Reward management

An integrated reward system that ensures equitable avenues

to employees for fulfillment of their financial & non-financial
needs and recognition urge for their contribution to
attainment of organizational goals.
Significance of Reward in performance
management
1. Organizational effectiveness: Can be achieved from high
performing employees. Reward is a proven means of
stimulating employees to perform exceedingly well.

2. Reward as medium: The top management of an organization
can communicate importance of performance to its
employees through rewards.

3. Multiple Gratification: reward system not only helps
employees earn their livelihood but also enriches their work
experience & provides them satisfaction at all levels.
4. Factor of motivation: employees motivation doubles every
time they receive a reward. This leads to higher performance
which in turn leads to higher rewards.

5. Performance guide: reward encourages healthy competition
& collaboration among employees to perform well. Reward
needs of employees change for financial to a combination
then to a sheer non-financial, the performance also grows
from simple skilled work to innovations.

6. Source of differentiation: The performance of average
employees can be enhanced through suitably rewarding high
performers & depriving low performers. This reward
difference helps manage different performers differently and
also facilitate average performers to jump into high
performing level.


7. Source of involvement: A good reward system encourages
employees to get involved with an organization & shape their
professional journey in accordance with organizational plans.
This also creates a perception of security in the minds of the
employees that wrongs & rights are distinguished, recognised
& rewarded.

8. Source of innovation: Non-financial rewards generate a high
degree of internal drive in employees to excel. Zeal to perform
gets converted to innovation. A well-designed reward system
has the capacity to pump actualization drive in employees.




9. Source of Competitiveness: In order to attract fresh & talented
employees organizations must have a robust reward system.
An organizations competitiveness comes sheer performance
capacity of the organization. This capacity can be sharply
seen at the time of crisis. Hence to strengthen its
competitiveness organizations must focus on implementing
suitable reward systems.

10. Source of Organizational Harmony: Lack of understanding
between management & a section of employees on how
rewards/compensation is administered results in disputes &
low performance. Further this breeds distrust. The best
technology can fails if industrial harmony is absent.
Theoretical Foundations of Reward-Based Performance
Management
Lawlers Reward & job satisfaction model
Edward Lawler held that job satisfaction of an employee is
contingent upon his/her perception of being paid
proportionately to the service rendered.
Hence it is important for any organization to ensure that the
compensation system is not only in proportion to
performance but also managed in such a way that employees
perceive it as equitable.
Sweeney, McFarlin & Inderriedens Pay and
Job Satisfaction Model
According to this model, the six factors that cause pay
dissatisfaction in employees.
i. Discrepancy between what employees want & what they
receive.
ii. Discrepancy between a comparison outcome & what they
get.
iii. Past expectation of receiving more rewards.
iv. Low expectation for future.
v. A feeling of deserving or being entitled to more than they
are getting.
vi. A feeling that they are not personally responsible for poor
results.
Similar to Lawlers theory, this theory stresses on employee
perception of fairness in pay.
Types of Rewards
Non-Monetary rewards

Indirect Monetary Rewards
Compensation Strategies
Broadbanding: Means merging number of
job grades into smaller number.
this gives opportunity for all employees to
perform quality of task & also receive
proportionate rewards without the hurdle of
tall salary grades.
Broadband is a simple concept but immensely
difficult to implement.

McNallys Compensation Strategies
High pay strategy: Ensures superior performance, attracts
talented human resource, minimizes attrition & increases
morale of then employees.

Low pay strategy: Organizations might not be able to afford
higher compensation or strategy to enhance companys
competitiveness due to low labour cost.

Comparable pay strategy: Implies that compensation is
susceptible to cost of living, compensation trends in industry
& government legislations.

TECHNIQUES OF DESIGNING A
REWARD BASED SYSTEM
JOB EVALUATION:
Employed techniques to establish relative worth
of job in organization for the purpose of
determining pay.
The process identifies contribution of each job for
organizational functioning and effectiveness.
Job evaluation also identifies:
- Skills required to perform a job
- Degree of responsibility involved
- Efforts required to perform the job
- Related working conditions
Hay Guide Chart Profile Method
Technique used in evaluation of job
Determines the worth of a job based on 4 vital
parameters:
- Know how
- Problem solving
- Accountability
- Ability

Gain-sharing technique:
Primarily employed to distribute the benefits of cost-
cutting interventions, increased production, increased
quality, etc. to employees organization- wide but often
used for enhancing production.

4 techniques in gain-sharing:
Lincoln electric plan:-
- Provides for the compensation in lump sum, proportionate to service
rendered (direct relationship between compensation and result)

Scanlon plan:-
- Comprehensive technique as it allows employees to participate and
influence decision making.

