REWARD STRATEGIES AND ORGANIZATIONAL PERFORMANCE

................................................. 1.......................... Myth no 4 Labour Cost easy way to achieve competitive advantage ....................... Myth no 5 Individual Incentive Pay Performance .. 16 2|Page .............................. PART 2 Six dangerous Myths about Pay ..................................................... 9 Reward Strategies & Retention of Employees ...............................................0.......................... 14 2.................. Myth no 6 People not only work for Money ............0........... 14 2......... 6 Reward Strategies and Recruitment of the Employees ................... 4.......... Conclusion ....................................... 4 Reward Strategies ...................................................................... 5 Total Reward System .....0..............................0...............................1...................................... Myth no 2 Low Labour Rates can cut Labour Cost .....................1.............. 14 2............. 4....... 2.... 1.... INTRODUCTION .......................6...3. Myth no 1 Labour Cost and Labour pay .................................................................................................................................................... 1............... 13 2......................8..... 13 2.......................2..............................1.............................0.........................3............. 8 Reward Strategies & Performance of the Employees ..............0................................................................................... 4 A Strategic approach towards Reward Management .....0............................ 13 2................ Introduction ................................................. 3...................Contents 1..................... 12 2............5...... 13 2............ 5.......................7......................................................................... Myth no 3 Labour Cost is Significant portion of overall cost of business ............. 5 Elements to be considered before framing a Reward strategy ............ 8 Theoretical Models of Pay and Performance: Equity theory (Adams.. 1963) ....4............ 9 Conclusion ...............2....... 13 2.......... 6...........

...7 Figure 3 Extrinsic Reward Strategies for Employee Retention .......11 3|Page ............................................................................................................TABLE OF FIGURES Figure 1 Model of Total Rewards Strategies ........6 Figure 2 Characteristics of Reward Strategies .................10 Figure 4 Intrinsic Reward Strategies for Employee Retention .........................................

Effective Reward Strategies are a step towards success. This makes it more effective to achieve organizational objectives and motivate the employees as well. In recent times the traditional approach of Reward system has failed and it has become very critical. There are many driving factors which lead towards framing a new and strategic reward system. In this study. it ensures high performance and makes it easy for the organization to achieve its objectives in an efficient manner. In the above figure an Ideal Reward System is displayed. A good and effective reward system is needed by the 4|Page .1. There are short and long term benefits associated with an Effective Reward system. An ideal reward system fairly includes business objectives aligned with the motivation of the employees. 1. It is not focused to target customer or organization side only but employees are considered equally.0. increasing challenges and importance of Human Capital has compelled the employers to think of Effective Reward System. The reward system often includes monetary and non-monetary benefits. It encourages the employees to maximize their input and efficiency and meet the organizational objectives as well. INTRODUCTION The competitive business environment. Reward Strategies Reward systems are the system by which Organizations reward their employees on their performance. A good and flexible reward system is needed to adjust according to the changes occurring in the business environment. The meaning of reward system is more than bonus plans and stock options.1. There is a fixed compensation at all the levels. importance and implication of Reward Strategies on Organizational performance is being focused. The Effective Reward System can be explained as that type of reward system which not only provide extrinsic rewards to the employees but also motivates them to perform well by giving them intrinsic rewards. It explains that an effective reward system is designed by keeping in mind all the important factors such as strategic vision of the business and objectives of the business. Compensation is considered at all levels equally.

5|Page .3. There are many variables which have an impact on the Reward system in an organization. 1. mission and objectives of an organization. There is no one reward system which can be considered as the best one because the situations differ in organizations therefore it is needed that a strategic approach must be adopted to frame a reward system for an organization.organization to attain competitive advantage. A Strategic approach towards Reward Management One of the important factors that enhance the effectiveness and efficiency of the employees is the reward system. It is very important that reward system must be aligned with the vision. 2000). Elements to be considered before framing a Reward strategy There are various elements which must be considered before framing a Reward system in organization. 1. These variables are different in different industries. But it is important to understand          The values of the organization Its position in the market Strategies that are used by the organization The critical success factors of the organization Demographics of the Organization The perception of employees regarding remuneration and pay Talent pool available and constraints of it in the market The nature of the market where the organization is operating and its complexities Understanding the environment where an organization is functioning (Beaven.2. It strongly influences the behaviour of the employees. It must align the objectives of the organization with the needs of its employees as well.

Total Reward System All these factors must be considered by an employer before framing a Reward Strategy.0. It is a combination of extrinsic and Intrinsic rewards such as compensation. Performance and Recognition of an employee in a work setting.2. It must balance the short term goals of an organization with operational and strategic goals aligned with it. Figure 1 Model of Total Rewards Strategies Source: (Pulse. Total reward system is derived from the culture of the organization. All these factors jointly retain. its Strategies and human resource strategy. work-life. recruit and motivate employees. 2012) In the Figure above. The business results in this model are dependent on the effect of the reward system for the employees. With this effect employees can be rather motivated to perform better or they can feel dissatisfied. 6|Page . It is the quality of an effective Reward Strategy that it inculcates all the important factors and takes into account the operational goals of the company.

