Reward System

A reward system is the standards, rules and procedures associated with the
compensation and allocation of benefts or rewards to employees for a job
well done. It also refers to the collection of brain structures that try to control
and regulate behaviour by inducing pleasure.
Types of rewards
Rewards can be classifed into following four categories
!"TRI#SI$ R!%AR&S
!'trinsic rewards(usually fnancial(are the tangible rewards given
employees by managers, such as pay raises, bonuses, and benefts. They are
called )e'trinsic* because they are e'ternal to the wor+ itself and other
people control their si,e and whether or not they are granted. In contrast,
intrinsic rewards are psychological rewards that employees get from doing
meaningful wor+ and performing it well.
!'trinsic rewards played a dominant role in earlier eras, when wor+ was
generally more routine and bureaucratic, and when complying with rules and
procedures was paramount. This wor+ o-ered wor+ers few intrinsic rewards,
so that e'trinsic rewards were often the only motivational tools available to
organi,ations.
!'trinsic rewards remain signifcant for wor+ers, of course. .ay is an
important consideration for most wor+ers in accepting a job, and unfair pay
can be a strong de/motivator. 0owever, after people have ta+en a job and
issues of unfairness have been settled, we fnd that e'trinsic rewards are now
less important, as day/to/day motivation is more strongly driven by intrinsic
rewards.
I#TRI#SI$ R!%AR&S
To identify these intrinsic rewards, we began by analy,ing the nature of
today1s wor+. 2asically, most of today1s wor+ers are as+ed to self/manage to
a signifcant degree(to use their intelligence and e'perience to direct their
wor+ activities to accomplish important organi,ational purposes. This is how
today1s employees add value(innovating, problem solving and improvising
to meet the conditions they encounter to meet customers1 needs.
In turn, we found that the self/management process involves four +ey steps3
4.$ommitting to a meaningful purpose
5.$hoosing the best way of fulflling that purpose
6.7a+ing sure that one is performing wor+ activities competently, and
8.7a+ing sure that one is ma+ing progress to achieving the purpose.
!ach of these steps re9uires wor+ers to ma+e a judgment(about the
meaningfulness of their purpose, the degree of choice they have for doing
things the right way, the competence of their performance, and the actual
progress being made toward fulflling the purpose. These four judgments are
the +ey factors in wor+ers1 assessments of the value and e-ectiveness of
their e-orts(and the contribution they are ma+ing.
%hen positive, each of these judgments is accompanied by a positive
emotional charge. These positive charges are the intrinsic rewards that
employees get from wor+, ranging in si,e from 9uiet satisfaction to an
e'uberant ):es;* They are the reinforcements that +eep employees actively
self/managing and engaged in their wor+.
The following are descriptions of the four intrinsic rewards and how wor+ers
view them3
Sense of meaningfulness. This reward involves the meaningfulness or
importance of the purpose you are trying to fulfll. :ou feel that you have an
opportunity to accomplish something of real value(something that matters
in the larger scheme of things. :ou feel that you are on a path that is worth
your time and energy, giving you a strong sense of purpose or direction.
Sense of choice. :ou feel free to choose how to accomplish your wor+(to
use your best judgment to select those wor+ activities that ma+e the most
sense to you and to perform them in ways that seem appropriate. :ou feel
ownership of your wor+, believe in the approach you are ta+ing, and feel
responsible for ma+ing it wor+.
Sense of competence. :ou feel that you are handling your wor+ activities
well(that your performance of these activities meets or e'ceeds your
personal standards, and that you are doing good, high/9uality wor+. :ou feel
a sense of satisfaction, pride, or even artistry in how well you handle these
activities.
Sense of progress. :ou are encouraged that your e-orts are really
accomplishing something. :ou feel that your wor+ is on trac+ and moving in
the right direction. :ou see convincing signs that things are wor+ing out,
giving you confdence in the choices you have made and confdence in the
future.
<inancial Rewards
<inancial rewards are monetary incentives that an employee earns as a result
of good performance. These rewards are aligned with organi,ational goals.
%hen an employee helps an organi,ation in the achievement of its goals, a
reward often follows. All fnancial rewards are e'trinsic
Types =f <inancial Rewards
A fnancial reward is based on consideration of cost versus benefts.