Rucker plan:-
- Also promotes suggestions from employees and their participation in
improving productivity but with limited freedom to participate in decision
making.
- Proportionate reward if suggestion results in profits to the organization.

Improshare:-
- Managers in the process of improving production and efficiency consult
employees and employees are offered bonus compensation if that
consultation process results in profit.



BEHAVIOURAL THEORIESOF
COMPENSATION
EMPLOYEMENT CONTRACT THEORY:
refers to considering exchange of work for
compensation or reward. (each party makes
an attempt to gain more than it spends)

JOB CHARACTERISTICS MODEL:
Provides autonomy, skill variety, task identity,
task significance and feedback as simulation
and reward for higher performance.
THEORY OF EQUITABLE PAYMENT:
Proposes that employees have an intuitive
knowledge about their knowledge, skills and
capacity to work and compare them with their
compensation to establish fairness.

GOAL SETTING THEORY:
postulates that encouragement of employees to
participate in goal setting, determination of
performance standards, and defining
performance evaluation methods becomes
motivational source of higher performance.
FACTORS AFFECTING REWARD
MANAGEMENT
External factors:
State legislation, Market forces, Cost of living, Quality of living,
Industry trends, Labour supply and demand, Geographical/
location factor

Internal factors:
Financial health of organization, Strength of collective
bargaining forces, Philosophy of organization, Degree of
skill required in organization influence reward structure

Individual factors:
Performance of employees, Competency of employees, Skills
and experience of employees, Seniority and potential of
employees

LESSONS OF REWARD THEORIES
Reward is psychological:
Employees perceptions must be given due consideration
in its framework

Contingent reward management:
Organizational contextual factors must be considered
while developing and executing a reward-based
performance management strategy.

Reward is susceptible to multiple forces:
External and internal factors must be carefully analyzed
and considered while designing a reward-based
performance management strategy


Reward is a comprehensive system:
Reward-based performance management must comprise
all reward variety (monetary and non monetary) and
apply them to employees depending on their
motivational profile.

Job enrichment as reward strategy:
Higher-end strategies must be a part of the reward-based
performance management strategy.

Fairness of reward is dependent upon measurement :
Efforts must be made to employee measurement
techniques to create a fair reward system and must be
approved by majority of employees


Compensation is multilayered:
Reward-based performance management must
consider both the components of
compensation (basic pay and variable pay)
Reward-motivation-reward cycle
Motivational theories are the foundation for
design, implementation and renewal of the
reward-based performance management
strategy.

REWARD BASED PERFORMANCE MANAGEMENT
STRATEGY: INTERVENTIONS AND DRIVERS
Reward as a strategy of performance management includes
financial, indirect financial and non financial rewards.

An integrated and performance driven reward strategy
contributes to strengthen performance oriented work and
creates a path for institutionalization of performance
management in organization.

The strategy of reward-based performance management
can be designed, executed, evaluated, renewed and
institutionalized through formidable interventions:
- Nurturing reward based performance management
- Capitalizing on reward strategy in institutionalization of
performance management

NURTURING REWARD-BASED
PERFORMANCE MANAGEMENT
An essential objective of this strategy is providing the
base format to design & implement an integrated
reward system that is most apt & compatible with
internal & external environment of an organization.

This intervention is developed consisting 10 drivers.
DRIVER 1: SETTING OBJECTIVES OF
REWARD SYSTEM
Step 1: Determine Reward strategy
There are 3 critical aspects that an organization must
examine & decide.
Whether it intends to be in high reward category
Average reward category
Low reward category

Step 2: Articulate Objectives
Objectives must be developed in view the
organizational objectives.
There must be cohesiveness & homogeneity.

Step 3: Balance Stakeholders
Consideration must be given to balance interests of
all stakeholders of the organization.
Reward should not be managed in a way that costs
others.

Step 4: Focus on superordinate purpose
Reward objectives must be derived from superordinate
purpose of reward & reward strategy of an
organization.
E.g.- Building competency & enhancing performance
of employees.











DRIVER 2: TRACK PAST & PRESENT REWARD SYSTEM
Step 1: Understand Reward Approach
Basic approach of an organization towards rewards
must be studied.
Efforts must be made to identify the reward
strategy written or unwritten.
Most influential reasons for preferring reward must
be analyzed.

Step 2: Study Prevailing Reward Framework
All reward -related documents must be studied and
directional points must be generated.
Discuss and get answers on leading issues from
employees involved with preparation of schemes.
Identify the overall focus of the prevailing reward system
like whether to maximize performance of employees.

