Unit - IV

REWARD
MANAGEMENT
 Syllabus

• Reward Management: Concepts- Role of Reward

in organization-Reward as a motivational tool-Job
evaluation schemes- Grade and Pay structures-
Designing Incentive Scheme - Rewarding and
Reviewing Contribution and Performance. 
 Reward Management

• Reward management is concerned with the

formulation and implementation of strategies and
policies that aim to reward people fairly, equitably
and consistently in accordance with their value to
the organization
• Reward management deals with processes, policies
and strategies which are required to guarantee that
the contribution of employees to the business is
recognized by all means reward systems exist in
order to motivate employees to work towards
achieving strategic goals which are set by entities.
 Definition

• According to Armstrong (2010) reward

management is defined “as the strategies, policies
and processes required to ensure that the value of
people and the contribution they make to achieving
organization, departmental and team goals is
recognized and rewarded”.
 Concept

• The basic idea to bear in mind is that reward systems are

intended to motivate certain kinds of behaviours and to
reinforce their occurrence. This means that the outcomes
provided by the reward system must be positively valued
by the person; if they are not valued, then they are not
rewards. The outcomes may either be the inherent result
of the person's own behaviour, such as a feeling of
accomplishment, or external to the person, such as the
receipt of an increase in salary or a promotion.
 Award and Reward

• An award is a prize or certificate that a person is

given for doing something well
• A reward is a sum of money offered to anyone
Role of Reward in organization

A reward system in place providing employees with

incentives and recognition will boost their morale. By
encouraging employees to meet goals and targets it
gives them clear focus and purpose which will their
morale. This is another reason why reward systems
are important in business organisations.
Continue…

• Mutually beneficial - A reward system is

beneficial not only to the employee but also to the
organisation. The employee will feel more
motivated to work harder.by having a reward
system in place the employee will feel more
committed to their work and their productivity will
increase. An increase in productivity will then
benefit the organisation. Therefore a reward system
is mutually beneficial to the employee and the
organisation.
• Motivation-A reward system will motivate employees by
reaching targets and organisational goals in exchange for
rewards. A reward system is great at motivating employees but
they will also be motivated to prove themselves to the
organisation
• Loyalty-A reward system will increase the employee’s loyalty
to the organisation. By a reward system being in place the
employee feels valued by the organisation and knows that their
opinion matters. If an employee is happy with the reward
system, they are more likely to appreciate work place and
remain loyal to the organisation
• Morale-Having a reward system in place providing
employees with incentives and recognition will
boost their morale. By encouraging employees to
meet goals and targets it gives them clear focus and
purpose which will their morale. By the employees
morale being boosted this will increase the morale
of the entire organisation. This is all down to a
reward system in the organisation
• Teamwork- The reward system will increase the
teamwork spirit in the organisation. The reward
system will promote teamwork to the employees.
The employees will work together as part of a team
to achieve their targets in return for rewards.
Teamwork within the organisation will help
increase efficiency and create a happier workplace.
This is another reason why reward systems are
important in business organisations.
 Types of Reward System

• Rewards serve many purposes in organisations.

They serve to build a better employment deal, hold
on to good employees and to reduce employee
turnover.
• There are two kinds of rewards:
1) Extrinsic rewards
2) Intrinsic rewards
 Extrinsic rewards
•  It concrete rewards that employee receive. It’s a kinds of tangible
rewards
• Bonuses: Usually annually, Bonuses motivates the employee to put in
all endeavours and efforts during the year to achieve more than a
satisfactory appraisal that increases the chance of earning several
salaries as lump sum. The scheme of bonuses varies within
organizations; some organizations ensure fixed bonuses which
eliminate the element of asymmetric information, conversely, other
organizations deal with bonuses in terms of performance which is
subjective and may develop some sort of bias which may discourage
employees and create setback. Therefore, managers must be extra
cautious and unbiased.
• Salary raise: Is achieved after hard work and effort of employees,
attaining and acquiring new skills or academic certificates and as
appreciation for employees duty (yearly increments) in an
organization. This type of reward is beneficial for the reason that
it motivates employees in developing their skills and competence
which is also an investment for the organization due to increased
productivity and performance. This type of reward offers long-
term satisfaction to employees. Nevertheless, managers must also
be fair and equal with employees serving the organization and
eliminate the possibility of adverse selection where some
employees can be treated superior or inferior to others.
• Gifts: Are considered short-term. Mainly presented as a token
of appreciation for an achievement or obtaining an
organizations desired goal. Any employee would appreciate a
tangible matter that boosts their self-esteem for the reason of
recognition and appreciation from the management. This type
of reward basically provides a clear vision of the employee's
correct path and motivates employee into stabilising or
increasing their efforts to achieve higher returns and
attainments. Monetary gifts, such as gift cards are also more
likely to be used for luxury purchases and can build an
emotional bond with the organisation
• Promotion: Quite similar to the former type of reward.
Promotions tend to effect the long-term satisfaction of employees.
This can be done by elevating the employee to a higher stage and
offering a title with increased accountability and responsibility
due to employee efforts, behaviour and period serving a specific
organization. This type of reward is vital for the main reason of
redundancy and routine. The employee is motivated in this type of
reward to contribute all his efforts in order to gain managements
trust and acquire their delegation and responsibility. The issue
revolved around promotion is adverse selection and managers
must be fair and reasonable in promoting their employees
 Intrinsic rewards

