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Sunday, November 2, 2008

Reward System

Explain what is reward system ? Describe the reward system of your organization you are acquainted with. How financial reward systems have been helping in improving organizational performance?

REWARD SYSTEM


One of important attributes of work organization is the ability to give reward to their members. Pay, promotions, fringe benefits, and status symbols are perhaps the most important rewards. Because these rewards are important, the ways they are distributed have a profound effect on the quality of work life as well as on the effectiveness of organization.

Organization typically rely on reward system to do four things :
1. Motivate employees to perform effectively.
2. Motivate employee to join the organization.
3. Motivate employee to come to work, and
4. Motivate individuals by indicating their position in the organization structure.

There are several principles for setting up an effective reward system in an organization :
  • Give value to reward system. Employees must have preference for the type of rewards being offered. Many employees prefer cash reward and plaques. Some employees like to see their name in company news letter. Others like the public recognition surrounding award ceremony.
  • Make the reward system simple to understand. Elaborate procedures for evaluating performance, filling out forms, and review by several levels of management lead to conclusion. The system must be easy to understand if it is to be used effectively.
  • Lay down performance standards with in the control of the team.
  • Make the reward system fair and effective.
  • Ensure participation in the reward system.
  • Involve people in the reward process and empower them to do the needful.
Most organizations use different types of rewards. Examples of recognitions and rewards include money, plaques, trophies, certificates/citations, public recognition, official prerequisites, special assignments, parties or celebrations or other meaningful celebrations. The most common are wages or salary, incentive systems, benefits and prerequisites, and awards. For majority of people, the most important rewards for work is the pay they receive. For one thing an effectively planned and administered pay system can improve motivation and performance.

Money may not actually motivate people. Surprisingly, there is no clear evidence that increased earning will necessarily lead to higher performance. A great deal of research has been done on what determines whether an individual will be satisfied with the rewards he or she receives from a situation. The following five conclusions can be reached about what determines satisfactions with rewards.

1. Satisfaction with reward is a function of both how much is received and how much the individual feels should be received. When individuals receive less than they feel they should receive, they are dissatisfied. When they receive more that they should, they tend to feel guilty and uncomfortable.

2. People’s feelings of satisfaction are influenced by comparisons with what happens to others. These comparisons are made both inside and outside the organizations they work in, and are made similar people. Individuals tends to rate their inputs higher than others.

3. In addition to the obvious extrinsic rewards individuals receive (e.g. pay promotion, status symbols), they also may experience internal feelings that are rewarding to them. These include feelings of competence, achievement, personal growth, and self-esteem. the overall job satisfaction of most people is determined both by how they feel about the intrinsic rewards and how they feel about their extrinsic rewards.

4. People differ widely in the rewards they desire and how much important the different rewards are to them. One group feels money is most important, while other group feels interesting work and job content is. Both groups, of course, are able to find examples to support their point of view.

5. Many extrinsic rewards are important and satisfying only because they lead to other rewards, or because of their symbolic value.

Brief about the organization referring :

Our organization ECO-CARE AND AWARE is a no-profit organization providing training and support service / consultancy to Developmental Sector. Support services includes planning and formulation of developmental projects, technical support during implementation, Monitoring & Evaluation, Training and Capacity Building, Research & Study, Micro Planning & PRA (Participatory Rural Appraisal).The organization caters its best services for the judicious use of Natural, Human and Physical resources.

The areas of activities include Environment, Watershed Development, Biodiversity, Sanitation, Minor Irrigation, Biotechnology, Sustainable Agriculture, Horticulture, Capacity Building, Training and Awareness. The organisation has professionals from all the above fields and for each professionals their role is clearly defined. And some cases we need to have interaction and mutual dependency with in the organization for completing the specific project or assignment.

Reward system as followed by our organization :

Our reward system always link reward to performance. Workers who work hard and produce more or give better quality results would receive greater rewards than poor performers. Also the criteria for receiving rewards are clear and employees know whether they are going to receive rewards for quality performance, innovation, effort or attendance.

Our management must ensures that workers perceive distribution of rewards equitable. Furthermore, our organizations to attract, motivate and retain qualified and competent employees, they be offered rewards comparable to their competitor.

Our organization following the following type of reward systems :

1) Incentive and Rewards : our organization design financial incentive which are designed to provide direct motivation – do this and you will get that. Financial rewards provide a tangible form of recognition and can therefore serve as indirect motivators, as long as people expect that further achievement will produce worthwhile results.

Financial incentives aim to motivate people to achieve their objectives, improve their performance on enhance their competence or skills by focusing on specific targets and priorities. Financial rewards provide financial recognition to employees for their achievement in the shape of attaining or exceeding their performance targets or reaching the level of competence skill. Achievement bonus, team based lump sum payment our organization provides in this category .