Therefore, in the e'ample above, the managers at Star 7otors needed to
determine what amount they could reward to their salespeople for each >6??
sold while still achieving the company@s goal of ma+ing a proft from each
sale. There are many di-erent types of fnancial rewards a company can o-er
its employees. .ay increases and bonuses are a great way to reward
employees however, there are many other ways to fnancially reward an
employee. Some of those rewards include3
Retirement plans3 7any companies have a 8?4A+B plan that they o-er their
employees. This plan allows an employee to put preta' dollars into a
retirement saving account. In many cases, the employer will match or
contribute the same amount that the employee does to this retirement
account. If a company has a proftable year and meets its goals, it will
sometimes add additional funds to the employee@s retirement plan.
!mployee stoc+ plans3 Some organi,ations will sell shares of their stoc+ to the
employees for an amount that is less than the current mar+et value.
!mployer/paid health care3 7any organi,ations will pay all or a certain
percentage of the employee@s health insurance.
.aid time o-3 7any organi,ations award employees paid time o- and will
even pay them if they are sic+ and cannot get into wor+. Today, many
companies that have limited funding for bonuses will reward employees who
meet certain goals with additional time o-.
#on/<inancial Rewards
#on/fnancial rewards can have an even more substantial impact on
employee satisfaction and motivation than traditional fnancial rewards. A
study by the 0ay Croup involving around four million employees found that
employees listed wor+ climate, career development, recognition and other
non/fnancial issues as +ey reasons for leaving a job. !ven well/compensated
employees may leave a company if dissatisfed with these aspects.
$ompanies with e'cellent non/fnancial incentive plans can attract, motivate
and retain talented people.
=bjectives of Reward System
Reward management deals with processes, policies and strategies which are
re9uired to guarantee that the contribution of employees to the business is
recogni,ed by all means. =bjective of reward management is to reward
employees fairly, e9uitably and consistently in correlation to the value of
these individuals to the organi,ation. Reward system e'ists in order to
motivate employees to wor+ towards achieving strategic goals which are set
by entities. Reward management is not only concerned with pay and
employee benefts. It is e9ually concerned with non/fnancial rewards such as
recognition, training, development and increased job responsibility.
!mployee 2enefts
!mployee benefts play an important role in the lives of employees as well as
their families. <or that reason, the benefts you o-er can be a deciding factor
for a potential employee1s decision to wor+ at your business.
There are two types of employee benefts must provide by law those the
employer must provide by law and those the employer o-ers as an option to
compensate employees. !'amples of re9uired benefts include social security
and wor+ers@ compensation, while optional benefts include health care
insurance coverage and retirement benefts. 2oth re9uired and optional
benefts have legal and ta' implications for the employer.
This guide helps employers understand what they need to do to supply
employee benefts re9uired by law.
Social Security Ta'es
!very employer must pay Social Security ta'es at the same rate paid by their
employees.
The following sites from the Social Security Administration can help you
comply3
Information and Resources for !mployers
Social Security3 2usiness Services =nline
!mployer %/5 <illing Instructions and Information
Instructions for 0iring !mployees #ot $overed by Social Security
Dnemployment Insurance
2usinesses with employees may be re9uired to pay unemployment insurance
ta'es. If your business is re9uired to pay these ta'es, you must register with
your state@s wor+force agency, which can be found on our State and Eocal Ta'
page
%or+ers $ompensation
2usinesses with employees are re9uired to carry %or+ers@ $ompensation
Insurance coverage through a commercial carrier, on a self/insured basis, or
through the state %or+ers@ $ompensation Insurance program. >isit the
%or+ers@ $ompensation page for more information.
&isability Insurance
The following states and territories re9uire businesses to provide partial wage
replacement insurance coverage to their eligible employees for non/wor+
related sic+ness or injury3
$alifornia
0awaii
#ew Fersey
#ew :or+
.uerto Rico
Rhode Island
Eeave 2enefts
The majority of common leave benefts o-ered by employers are not re9uired
by federal law, and are o-ered to employees as part of the employer@s overall
compensation and benefts plan. These leave benefts include
holidayGvacation, jury duty, personal leave, sic+ leave and
funeralGbereavement leave. 0owever, employers are re9uired to provide
leave under the <amily and 7edical Eeave Act A<7EAB.
<amily and 7edical Eeave
The <amily and 7edical Eeave Act A<7EAB entitles employees up to have 45
wee+s of job/protected, unpaid leave during any 45/month period for any of
the following reasons3
2irth and care of the eligible employee@s child, or placement for adoption or
foster care of a child with the employee
$are of an immediate family member Aspouse, child, parentB who has a
serious health condition
$are of the employee@s own serious health condition
<7EA re9uires group health benefts to be maintained during the leave as if
employees continued to wor+ instead of ta+ing leave. <7EA applies to private
employers with H? or more employees, and to all public employers. >isit the
&epartment of Eabor1s website for more information.