• Tend to give personal satisfaction to individual.

• Information / feedback: Also a significant type of
reward that successful and effective managers
never neglect. This type of rewards offers guidance
to employees whether positive (remain on track) or
negative (guidance to the correct path). This also
creates a bond and adds value to the relationship of
managers and employees.
• Recognition: Is recognizing an employee's
performance by verbal appreciation. This type of
reward may take the presence of being formal for
example meeting or informal such as a "pat on the
back" to boost employees self-esteem and
happiness which will result in additional
contributing efforts.
• Trust/empowerment: in any society or organization,
trust is a vital aspect between living individuals in order
to add value to any relationship. This form of reliance is
essential in order to complete tasks successfully. Also,
takes place in empowerment when managers delegate
tasks to employees. This adds importance to an
employee where his decisions and actions are reflected.
Therefore, this reward may benefit organizations for the
idea of two minds better than one.
• Intrinsic rewards makes the employee feel better
in the organization, while Extrinsic rewards focus
on the performance and activities of the employee
in order to attain a certain outcome. The principal
difficulty is to find a balance between employees'
performance (extrinsic) and happiness (intrinsic).
Principles of Rewarding
Create a positive and natural reward experience 

Align rewards with business goals to create a win-win

partnership

Extend people’s line of sight

Integrate reward

Reward individual ongoing value with base pay

Purpose of Rewarding
How rewards can be given?
 600 cars to be gifted by diamond merchant Savji
Dholakia (unseen) to his employees on the occasion of
Diwali, in Surat, Thursday, Oct 25, 2018
• Dholakia's Harikrishna Exports 
• Diamond merchant Savjibhai Dholakia, whose lavish Diwali
gifting is among the corporate world's most talked about
events, this year gave away 600 cars, fixed deposits and
insurance policies to 1,700 "diamond artists and engineers"
working at his firm.
• In 2016 it gave employees 400 flats and 1,260 cars.
• In 2015, the Diwali gifting count stood at 491 cars and 200
houses as employee incentives
 Reward as a motivational tool

• The employers are better served to focus

on rewarding employees for their actions rather
than threatening punishment if they want to
motivate them. Promising rewards for specific
actions triggers the “go” response that gets people
to act in order to receive the words.
 Motivation

• Motivation is an interesting, challenging, and complex

area of Human Resource Management studies which is
rapidly changing both in terms of its nature, understanding,
functions, purpose, as well as mode of application. It is
generally agreed that managers need employees to work
with. These employees do not only have to show up at
work but more importantly they need to be motivated to
perform their duties. Motivation can be defined as a
driving force which leads people to want to act, perform,
or do something without pressure or undue manipulation.
 Who motivates employees?

• It is often agreed that it is the ultimate

responsibility of managers to motivate their
employees.
 Misconceptions

• One-size-fits all reward and recognition

• Money is the ultimate Motivator
• Not everyone can be motivated
• All motivation is either Extrinsic or Intrinsic
 Rewards and Motivation

• Most organizations view rewards as a means of

motivating certain behaviours in employees.
Specifically, rewards are intended to motivate
employees to perform effectively and efficiently
towards achieving organizational goals.
 Rewards and Employee
satisfaction
• The ability of managers to obtain employee
satisfaction with rewards is a complex process.
Indeed, it is a function of several related factors
which any manager who intends to achieve it must
critically study to be able to positively implement.
 Drawbacks of Rewards as
Motivation
• The use of rewards (especially monetary rewards
and benefits) as motivation for employee
performance is seen to have certain drawbacks
which can undermine the purpose for its use. Key
in this area is the fact that monetary rewards yield
temporary compliance and fails to act as a
permanent or long term motivation.
 Job Evaluation Schemes