2) Competency related Pay : competency related pay may be defined asa method of rewarding people wholly or partly by reference to the level of competence they demonstrate in carrying out their roles. This definition has two important points : (1) pay is related to competence (2) people may be rewarded with reference to their level of competence.

Our organization promotes competence-related pay for effective use of competence to generate value. Competence related pay works through the process of competence analysis of individual competences and level of competence.

3) Skill Based Pay: Skill based pay links pay to the level of skills usedin the job and, sometimes, the acquisition and application of additional skills by the person carrying out the job. The term is sometimes used interchangeably with competence-related pay. But skill-based pay is usually concerned with the skills used by manual workers, including fitters, fabricators, and operators. In competence related pay scheme the behaviors and attributes of an individual has to use to perform a role effectively are assessed in addition to pure skill. Our organization evaluate the potential cost of skill-based pay as well as its benefits rigorously before its introduction.

4) Team based rewards : team-based rewards as followed by our organization are payments or other forms of non-financial rewards provided to members of a formally established team which are linked to the performance of that team. Team based rewards are shared amongst members of the teams in accordance with a scheme or ad hoc basis for exceptional achievement. Rewards for individuals may also be influenced by assessments of their contribution to team results. To develop and manage team based rewards it is necessary to understand the nature of teams and hoe they function. Team based rewards are not always easy to design or manage.

5) Profit sharing : As our organization is a no profit based organization it keeps no profit or shares all the profit to employees and growth of the organization. Profit sharing is better known , older and more widely practiced which is associated with participative management theories. Profit sharing is a group based organization plan. The fundamental objectives of profit sharing are (a) to encourage employees to indentify themselves more closely with the organization by developing a common concern for its progress. (b) to stimulate a greater interest among employees in the affairs of the organisation as a whole, and (c) to encourage better co-operation between management and employees.

6) Merit Pays : Merit pay is the most widely used in our organization for paying performance. Merit pay system typically give salary increases to individuals based on their supervisor’s appraisal of their performance. The purpose of merit pay is to improve motivation and to retain the best performers by establishing a clear performance reward relationship. Our organization takes care of the right performance appraisal through an open and transparent appraisal system, which eliminates the organizational level-based biasedness.

7) Employee Ownership : A number of plans that exist that help get some or all the stake ownership of our organization into the hands of employees. Unlike companies which offers stock option plans, stock purchage plans and employee stock ownership plans, our organization provides the opportunity to qualified, loyal and high performing employee to be included in the board of Directors, and or given special designation as Promoters and hence the benefits there in. This is a great motivation for our employees to contribute fully to organization.

8) Employee benefits : employee benefits areelements of remuneration given in addition to the various forms of cash pay. Our organization provides a quantifiable value for individual employees which maybe deferred or contingent like a pension scheme, insurance cover or sick pay, or may provide an immediate benefit like a organization vehicle. It also includes elements that are not strictly remuneration, such as annual holydays. Benefits in general do not exist in isolation. They are a part of comprehensive compensation package offered by the organization.


The objectives of employee benefits are : (a) to get increase the commitment of employees to the organization ;(b) to demonstrate that the organization cares for the needs of its employees and (c) to meet the personal security and personal needs of the employees (d) to ensure that the benefits are cost-effective interms of commitment and improvement in retention rate.

Benefits represents a large share of total compensation and therefore, have a great potential to influence the employee, unit, and organizational outcome variables. The empirical literature indicates that benefits do indeed have effect on employee attitude, retention, and perhaps job choice. Further it appears that individual preferences may play a particularly important role in determining the employee reaction to benefit.

Statutory and Voluntary Benefits : our organization provides both statutory and Voluntary benefits. Statutory benefits are given to the employees by the organistion regardless of whether it wants to or not. Like social security benefits, insurance, provident fund etc. Voluntary benefits as provided by organization are vacations, holydays, special leave, sick leave, health insurance, educational assistance, employee discounts, medical benefits canteen facilitym recreational facilities, credit cards etc.


Financial Reward Systems :
Incentives and financial rewards are coming under financial reward system. Incentives are forward looking while rewards are retrospective.

Financial incentives which are designed to provide direct motivation – do this and you will get that. Financial rewards provide a tangible form of recognition and can therefore serve as indirect motivators, as long as people expect that further achievement will produce worthwhile results.

Financial incentives aim to motivate people to achieve their objectives, improve their performance on enhance their competence or skills by focusing on specific targets and priorities. Financial rewards provide financial recognition to employees for their achievement in the shape of attaining or exceeding their performance targets or reaching the level of competence skill. Achievement bonus, team based lump sum payment are examples of financial rewards. A shop-floor payment-by-result scheme or sales representative’s commission are examples of financial incentive.

2 comments:

ASWANI August 26, 2009 at 4:31 PM  

Excellent post. very useful and informative. A must read for modern managers.

Anonymous,  October 2, 2012 at 7:14 PM  

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