Human Resource Management (MGT302)

Dr Silvia Pirrioni

Sunday, 14 May

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Learning outcomes, 14th May 2023

• Understand the determinants of effective reward systems

• Discuss the advantages and disadvantages of various reward systems

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Reward Management
• Reward management can influence employees’ behaviour and
performance
• The achievement of the organisation’s goals and its competitiveness.
• Reward management is relevant:
▪ Before employment (i.e. recruitment)
▪ During employment (i.e. motivation & retention)
▪ After employment (i.e. pensions)
• Rewards represent the most significant cost of production for the
organisation

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Reward Management
Reward management refers to “all of the employer’s available tools that may
be used to attract, retain, motivate and satisfy employees’ (WorldatWork,
2015)
Reward management represents “the strategies, policies and processes
required to ensure that the value of people and the contributions they make
to achieving organisation, departmental and team goals is recognised and
rewarded” (Armstrong, 2012).
• Aims to satisfy the needs of both the organisation and its employees
• Aims to operate fairly, equitably and consistently
• Is critical in attracting, retaining and motivating employees to achieve
desirable outcomes
• Central to a positive employment relationship

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Reward Management
Reward management is shaped by:
• External forces (labour law, national culture, competitive conditions)
• Internal forces (organisational goals, strategy, culture, leadership)

Reward management is a framework including a mix of different types

of rewards to support different performance goals and objectives.

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 Reward
Management:
types of
rewards

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Reward Management: types of rewards
• Direct financial rewards:
- fixed income (basic salary paid weekly or monthly)
- variable income contingent on performance (short-term: merit pay,
bonuses, cash awards; log-term: profit sharing and stock options)
• Indirect financial rewards:
- Benefits and services (pension, medical insurance)
- Perquisites (paid vacations, housing allowance, company car, club
memberships)

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 Reward Management: types of rewards
• Extrinsic non-financial rewards:
- Direct and tangible rewards attached to the job (job security, recognition,
status, training opportunities, flexible work schedules)
• Intrinsic non-financial rewards:
- Related to the attributes and content of the job and dependent on
individual experience (job meaning, feeling of accomplishment, competency
and personal growth)

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 Reward Management: types of rewards
• The impact of financial and non-financial rewards is interdependent:
Example: the positive feeling associated with recognition (non-financial reward) may
be strengthened by a financial reward (i.e. bonus)
• Reward management strategies often use a combination of rewards.

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 Reward systems
Reward systems can be based on:
- non-performance related criteria (time, seniority, skills, competencies)
- performance related criteria (individual and collective performance)

Non-performance related:
• Time-based systems: pay increases depend on longevity (length of service in the
organisation).
They may increase employee loyalty and productivity as employees develop skills on-the-job.
They may hinder labour mobility and long-term competitiveness of the organisation.
They may create a culture of entitlement

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 Reward systems
Non-performance related:
• Skilled-based or competency-based systems: remunerate employees on the basis of the
acquisition of specific work-related skills, knowledge and competencies
Such systems facilitate learning and development, in line with the organisation objectives.

• Single-rate or flat-rate systems: pay one rate to all employees in a job regardless of
performance or seniority; the pay rate is usually the market rate.
Common in public sector and elected jobs.

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 Reward systems
Performance-related:
• Productivity-based system: pay is determined by the employee’s output. Assembly lines
and manufacturing commonly reward on piece rate
• Pay for performance or merit pay: employees are remunerated depending on their
performance/achievement of targets and job tasks
Rewards are linked to performance outcomes such as: sales, quality, costumer satisfaction, profit, sales
revenue, group productivity, cost savings targets
Rewards performance excellence and discourages a culture of entitlement

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 Reward systems
Incentives aim to influence future employee behaviour or performance,
usually through the use of targets: if a specific target is met, the employee
receives a reward
Measures of success include profits, customer satisfaction or overall organisational
performance.
• Individual incentives are commissions, cash bonuses, recognition programmes and
awards.
These are linked to pre-established goals and objectives achieved within a defined time period.
Workers who are more productive earn more money

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 Reward systems
• Group incentives aim to increase productivity and foster teamwork, sharing success and
financial resources with employees.
Example: gainsharing programmes, employees and managers set goals to improve performance and
then each member receives the same cash reward
• Organisation-wide incentives: profit-sharing plans, stoke ownership

Bonuses may be used in an attempt to influence employee performance or behaviour to

meet pre-set objectives, but they could also be used on a more ad hoc or retrospective
basis to reward past achievements.

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 References
• Bernardin, H.J. & Russell, J.E.A. 2013. Human resource management, 6th int’l ed. New
York: McGraw-Hill.
• Chiang, F. and Birtch, T. 2017. Reward Management. In Wilkinson, A., Redman, T.,
Dundon, T. (ed). Contemporary Human Resource Management, 5th ed. Harlow, UK:
Pearson, pp. 315-332
• CIPD, 2019. Bonuses and Incentives

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