• provide a basis for a grading and pay structure.

provide a means to check and demonstrate you are
providing equal pay for equal
work. evaluate the job, not the job holder
 Definition

• Job evaluation is a systematic way of determining

the value/worth of a job in relation to other jobs in
an organization.
• Job evaluation is a method for comparing different
jobs to provide a basis for grading and pay
structure. Job evaluation has been defined as a
process of analysis and assessment of jobs to
ascertain reliably the relative worth.
• It is the process of analysis and assessment of jobs
to ascertain reliably their relative worth using the
assessment as a basis for a balanced wage
structure.
• Without job evaluations, the HR department would
be unable to develop a rational approach to pay. All
job evaluation systems depend heavily on job
analysis.
• Job evaluation needs to be differentiated from the
job analysis. Job analysis is a systematic way of
gathering information about a job. Every job
evaluation method requires at least some basic job
analysis in order to provide factual information
about the jobs concerned
 Job Evaluation Schemes

• There are two basic types of job evaluation schemes:

 1) Analytical 
a) Ranking Method
b) Classification/Grading Method
c) Point–Factor Method
d) Factor Comparison Method
e) Competitive Market Analysis Method
2) Non-analytical.
 Analytical Schemes

• Jobs are broken down into components or

demands, known as factors, and scores are awarded
for each factor. The final total gives the overall
rank order of jobs. An analytical job evaluation
scheme can provide a defence against a claim of
equal pay for work of equal value.
 Ranking Method

• This method ranks jobs in order based on each

job’s perceived value in relation to the others
• Does not consider market compensation rates.
• May work well for smaller companies. In a larger
organization, it is more complex to use, but
sometimes it can still work if jobs are grouped by
job families—professional level, etc.
 Classification/Grading
Method
• With this approach, generic job characteristics are
grouped to reflect levels of skill/responsibility at a
number of predetermined grade classifications
This is another straightforward method that is not
too time-consuming.
• The system is subject to grade inflation as jobs get
pushed to the next higher level.
 Point–Factor Method

• This approach identifies job factors that add value and

worth to a position. The job factors are separated into
groups (i.e., skill, responsibility, effort) and assigned a
numerical or weighted point value. The points for
individual factors are added up to get a point value for
the whole job.
• May not reflect market values of jobs.
• Generates a hierarchy but does not have an external
component.
 Factor Comparison Method

• With this method, job factors are identified under

primary groups (i.e., skill, effort, responsibilities,
working conditions) typically up to five groups.
Each factor is assigned a dollar value (as opposed
to point value).
• This is a complex system used only by a few
organizations.
• It is hard to communicate to employees
 Competitive Market Analysis
Method
• This approach looks at external data. Job evaluation
forms the basis for market pricing. You utilize job
descriptions to compare jobs to like positions within
the external marketplace. Pay data are collected from
published sources and the value of the position within
the competitive market is determined.
• Examines internal value against market data.
• Requires an overlay to see how it fits with the internal
hierarchy.
 Non-analytical Schemes

• Under this scheme, whole jobs are compared with

each other. There is no attempt to break the jobs
down and analyse them under their various
demands or components.
 Features of Job Evaluation
• It tries to assess jobs
• The standards of job evaluation are relative, not absolute.
• The basic information on which job evaluations are made is
obtained from the job analysis.
• Job evaluations are carried out by groups, not by individuals.
• Some degree of subjectivity is always present in job
evaluation.
• Job evaluation does not fix pay scales, but merely provides a
basis for evaluating a rational wage structure.
 Process of Job Evaluation

• Gaining acceptance
• Creating a job evaluation committee
• Finding the jobs to be evaluated
• Analyzing and preparing a job description
• Selecting the method of evaluation
• Classifying jobs
 Limitations of Job Evaluation
• Job evaluation is not exactly scientific. Job evaluation is a
systematic technique and not the scientific technique of
rewarding the job. Job evaluation lacks scientific precision
because all factors cannot be measured accurately.
• Most of the techniques are difficult to understand, even for
the supervisors.
• The factors taken by the program are not exhaustive
• Employees, trade union leaders, management and the
program operators may assign different weight to different
factors, thus creating grounds for dispute
 Grade and Pay Structure