Step 3: Study Reward Mechanisms
Techniques used in establishing relative worth of jobs/
positions for determining monetary reward, non-
monetary, recognition oriented reward practices.
Study & analyze the relevance to reward management.
Step 4: Understand employees Concerns
Appropriate instruments & methods such as survey,
interview must be used to measure the satisfaction
level of the reward system.

Step 5: Study Reward vs Profits
Understand relationship between financial &
reward system of organization.
Whether monetary rewards is interdependent to
financial health.


DRIVER 3: DETERMINE AND APPLY REWARD
METHODOLOGY
Step 1: Analyzing gaps between existing reward
system and proposed reward objectives
Many times, there are gaps between the proposed
and existing reward system.
These gaps must be identified and analyzed.
Step 2: Study of external Factors
This step is expected to provide a pragmatic
perspective & enrich managers dealing with the
reward system.
It is imperative for effectiveness of the reward system
that reward system is sensitive to external factors.

Step 3: Study of internal Factors at Organizational
level
Analysis and due consideration of internal factors in order to
design an appropriate reward system.
Efforts must be made to understand what kind of reward
design & system suits an organization.
Step 4: Study of Internal Factors at Employee
focus
This step must be executed in association with the
competency- based performance management strategy.
Helps in designing person- based reward component.
Data obtained must be analyzed & relevant aspects that have
implications for reward strategy must be drawn.

Step 5: Job Evaluation Data
Study of job issues is necessary in order to
determine quantum of formal reward for each job.
Misunderstanding of worth of a job contributes for
inappropriately rewarding a job.
Job evaluation must be implemented.
Data that job evaluation yields is immensely
relevant, useful & imperative for design of an
equitable reward system.


DRIVER 4: DETERMINING REWARD
COMPONENTS
Step 1:Monetary Reward
In motivational structure, money ensures
physiological, security, social & self-esteem needs.
Monetary reward means monthly/weekly
salary/compensation.
It should not be less than 50 % & not more than 60%
in the overall reward sum.
Step 2: Indirect Monetary Reward
Indirect monetary component include health
insurance, gratuity & other social security measures.

Employees who are assured of a secure future tend to
be stress free & focus on their performance.

Decide the percentage of indirect monetary
component in the overall reward structure.


Step 3: Non- Monetary Reward
Reward not in money form.
Employees get stimulated for better performance
through recognition-oriented rewards.
The organization must opt for the most
appropriate recognition schemes
Schemes must be administered with hard core
sincerity & commitment.


Driver 5: Determine components in monetary
rewards
-Determine composition in terms of three factors:
position, person and performance
Step 1: Pay for Position
- Depending upon the placement of a position in
the organisational hierarchical structure and
worth of a position in the organisation basic pay
is decided
- Similar position will be get similar base
compensation
- For better manageability and ensuring equity an
organisation should not have more then six levels
of base compensation ideally
Step 2: Pay for Person
- Persons performing similar tasks and occupying same
positions may be different in their competency and
ability
- Assistance of competency based performance
management strategy must be drawn to identify
employees with distinction in competencies and
rewarded proportionate.
- Every employee perceives their importance through
this person based rewards.

Step 3: Pay for Performance
- Also known as variable pay/ performance related
reward/ bonus/ productivity incentive
- Measurement criteria should be clearly defined


Driver 6: Design Reward System
Step 1: Assimilate Reward Data

i. Gather data and develop formulas for reward
composition( monetary, non monetary and
indirect monetary rewards)
ii. Composition of monetary rewards like person,
position and performance based rations
iii. Measurement methodologies
iv. Competency profile of employees
v. Data pertaining to organisation's external and
internal environment
- Above data should me meaningfully organised


Step 2: Design of Reward Policy
- A typical reward systems must consists items
that include:
i. Objectives of reward
ii. Reward structure comprising base pay,
variable pay and indirect compensation
details
iii. Methodology of arriving at performance
related pay
iv. Non- monetary reward types and methods of
granting this reward.



