Reward Systems: Classifications, Objectives and Benefits

Ever wonder what motivates employees to go the extra mile? The answer lies, in part, within the reward systems offered by companies. These are structured programmes designed to recognise and acknowledge desired behaviours and performance.

As a result, it ultimately drives both individual and organisational success. By enrolling in an HR analytics course, you can gain in-depth knowledge of reward systems' various classifications, objectives, and benefits, simultaneously. 

On a side note, did you know that the redemption rate for incentive programmes stood at 49.8% in 2023? Read on to gain a comprehensive understanding of reward systems.

Classifications of Rewards and Incentives

Reward systems are typically classified into two main categories: monetary and non-monetary. Let’s read in detail.

Monetary rewards

These tangible incentives directly impact employees' financial well-being and include:

  • Bonuses: Bonuses are performance-based financial awards.
  • Stock options: This allows employers to grant employees an ownership stake in the company.
  • Merit pay: In established companies, your salary increases based on individual performance.
  • Profit-sharing: This option allows a company to distribute its profits among employees based on their contributions.

Non-monetary rewards

These rewards focus on employee well-being, recognition, and development, and generally include:

  • Paid leave: A highly sought-after process, it offers additional vacation days, sick leave, or personal leave.
  • Professional development training: This lets a company invest in employees' skills and knowledge.
  • Fringe benefits: As an employee, you can receive supplemental benefits like health insurance, paid time off, and retirement plans.
  • Public recognition: This includes acknowledging and celebrating employee achievements through awards, nominations, or public praise.

HR Course

5 Primary Objectives of a Reward System

An HR analytics course focuses on the effectiveness of these reward types. Below are the main objectives of implementing a reward system.

1. Motivation

Reward systems act as a catalyst for motivation by directly linking desired behaviours and performance with positive reinforcement. This can take various forms, from bonuses for exceeding sales targets to public recognition for exceptional customer service. 

2. Engagement

Beyond sheer motivation, reward systems contribute significantly to employee engagement. When employees feel valued and appreciated for their contributions through well-designed rewards, they become more invested in their work and dedicated to the organisation's success. 

3. Accountability

Effective reward systems go beyond simply recognising achievements by promoting accountability among teams. This instils a sense of ownership and responsibility within individuals and teams, encouraging them to take initiative, strive for excellence, and hold themselves accountable for results. 

4. Talent management

Competitive and attractive reward systems play a crucial role in talent management. They serve as a magnet, attracting top talent seeking opportunities for recognition, growth, and financial well-being. 

Additionally, well-designed rewards contribute to employee retention by creating a sense of value and appreciation, discouraging them from seeking opportunities elsewhere. 

5. Strategic alignment

Finally, reward systems play a vital role in ensuring alignment between individual goals and organisational objectives. By linking rewards to behaviours and outcomes that contribute to achieving the organisation's strategic goals, you will find that you’ve created a unified force, much like what is taught in HR analytic courses.

Advantages of Introducing Rewards and Incentives

While we've outlined the broader benefits of reward systems for individuals and organisations, let's see why they're useful for both forces: employees and organisations.

For Employees

1. Greater motivation, job satisfaction, and sense of accomplishment

Well-designed reward systems directly link positive outcomes with desired behaviours, acting as a powerful motivator. This can be financial rewards for exceeding sales targets, public recognition for exceptional customer service, or offering additional paid time off for exceeding work hours. 

2. Increased learning and development opportunities

Reward systems can be designed to incentivise continuous learning and development. This could involve offering additional training opportunities for exceeding performance goals or providing tuition reimbursement for completing relevant certifications. An HR analytics course equips you to analyse data on employee skills gaps and training effectiveness. 

3. Improved well-being and sense of belonging

Effective reward systems go beyond financial incentives and recognise various contributions to the organisation. These could include acknowledging teamwork, celebrating individual milestones, or offering flexible work arrangements that promote work-life balance. 

For Organisations

1. Improved employee performance and productivity

When employees feel valued and motivated by well-designed reward systems, they are more likely to put in their best effort. This can directly translate to improved performance, higher quality work, and increased efficiency. 

2. Reduced turnover and absenteeism

Offering competitive rewards can be a powerful tool for attracting and retaining top talent. Additionally, a well-designed system that recognises and values employee contributions can foster a sense of loyalty and reduce the desire to seek opportunities elsewhere. 

3. Enhanced employer brand and reputation

A well-designed reward system prioritising employee well-being, growth, and recognition contributes positively to an organisation's employer brand. This can attract top talent seeking not just competitive salaries but also a company culture that values its employees and invests in their development. 

Factors Behind Designing a Reward System

Designing an effective reward system requires careful consideration of various factors to ensure it truly motivates employees and delivers desired results. Here are some key factors to consider.

1. Organisational goals and values

The primary purpose of the reward system should be to support and incentivise behaviours that contribute to achieving the organisation's strategic goals. Analysing these goals and values helps determine which behaviours and outcomes should be rewarded. Consider opting for an HR analytics course to learn what factors you need to look out for.

2. Employee needs and preferences

Understanding your workforce's needs and preferences is crucial if you’re planning to design a system that resonates with them. This includes factors like demographics, job roles, career aspirations, and preferred motivational styles. Conduct surveys and focus groups and analyse data on past responses to rewards for obtaining better insights.

3. Market competitiveness and industry standards

Staying competitive in the job market is essential. Researching industry benchmarks and analysing compensation and benefits offered by competitors helps ensure your reward system is attractive and retains top talent.

4. Budgetary constraints

Financial resources available for the reward system need to be considered realistically. Striking a balance between offering competitive rewards and maintaining financial sustainability is crucial.

5. Type of work and performance measurement

For creative or knowledge-based work, intrinsic rewards and recognition might be more effective than solely focusing on financial incentives. On the other hand, performance-based rewards like bonuses might be more suitable for jobs with clearly defined metrics and goals.


By investing in an HR analytics course, you will gain valuable insights into the impact of different reward systems on these critical metrics. You will also learn how to analyse data on factors like employee demographics, performance metrics, and compensation trends. 

The benefit? You can adopt the specific reward type based on your organisational goals and influence organisational outcomes.

The Professional Certificate in Human Resource Management and Analytics offered by Imarticus equips you with the analytical skills to excel in this critical area. Through interactive learning modules and case studies, you'll gain the ability to analyse data and measure the effectiveness of different reward types. Get your certification today!

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