Figure 2 Characteristics of Reward Strategies Reward Strategies Characteristic s Source: Developed by Researcher 7|Page .

2012). one is to give a better opportunity to the employee for growth in their area and secondly maintaining a Human Capital for the Organization. employees can be offered to take courses for which they will be paid.3. Employees might not be interested in taking up the courses which are not paid. As existing employees are happy with the policies and reward system they will most probably invite and tell other people about the well being of the organization..0. Human Capital is the most important asset of today's business life it is vital to make a company successful and helps to maintain the efficiency in the organization (Perrins.0. Reward Strategies & Performance of the Employees There are several purposes of the Reward System in an Organization. It is possible that due to the effective Reward System. Employee might be able motivated to gain skills and competencies which are important for organizational growth and their professional growth. One of the most important contributions of the Reward System in an Organization is that it improves performance in an organization. It helps to increase motivation in the employees. In this way a virtuous circle is formed and it becomes an attractive place for people to work (Wyatt. 2007). 2006). 4. People normally chose those organizations where they get the best reward of their efforts. Reward Strategies and Recruitment of the Employees Reward System also helps in the Recruitment of the Employees. 8|Page . but when the reward is given to them for their learning they happily avail the opportunity (San et al. These courses are useful for the organization but are fulfilling two purposes. Right systems of rewards are the best indication of the success of the organization. For instance.

Lately it has well understood by the Organizations that it is very essential for the Organization that Human Capital is very valuable (Malven et al. The causes of turnover must be observed in a deep manner to know and rectify the root cause of it. as it is very essential to save the recruitment cost (Ramlal. most probably he will find justice to address the issue. 5. It is very important to look on the factors which are causing Turnover of employees. 9|Page .. 1963) According to the Theoretical Model of Pay and Performance of Adams which is also called Equity Theory has some assumptions such as  People tend to develop beliefs about what is right and what is wrong according to them and what should be given in return of a reward program – an Exchange  People compare the reward given to them with the others  If an employee thinks that he is not being treated fairly and is inequitable. I = Inputs: R = Referent: person in comparison with the S = Subject: fairness of the exchange Improper use of Reward Management can lead to various problems and these problems can have a debilitating effect on the performance of the employees. Theoretical Models of Pay and Performance: Equity theory (Adams. The formula of the Equity theory is Is/OS versus Ir/Or employee’s contribution employee who judges the O = Outcomes: the type of rewards received. 2010).4. With extensive Competition in the market it is essential to reaffirm the strategies to retain the employees. Managers must be able to understand the perception of employees about the Reward System and what they are expecting from a Reward System.1. A clear communication must take place between employees and employers about this matter (Sohail & Salem. 2012).0. he will do something about it. Reward Strategies & Retention of Employees Employee retention is a big challenge for Organization these days.

With the help of proper Reward Strategies it is possible to retain the employees and further motivate them to perform better. There are two types of Rewards which could be part of Reward Strategy for employee retention. Figure 3 Extrinsic Reward Strategies for Employee Retention Performance based pay Bonuses Extrinsic Rewards Increments Perks Source: Developed by Researcher 10 | P a g e .2003).

Figure 4 Intrinsic Reward Strategies for Employee Retention Morale Boosting Career Positioning and Two Way Value Proposition Intrinsic Rewards Orientation and OnBoarding Competitive Compensation Source: Developed by Researcher 11 | P a g e .

0. Employers must understand the importance of Extrinsic and Intrinsic reward system. Effective Reward Strategies not only helps to enhance employee performance but also helps to retain the employees.6. Conclusion After above analysis it is concluded that Reward Strategies play an important role in shaping up the performance of the employees. It depends a lot on the Reward system that how it helps the employee to work happily in his workplace. 12 | P a g e . This saves the cost of Recruitment and training cost of the new employees.

Myth no 2 Low Labour Rates can cut the Labour Cost When managers believe in the first myth described above. PART 2 Six dangerous Myths about Pay 2. 2. Most of the time. Introduction Jeffrey Pfeffer in his article Six Dangerous myths about pay has discussed Reward System in an effective manner. they also believe that by lowering the cost of labour they can reduce the labour rate. these two concepts are misunderstood by the managers. Myth no 3 Labour Cost is Significant portion of the overall cost of business 13 | P a g e . It is possible that sometime Labour Cost is increased by lowering labour rates. 2.2. These myths mislead the managers and they make wrong decisions regarding pay and compensation system.3. Labour Cost.0. An article was published in June 1998.4.1. 2. It is important to understand that Labour cost is related to productivity and labour rate. In this article six common myths about are discussed. whereas is the amount of return or rate of production of employee in a workplace. Labour pay is the wage paid to the worker divided by the hours he spends working. The article discusses about the Reward Strategies used by the leaders and its effect on the employee’s performance. Myth no 1 Labour Cost and Labour pay There is clear difference between Labour Pay and Labour cost.2.

