The Principles of Reward
Evaluation of concepts
An employee reward is simply a gift or an award showing appreciation for achieving set performance targets or celebrating an employee's accomplishments. CIPD provides examples such as cash pay or bonuses and other forms of benefit packages such as health coverage. This means a reward can be fixed pay (salary, pensions etc.), variable pay (bonuses, commissions, cash gifts etc.), or a long-term incentive plan like stock options. A reward principle is, therefore, a broad statement (or philosophy) developed by an organisation to shape its reward approaches and packages in terms of how to pay and compensate people for ‘on-target and above-target performance’ and to help guide it in achieving its wider goals.
Principles
Total reward approach
A total reward approach is a principle in which an organisation develops a reward mix of financial/tangible such as pay, bonuses and perks, sales commissions, and pension and non-financial/intangible rewards such as opportunities for advancement, L&D programs, recognition, and flexible working. This principle is founded on Maslow’s Hierarchy of Needs whereby the total reward strategy motivates people by addressing or meeting five fundamental needs. In a reward system, the five components of total rewards are compensation (fixed and variable pay or long-term incentive plans), benefits like healthcare and retirement, well-being elements like employee assistance programs and company-sponsored events, recognition (awards), and development (Training). An example of a total reward strategy is when an organisation develops CPD programs to encourage people to adapt to the new trends in their work, offering variable perks for performance, and opportunities for flexible working. Note that a total reward principle has benefits such as improving employees’ motivation, job satisfaction and security, and better wellbeing. However, the concerns are that total reward strategies may build a workforce that values financial rewards more meaning it nurtures selective behaviours and cultivates a weak workplace culture.
Transparency
This reward principle prioritises openness when designing, developing, and implementing reward practices and policies. In an organisation, this would entail allowing employees to be part of the process and raising adequate awareness about reward practices or initiatives and criteria utilised including how they function. Reward professionals maintain ongoing communication about the reward systems for clarity and comprehension. The pros of such an approach include preventing reward inequalities, fostering a culture of trust by recognising people openly, improved employee engagement since it establishes an open feedback system in a company and invites suggestions to improve it. The unintended consequences of transparency are that it can have paradoxical effects in reducing effectiveness or impact in the targeted areas, expanding the accountability gap, and personalising requests.
Fairness
Fairness means ensuring a reward system is based on ‘principles of distributive and procedural justice." This means that how people perceive the distribution of rewards is fair and the process utilised is just. The importance of this principle is to prevent inequalities (ensure equity), support transparency and consistency, and promote employee satisfaction. The downsides of failure to prioritise fairness include distrust of process and practice, a spike in turnover rates, and low productivity.
Consistency
This principle holds that an organisation should implement reward practices consistently. This means using similar criteria and rewards for similar work or job ranks and performance targets and fairly practising it without favouritism. The impact of consistency includes improving employee job satisfaction, improved performance and productivity, retention, and a positive working environment. Its drawbacks include using similar approaches or criteria in rewards during different economic periods which may not be relevant to the needs of the employees and the company. This can normalise mediocre practices.
Alignment with the organisation’s objectives
This is a principle in which an organisation links its reward strategies, practices, and initiatives/policies with specific business objectives. For instance, a company aiming to improve performance can link rewards with employee satisfaction practices. These could be utilising merit-based reward approaches and packages to satisfy workers and stimulate their productive behaviours which in turn helps achieve set objectives. This shows that performance-based rewards demonstrate the employer's appreciation for employee efforts and recognise their merit. The pros of aligning rewards with company objectives include improved employee satisfaction and happiness, positive impact on employer brand, and competitiveness performance-wise and in resourcing in the labour market. Its drawbacks include potential misalignment causing fragmented practices.
Importance of reward to organisational culture
Rewards are important to every organisation's culture since they support and improve employee retention. Essentially, rewards will show recognition of people's merit and reward their performance which improves engagement and deepens satisfaction with the company. Studies note this is based on increased happiness and feelings of appreciation. Additionally, rewards can be strategically utilised to reflect the company’s purpose, values, and vision. This will strengthen an organisation’s culture and shape appropriate employee behaviours. It is important to acknowledge that a poorly administered reward practice due to misaligned principles can lead to imbalance especially when a total reward approach is employed. Its impact is unhealthy work culture, misconduct, and selective work behaviours.
Importance of reward to performance management
Rewards help stimulate employee performance to achieve the set targets. Suppose an organisation uses fair, transparent, and consistent principles, it will improve employee engagement and understanding of how rewards function which would result in improved productivity. Similarly, by utilising a reward mix where people earn financial rewards and are intrinsically motivated, performance will improve because their economic wellbeing and the psychological contract are prioritised by the reward system. Its downsides include poorly structured and lack of reward awareness which would contribute to fragmentation and unfairness. This harms the employer brand.
FAQs
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