Reward Systems

Introduction

Reward Management (RM) has been defined as the distribution of monetary and non-monetary rewards to employees in an effort to align the interests of the employees, the organisation, and its shareholders (O'Neil, 1998). In addition O'Neil (1998) also suggests that a RM system can serve the purpose of attracting prospective job applicants, retaining valuable employees, motivating employees, ensuring legal requirements relating to direct and indirect rewards are not violated, assisting the company in achieving human resource and business objectives, and ultimately assisting the organisation in obtaining a competitive advantage.

Various conflicts in the RM system can affect the benefits that can be obtained. It has been argued that performance management systems only provide superficial motivations and have little effect on underlying behaviours and attitudes. Although the RM system can have some limitations, there is strong argument for the benefits, and logic also deems it as a credible strategy to assist in improving employee performance.

The implementation and application of RM within the subject organisation has provided many opportunities for increased performance. Limitations and inequities have been recognised in the system employed, mainly due to the lack of assessment and changes to the system in order to align it with organisational objectives.

Reward Management theory

Reward management involves defining, facilitating, and encouraging performance. The positive effects a successful RM system can provide to employee performance and in turn organisational success and competitive advantage are clear. This appeal has driven many organisations to take up RM as part of their performance management stratagem.

The RM system falls into the broader process of the performance management model within the organisation, as stated by Clark (as cited in Human Resource Management, 2000). This involves the continual process of setting performance objectives, measuring outcomes, providing feedback on the results, providing rewards which are linked to desired outcomes and finally evaluating and making amendments to objectives and activities of the system.

When developing an effective RM procedure as part of organisational strategy many considerations must be addressed. O'Neil (1998) suggests the following key methods of linking pay to performance; ascertain the value of the job, setting the pay structure of the job as well as grouping jobs into various levels and setting individual wages, creating a link with performance, and the communication and administration of the system. Similarly, Cascio (1991) suggests that the combination of the following five requirements along with a performance based pay system can also have a very significant impact on performance. The first of these is skill variety, where a wide variety of tasks or procedures is available to the employee. Next is task identity, where the employee can clearly identify the output of a task as a product of their efforts. This is followed by task significance, where the work is recognised as important and meaningful. After this comes autonomy, where the employees have a major say in work planning and execution. The final requirement is feedback, where employees receive constructive advice or criticism on their performance.

The rewards offered can be extrinsic such as wages, incentives and bonuses, or intrinsic such as job satisfaction, an internal feeling of worth and a sense of well being on the job.

O'Neil (1998) suggests six minimal criteria for the design of a performance based pay system. The first of these criteria is that the reward system should be self-funding, that is, the performance increases should as a minimum offset the cost of the rewards provided. The second criterion is that the distribution of the rewards must be consistent, fair and justifiable. In addition reward plans must be transparent and clearly communicated. The third criterion is that the draft system should be tested amongst various scenarios to determine the impact on the employees and the business. The fourth criterion is to ensure that the system is integrated with all other HRM functions, and that the employees can control and influence the performance outcomes. Communication of the system is the fifth criterion, the system, its objectives and the rewards must be effectively communicated to all participants. The final criterion is that the system must be evaluated on a regular basis to ensure the objectives and returns are being achieved. In addition RM has strong links with the following Human Resource Management (HRM) functions; job analysis, recruitment, performance assessment and union management relations.

As stated by Lawler (2002) individual based pay should be used to reward persons for their skills, knowledge and competencies relative to their external market value. Multiple pay for performance approaches should be used as rewards. Reward systems should be tailored to fit the characteristics and requirements of the individuals that an organisation wishes to attract and retain.

Reward Management in the subject organisation

The subject organisation is a national company which was formed in 1976 and has thirteen branches throughout Australia. The core business activities are the importation, sales, hire, and spare parts backup of various types materials handling and mobile equipment throughout Australia. In addition the company is also a national fleet management service provider. The company employs approximately 179 blue-collar workers of which 110 were in field service and the remaining 69 are workshop based, 57 sales and management staff, 64 administration staff, and 4 senior managers. In March 1998, the organisation was acquired by a foreign multinational, which possesses an extensive network of materials handling companies globally. Following the acquisition there has been constant changes to the structure of the organisation and the direction of the business.

The organisation has implemented and maintained a reward management system in which there are three independent schemes; one for the blue-collar workers, a second for sales and spare parts personnel and the final system for senior management. There is no scheme available to reward middle management and administration staff. The system has been operating for over ten years with little changes to its structure and with varying degrees of success. Only the first two systems (see appendix) will be reviewed as the details of the senior management rewards scheme were not readily available.

The organisation recently surveyed all employees covered by reward schemes. The survey revealed that although many of the