Step 3: Determining employee
compensation
- Translation of reward policy into employee wise
compensation package
- Development of a model pay structure for a
group of sample employees
- Helps to detect errors if any at this stage to
initiate timely corrective measures
- Provides an operational picture at the individual
employee level how he/she will be rewarded
- Unique feature- tailor made and organisation
specific
Driver 7: Consultation and
Communication of Reward Based
Performance Management Strategy
Step 1: Publication of Reward Policy and
Communication of Background Work
- Reward policy must published using house
journal, intranet, and other newsletters or
bringing out an exclusive handbook on rewards
- Key managers must be communicated details at
length with an expectation that they disseminate
this information among all employees
- 3-6 months

Step2: Consultation with unions
- The whole issue must be approached with a
positive mind and with respect for the unions
role in the reward strategy

Driver 8: Implementation of Reward
Based Performance Management
- Putting performance focused strategy in action
- Implementation in a single shot

Step1: Incorporation of Feedback of Unions
and Employees
-communicate the incorporation of the suggestion
-communicate reasons if some suggestion have not been accepted

Step2: Opt for Strategic Launch
- All employees should be psychologically ready
- At the beginning of the financial year
- Work environment and relationships must be harmonious and very
conducive
Step3: Create an exclusive Responsibility
Centre
- Create a separate functional cell to attend the initial
technical problems arising in a timely and wisely
manner
- Employees should be aware of this cell

Step 4: Notify Implementation Details
- How the new system would be implemented
- How long the system will be in operation without
interruption

Execution is at least two times difficult and requires more
energy, time and money compared to
conceptualization and development of reward of R-B-P-
M
Driver 9: Evaluating Reward
Based Performance Management
Stage 1: Organizational Level
Contribution of system to the performance of the
organization must be accessed.

Organizational effectiveness indicates the system level
efficiency; which includes:
Method of implementation of new reward system
If process followed is scientific or not

An audit must be carried out with focus on all
components of the system.

Feedback on the system can also be obtained.


Stage 2: Employee Level
Employee centric.

Satisfaction level of employees with the
system.

This assessment level must be given high
importance.
Driver 10: Refinement and
Reinforcement of Reward System
Step 1: Refine the system
After results from the levels are obtained, the
system must be reviewed.

Firstly, review must be done at reward objectives
level.

Secondly, component wise feedback must be
considered.

Thirdly, check the factors that are holding back or
not the reward system from making the impact it
should.


Step 2: Reinforce Reward System
Reinforce the system with utmost care

The system must now align itself with objectives
of the organization and system.

The reinforced system should continue the way it
is without large changes atleast for 5 years.

At the end of this driver, the system should tempt
other companies to use it s a benchmark.
Intervention 2: Capitalizing on
Reward Strategy in
Institutionalization of Performance
Management
Objective of this intervention is to now
capitalize on the reward strategy in place and
put it into practice with the performance
management system.

Can be done in 2 ways:
Using reward strategy to promote other strategies
Drawing synergy from other performance
strategies


DRIVERS OF THE INTERVENTION
Driver 1: Reward for performance
management institutionalization

People responsible for implementation of PM
strategies
Appropriate rewards must be awarded
Reward should be noticeable and a combination
of monetary and non monetary rewards
Rewarding institutionalization behavior acts as a
motivator


Driver 2: Reward as follow up for
performance excellence

Reward aligned with performance oriented
behavior
Motivation to do a task changes when rewards are
involved
For successful institutionalization of PM,
persistent link between performance and reward
must be present.


Driver 3: Reward as centre of
institutionalization

Effectiveness of PM strategy is subject to
effectiveness of reward strategy.

Good reward system can be the nerve center for
institutionalization of PM.

Reward group must be implemented to sharpen
execution of performance management.

Driver 4: Integrating reward system with
measurement management

Reward depends on performance and
performance depends on measurement

Integration of reward based with measurement
based

Ensure quality and quantity of employees
performance is measured and rewarded





Driver 5: Integrating reward system with
competency management

Reward has potential to increase competency of
employees

Appropriate rewards must be given to enhance
competency index of organization

With greater competency possession,
performance and innovation capabilities increase



Driver 6: Melding reward with culture
strategy

Work culture plays an important role in making
reward a success on the shop floor.

Positive work culture can ensure implementation
of reward in the right spirit.





Driver 7: Leadership as ultimate form of
reward
To institutionalize PM, organization must leverage
leadership as ultimate form of reward.





Driver 8: Career as form of reward

Career provided multiple opportunities in one
shot in the form of more responsibilities, authority
or also in the form of vertical upward movement,
increase in salary and perks.







Driver 9: Reward as a source of employee
involvement

Organizations can achieve best performance when
employees fine tune their performance.

Equal pay and recognition.

Reward strategy must be oriented to enable
employees to voluntarily line their identity with
that of organization.






Driver 10: Using process centric reward for
performance management
institutionalization
Unforeseen circumstances can hamper the PM
system from producing desired results.

Reward system can become insensitive to hard
work and efforts.

Employees get frustrated.

Re-orientation of system in favor of efforts.