tax rates. The policy of bonuses, sharing of profits and even allotting shares are new ways of rewarding employees for their better performance. On one level the basic pay and benefits help sustain employee performance and on the next level extra performance based incentives help employees perform better. In addition to the basic and direct compensation we can also offer additional non-cash rewards (e.g. dinners, holidays, discounts, etc.) contributing to ongoing performance and productivity.

Meaningful Work: Working atmosphere and the challenging work can have a considerable impact on employee morale and performance. Managers at our organizations are concerned with factors such as individuals' awareness about the work situation and systems as they influence learning and performance. Organization's social norms and values that support learning, experimentation and challenges can have a positive impact on an individual's performance. Training is generally acknowledged as an important 'vehicle' for improving the work environment. It is generally considered that training is also seen as an investment rather than just 'a regular program' activity. If better trained employees are then empowered then they can make a huge difference in the company

The concepts of ownership and empowerment cannot be ignored and compensation cannot simply be considered an only element for performance regulation. Employees must be empowered to take action based on the basis of their understanding of different situations and scenarios within the organization. This empowerment will develop their problem solving skill and they will become a part of the big picture. Whether employees are working individually or they are part of the cross-functional teams, we should give employees the freedom and responsibility of making independent decisions. In order to win the trust of employees we must show reliance and confidence in our employees and their decisions. Good organizations support the culture of experimentation and making mistakes and thus promote innovation and empowered culture.

Long-term Career Opportunities: Over the years, we have largely focused on promotion within rather than across departments. Thus finance staff may be recruited at base level, and eventually rise through the various available supervisory levels in that department. Whilst it is argued that this instills occupational depth and provides substantial experience, it may also fail to make use of employees' broader skills.

Today, the concept of career planning or guiding employees to achieve their personal goal has also gained tremendous importance. The future needs can only be met if the company has talent and it hones the talents of its employees to prepare them for future responsibilities by carrying out proper development activities. So, it's not just about having strong talented candidates for employees but it also involves engaging them in activities for a future position. "As organizations escalate the war for talent, pay and programs are at risk of becoming commodities. They're relatively easy to duplicate. If a competitor is trying to lure away your people, it's not hard to compete with individual elements of employment such as wages and benefits" (Taylor 2002).

Identity/Affiliation: In today's environment organizations that do not bind employees with a shared vision fail to nurture a healthy work environment. Our standing should be sound enough to make employees feel that they are a part of the organization. If their association is strong then they would work towards the betterment of the company.

Impact of Reward System on Organizational Performance

If selected, implemented, and monitored correctly, incentive programs with awards in the form of money or tangible awards increase performance considerably. The research shows that good compensation programs can increase interest in work. Organizations that offer properly structured compensation and incentive programs can attract and retain higher quality workers than other organizations that do not. Programs that reward performance based on meeting or exceeding goals generate the most positive results. Piece-rate programs, for doing more of something, also provide positive results, and hence we need to incorporate this in our reward system.

Important Motivation & Compensation practices

Employees are an integral part of our organization and uplifting their motivations and enhancing transparency in management will ultimately increase their performance. Organizations need motivation more than ever. Motivation includes a variety of tactics designed to address the issues of emotion, support, capability and alignment that go into increasing performance through people.

Importance of Direct Financial Rewards

Salary progression allows employees to move ahead in their careers thorough performance. Many organizations nowadays have moved towards a performance based appraisal that allows employees to progress through the pay range within a shorter time frame. A performance pay system is generally designed by organizations to promote the kind of performance an organization needs. Previously organizations which had not considered salary and benefits to be important element concerning the performance are now realigning their policies to better compare with industry averages, rather than with the company's historical pay patterns. It not only helps in retaining the employees but it also helps in attracting better talent to the organization. Increasingly the concept of good pay is catching up and we are also including this in our reward system. "The term "merit pay" generally refers to a policy that links annual wage and salary increases to employee performance over the prior year. Every employer has a need to review base pay levels annually. Employee performance is a widely accepted rationale for determining the increases that employee is granted" (Risher, 1999).


A reward system that we propose for the organization will not only be based on performance and merit but it will also be fair and just so as to instill a sense of equity in the employees. Fair pay or sound remuneration strategies play a pivotal role in employee retention, motivation and overall performance. For this reason, we seek to strike a balance between flexibility and equity when trying to develop strategies of fair remuneration. Flexibility is needed because of increasing concern that payment system may sometimes not match performance, and equity is important because employees need to find the system fair when compared with pay package offered to other employees doing the same or similar jobs.

One very important concept in this regard is that of equity theory that helps us to see why we need flexibility and fairness while creating a remuneration strategy. Equity theory studies the psychological acknowledgment of being treated equally. This is a very relevant concept and one that is being used increasing in developing fair pay system.…[continue]

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