• It enable the organization to determine where jobs

should be placed in a hierarchy, define pay levels
and the scope for pay progression and provide basis
upon which relativities can be managed,
equal pay achieved and the processes of monitoring
and controlling the implementation of pay
• Grade and pay structures provide a logically designed framework
within which an organization’s pay policies can be implemented.
They enable the organization to determine where jobs should be
placed in a hierarchy, define pay levels and the scope for pay
progression, and provide the basis upon which relativities can be
managed, equal pay achieved and the processes of monitoring
and controlling the implementation of pay practices can take
place. Grade and pay structures also enable organizations to
communicate the career and pay opportunities available to
employees.
 Principles of Grade and Pay
Structures
• be appropriate to the culture, characteristics and needs of
the organization and its employees
• Facilitate the management of relativities and the
achievement of equity, fairness, consistency and
transparency in managing grading and pay
• be capable of adapting to pressures arising from market
rate changes and skill shortages
• facilitate operational flexibility and continuous
development
• provide scope as required for rewarding
performance, contribution and increases in skill
and competence
• clarify reward, lateral development and career
opportunities
• be constructed logically and clearly so that the
basis upon which they operate can readily be
communicated to employees
• enable the organization to exercise control over the
implementation of pay policies and budgets
 grade and pay structure
Type Features Advantages Disadvantages When
appropriate
Multi- A sequence of • Clearly Relativities In a large
graded job indicate pay • Facilitate bureaucratic
• grades – 10 relativities control organization with
or more • • Facilitate • Easy to well defi ned
Narrow pay control understand hierarchies •
ranges, eg 20– • Easy to • Create When close and
40% understand hierarchical rigid control is
• Progression rigidity required
usually linked • Prone to • When some but
to performance grade drift not too much
• Inappropriate scope for pay
in a de-layered progression
organization related to
performance o
Broad- • A sequence of • As for narrow- • Too much • Desirable to
graded between6 and 9 graded structures scope for pay defi ne and
grades • Fairly but in addition: − progression • differentiate
broad pay the broader Control grades more
ranges, eg 40– grades can be mechanisms accurately as
50% • defined more can be an aid to
Progression clearly − better provided but better
linked to control can be they can be precision
contribution and exercised over difficult to when grading
may be grade manage • jobs • Grade
controlled by May be costly drift
thresholds or problems
zones exist • More
scope wanted
to reward
contribution
Broad- A series of, • More fl exible • • Create In de-layered,
banded often, 5 or • 6 Reward lateral unrealistic process-
‘broad’ bands • development and expectations based, fl
Wide pay bands growth in of scope for exible
– typically competence • Fit pay rises • organizations
between 50% new style Seem to • Where more
and 80% • organizations restrict scope fl exibility in
Progression for promotion pay
linked to • Diffi cult to determinatio
contribution and understand • n is wanted •
competence Equal pay Where the
problems focus is on
continuous
improvement
and lateral
development
Job family Separate Can appear • Facilitate • When there
grade and • to be divisive pay are distinct
pay • May inhibit differentiatio market
structures for lateral career n between groups which
job families development market need to be
containing • May be diffi groups • Defi rewarded
similar jobs • cult to ne career differentially
Progression maintain paths against • Where there
linked to internal clear criteria are distinct
competence equity groups of
and/or between job jobs in
contribution families families
Pay spine A series of • Easy to • No scope for In a public
incremental • pay manage • Pay differentiatin sector or
points covering progression g rewards voluntary
all jobs • Grades not based on according to organization
may be managerial performance where this is
superimposed • judgement • May be the
Progression costly as staff traditional
linked to service drift up the approach and
spine it therefore fi
ts the culture
• Where it is
believed to be
impossible to
measure
differential
levels of
performance
fairly and
consistently
 Designing Incentive Scheme

• Incentives:
A thing that motivates or encourages someone to do
something
It is anything that attracts a worker and stimulates him to
work. The incentives can be financial and non-financial. Both
types of incentives play impor­tant role under different
conditions. For example, financial incentives are considered
to be more valued under the work conditions where wages are
at low levels.
• Non-financial incentives are more preferable where
wage levels are high and the rate of tax is
progressive
• An effective incentive scheme is an important way
for small businesses to motivate their staff in order
to improve performance and boost profits.
Responding to incentives is part of human nature
and employees like to be rewarded for their hard
work.