COMPENSATION AND

REWARD SYSTEMS
Forms of the reward system(Wages, salaries, incentives
and benefits)
The role of line managers in reward and compensation
Factors that determine reward and compensation
Characteristics of a good reward system
 Definition
• An employee reward system consist of an
organizations integrated practices in
remunerating its employees in accordance
with their contribution, skills, knowledge and
market worth.
• It consists of financial rewards i.e. wages,
salaries and also non-financial rewards such as
recognition, praise, opportunity for personal
growth.
 Definition
 Refers to a system of pay that involves financial and non-
financial packages, employees receive for their services
offered to the organization.

• Compensation system

• Financial • Non- Financial

• Wages • Salaries • Employee benefits • E.g Family Tour

Incentives
• E.g Paid holidays
• E.g Free house
• E.g Free
• E.g life Insurance
• Dinner/lunch
•
• Free travel allowance • E.g Company car

• E.g Retirement benefits • E.g Mandatory benefits

 Components/forms - Compensation & Reward Systems

The “ideal total compensation package” should include:

(“Wages” or “Salaries” + Incentives + Benefits)
 Wages:
 Paid to workers on daily or
 Weekly basis, E.g piece rate & time rate system.
 Paid to causal workers or blue collared employees

 Salaries:
 Paid on monthly/weekly basis at a
Fixed rate.
 Paid to white collared employees,

 Incentives:
 Its any Extra payment for excellent service or good
performance, E.g bonus, profit sharing,
 payments offered to employees as a way of stimulating
increased output. Aimed at increasing productivity.
 Components cont...
Employee benefits. are payments or services
rendered to employees to supplement their
wages or salaries. Organizations provide
benefits aimed at creating organizational
commitment and loyalty.
E.g
 Child care, Medical allowance, tuition deduction &
education scholarships, retirement fund, Housing,
employee discounts, entertainment, travel allowance,
company car, meals.
 The role of reward & compensation system
“why organization pay”

 To attract and retain quality human resources,

 To motivate employee,
 To boost employees’ performance,
 To satisfy employees’ personal needs,
 To increase employee job satisfaction,
 To enhance organizational commitment,
 To reduce absenteeism & tardiness culture,
 To reduce influence of trade unions,
 To improve company image & the industry,
 To comply with the existing labour laws.
 Etc
 Factors that determines reward & compensation package
in an organization
• Driving factors

• Internal • External

e outcome of Job Analysis • DD & SS of HR (marke

D & PS),job requirements
bility to pay, managerial
• attitudes
• Kind of the jobs
• e.g Key jobs
Nature of the personnel
• e.g Specialized
Productivity of personnel
• Cost of living
• Trade unions,collecti
• Bagaining agreemen
• Competitors job prici
• Legal framework
• E.g minimum wage bill
 Characteristics of a good reward system

o Adjustable/flexible (circumstances such inflation),

o Sufficient / enough funds,
o Ensure Internal & External equity/competitive
o Individual worth,
o Able to Attract talent,
o Able to Retain talent,
o Able to trigger desired behaviors,
o Affordable/low cost
o Easy to understand
o Acceptable by both employees and employers
 The role of Line managers in reward & compensation

o Assists in paying the wage workers,

o Assist in processing staff allowances,
o Assists in processing departmental staff salaries,
o Appraises, identifies & recommends staff for
salary enhancement,
o Helps in developing job compensatable factors,
o Helps in the process of developing pay structure
for the employees,
o Providing non financial rewards. E.g recognition
o E.t.c as discussed in class.