Reward system is an important human resource management (HRM) element that maintains work motivation, job satisfaction, and organisational employees’ performance enhancement. Organisations formulate and implement various reward systems for the recruitment of employees, retention of employees, and employee motivation and make their efforts worthwhile for organisational success.
Effective reward system in HRM supports employees’ morale, work efficiency, and excellence culture. HR professionals have to study different reward systems so that they may formulate strategies which would align corporate objectives and the aspirations of the employees. Reward systems enable organisation to earn respect and achieve profitability and stability in the long run. It also gives a summary guideline which companies can implement so that an atmosphere is created through which employees would feel special and motivated enough to give their best at the workplace.
What is a Reward System?
Reward system refers to the official method used by firms to reward and compensate employees for their work. Reward system includes monetary as well as non-monetary rewards that help motivate workers to give their best performances.
- A reward system has the following effects on workers:
- Improves workers’ commitment and motivation
- Improves job satisfaction
- Improves rate of retention
- Aligns personal objectives with organizational objectives
- Promotes team effort and coordination
- Promotes company loyalty and lowers turnover
- Creating a company’s reputation as a choice employer
- Offering long-term career development and opportunities
A reward system is more than money—it’s a multi-dimensional method of giving employees a sense of value and commitment to their work. Businesses that make investments in quality reward systems have a healthier work environment, performance levels that are higher, and improved organisational development.
Types of Reward Systems
Organisations have various reward systems depending on their purpose, industry custom, and their human capital needs. These are the most essential types of reward systems:
1. Intrinsic Rewards
- Gratitude and respect
- Career growth and development
- Stretch assignments
- Decision-making autonomy
- Reward for creativity and innovation
- Job satisfaction and work-life balance
- Personal and professional development
- Internal satisfaction and motivation
2. Extrinsic Rewards
- Bonuses and commissions
- Performance-based incentives
- Stock options and gain-sharing
- Salaries and wages
- Health insurance and other benefit fringes
- Reward for travel and recreation
- Outings and activities arranged by company
3. Financial Rewards
- Fixed compensation (salary)
- Variable compensation (overtime, incentives)
- Pension schemes and retirement schemes
- Stock ownership plans in the company for employees (ESOPs)
- Pay-for-performance schemes
- Profit-sharing schemes
- Long-term monetary security schemes
4. Non-Financial Rewards
- Flexi-work scheduling
- Wellness and health facilities
- Learning and career growth opportunity
- Employee incentive schemes
- Enrichment and career growth opportunity at work
- Work-at-home options
- Technical training and guidance programs
5. Performance-Based Rewards
- Employee of the Month trophies
- Annual performance bonuses
- Promotion and career growth opportunities
- Special awards for exceptional performance
- Gamification of achievement of performance
- Reward as a function of key performance indicator (KPI)
- Incentive plans for leadership development
6. Team-Based Rewards
- Reward for achievement of group target
- Team incentives for project completion
- Team-building incentive program and retreats
- Reward as a function of shared profit
- Encouraging healthy competition and teamwork
- Celebrate events to attain collective goals
- Encouragement of cross-functional team success
Objectives of a Reward System
A reward plan is specifically structured with well-defined objectives, which are advantageous to employees as well as organisations. Some of the key objectives are:
1. Attracting and Retaining Talent
Competitive pay makes it easy to hire the best-of-class employees and prevent turnover by paying competitively and providing benefits.
2. Enhancing Employee Performance
Reward is an incentive to motivate the employee to work more efficiently and effectively.
3. Aligning Employee Efforts with Organisational Goals
By connecting reward and performance, companies make their employees company goal-oriented and attain long-term benefits.
4. Boosting Job Satisfaction and Morale
It also improves the level of employee job satisfaction, motivational level, as well as overall job satisfaction.
5. Encouraging Professional Development
Career- and skill-related rewards promote professional growth and promotes employees to management.
6. Strengthening Organisational Culture
Reward system instils the sense of belonging and helps in imprinting organisational values, thereby creating a dedicated workforce.
7. Improving Financial Outcomes
Through the development of high performance, organisations are able to deliver more profitability, efficiency, and competitiveness in the market.
8. Encouraging Innovation and Creativity
Organisations that encourage innovation and lateral thinking have long-term business growth and leadership in the marketplace.
9. Ensuring Equity and Fairness
A good reward scheme gives employees a deserving reward according to performance, ability, and work input.
How HR Professionals Can Design an Effective Reward System?
HR professionals need to structure reward schemes so that they are appropriate for business objectives and staff aspirations. And the reasons are:
- Measure Organisational Needs: Determine key areas where reward will drive participation and performance
- Know Employee Preferences: Conduct surveys and feedback sessions to know what motivates employees
- Choose the Right Mix of Rewards: Mix money and non-monetary rewards in the right ratio
- Keep it Transparent: Maintain transparency in reward calculation and distribution
- Review and Fine-Tune Regularly: Regularly review performance and fine-tune
- Benchmark with Industry Standards: Benchmark reward programs with industry to remain competitive
- Develop Customized Reward Schemes: Design rewards according to different departments, functions, and employee objectives
- Use Technology in Reward Schemes: Use HR software to monitor rewards and measure performance
Conclusion
A successful reward system is a valuable resource to motivate, push productivity, and achieve employee happiness. Ranging from money rewards, professional advancement within the vocation, to award systems, companies pay more attention to strategic rewards and receive improved workplace culture and business results.
For the HR professionals who need more, taking a course in human resource management and analytics will provide them with the skills to craft effective reward systems. With the current technology and HR trends, organisations can create stronger, more engaged teams that can drive success.
Organisations that place a high value on a good reward system at the top are rewarded in the long term in terms of staff loyalty, enhanced performance, and good employer status. Through the combined use of monetary and non-monetary rewards, organisations can create a culture of appreciation, resulting in enhanced workplace morale and long-term success.
Get ahead with good HR practice and create a rewarding workplace today!
FAQs
- What is an HRM reward system?
A reward system in HRM are formalized procedures adopted by organizations to compensate and reward employees for business success.
- Why is a reward system necessary?
It increases the morale, productivity, job satisfaction, and motivation of employees towards business objectives.
- What are the most important reward systems?
The most important ones are intrinsic, extrinsic, monetary, non-monetary, performance-based, and team-based rewards.
- What is performance-based reward?
They are performance-dependent on the team or individual and can be reward, promotion, or special compensation.
- Will a properly structured reward system help retain employees?
Yes, a properly structured and competitive reward system keeps valuable employees because it rewards staff members for their performance and makes them feel valued and motivated.
- How do HR professionals create an effective reward system?
They have to consider organisational needs, adopt a number of reward schemes, discuss with each other, and then go on to monitor at intervals the performance.
- How wide-ranging is the scope of non-monetary rewards?
Non-monetary rewards such as work-life balance, career progression, and award plans are those which matter to engage and delight employees the most.