6. There are other ways of achieving competitive advantage but this is a most effective weapon to do this. Myth no 5 Individual Incentive Pay Performance Individual Pay Performance is a best tool to enhance the performance of an individual. employers can easily achieve competitive advantage in a market. Theories like Agency theory and Transaction cost theory clearly states that the 14 | P a g e . 2. People work for fun and their satisfaction. whereas it is not true. Myth no 4 Labour Cost easy way to achieve competitive advantage By reducing Labour costs. Many of the theories have presented human being as commodity.5. 2009). In some Industries.. 2. Companies and manager thinking that people work for money are on mistake and pay for this attitude in the long run. Employees who work for the managers having this Perception.This Myth is true sometimes but it varies from industry to industry. who will not move unless and until is not provided with some compensation. end up having a lack of commitment and loyalty in employees. but most of the time it is not a significant portion of the cost of business. it is possible that Labour cost is the biggest cost incurred by the company. It is being portrayed with the help of these theories that the employees only seeks for self-interest and have different interest than of their employers (Jiang et al. Myth no 6 People not only work for Money It is a common myth that people work only for money.7. These myths have been conceived from many of the economic models as well. 2. It proves that pay is not only related to the performance but helps to build a right attitude and personality enhancement.

2012). they rely on each other and teamwork is supported like this.employee will make false promises and statements to achieve their objectives. 15 | P a g e . this is done to find employment at low rates. A lot of pressure is built for the employees in the Performance Based pay system. Reward Strategies must be framed in a manner that could help the employee to associate themselves with the organization. The industry is only struggling to find the employee at the rate at which they can decrease their labour cost without realizing that it affects the efficiency of the Organization as well. Overall view about the performance base system was that it wastes a lot of time of management and makes people unhappy (Özutku. Companies which overlook this aspect are facing very difficulties in retaining their employees and waste a lot of money in recruiting and training of the new employees as a result (ÇaliŞkan. it has no effect on their performance and has created numerous problems. Performance Management plans and Individual Merit Pay have less effect on performance of the employees. People think in short terms instead of staying for a long period of time with the companies and teamwork is not promoted through it (Yun-Sun et al. It has been observed after many surveys conducted by the consulting companies that people who are being offered by Individual Merit Pay have not performed very well. research has shown that People working in a group develop a bond with each other. 2010). thus promote free riders. However. Individual incentives and Pay practices have increased since 1990’s. The majority of the Employees when asked about Performance base system said that these systems do not promote any effectiveness of the performance and it creates no value for the employees. Employees in a struggle to get more commission on the after sale services. There is an increasing trend in industry to outsource the employees. 2007). It is being surveyed by fortune 1000. were personally offering services to the customers. and has revealed that companies that focus on the share profit concept have fewer turnovers as compared to the companies practicing Pay practices and Individual Incentives. SEARS Company in USA confronted many problems regarding its commission system and had to eliminate it. which were not offered by the company.. It is being thoughts that the Collective pay system is not fair as it also pay the individual who work less than their peers in a group. This has made turnover rate quite high. This compels the manager to think on lines that employees can only perform well when they will be rewarded.

Employees prefer working at places where they have more learning opportunities. Sense of being loyal to the firm is taken away from the employee. So it would be right to say that high extrinsic rewards are not the only tool to address the issues. 2006). as it inculcates team work in the employees and they tend to relate with each other. Compensations must be offered on a collective basis. their work is appreciated and they have fun.It will not be true to say that compensation and Performance Management System do not work to improve the situation of the employees and People work for more than monetary reasons. 2. People need a feeling from their employer that they are being taken care of and it is not all about money. Conclusion After reading the article and other literature available on the topic it would be right to say that there must be a combination of Extrinsic and Intrinsic Reward system. They put pressure on the employee and he loses his creativity. it would be right to say that Pay system should not be designed considering extrinsic reward only but it should also inculcate intrinsic Rewards as well. There must not be a payment system which would reward one individual more than the rest of the team. Excessive extrinsic Rewards also hinder motivation in the employees (lawler & Christopher.8. This contradicts the statement and notion given to the employees to work collectively. 16 | P a g e . Therefore. Managers who think that they can influence employee performance only by giving them Individual-based merit pay system and compensation is not right.

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