Reward management

From Wikipedia, the free encyclopedia - View original article

Jump to: navigation, search

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.[1]

Reward management consists of analysing and controlling employee remuneration and all of the other benefits for the employees. Reward management aims to create and efficiently operate a reward structure for an organisation. Reward structure usually consists of pay policy and practices, salary and payroll administration, total reward, minimum wage, executive pay and team reward.[1]


Reward management is a popular management topic. Reward management was developed on the basis of psychologists' behavioral research. Psychologists started studying behavior in the early 1900s; one of the first psychologists to study behavior was Sigmund Freud and his work was called the Psychoanalytic Theory. Many other behavioral psychologists improved and added onto his work. With the improvements in the behavioral research and theories, psychologists started looking at how people reacted to rewards and what motivated them to do what they were doing, and as a result of this, psychologists started creating motivational theories, which is very closely affiliated with reward management.[2]


Reward management deals with processes, policies and strategies which are required to guarantee that the contribution of employees to the business is recognized by all means. Objective of reward management is to reward employees fairly, equitably and consistently in correlation to the value of these individuals to the organization. Reward system exists in order to motivate employees to work towards achieving strategic goals which are set by entities. Reward management is not only concerned with pay and employee benefits. It is equally concerned with non-financial rewards such as recognition, training, development and increased job responsibility.[3]

Types of rewards[edit]

Rewards serve many purposes in organisations. They serve to build a better employment deal, hold on to good employees and to reduce turnover.[4]

The principal goal is to increase people's willingness to work in one’s company, to enhance their productivity.[5]

Most people assimilate "rewards", with salary raise or bonuses, but this is only one kind of reward, Extrinsic reward. Studies proves that salespeople prefer pay raises because they feel frustrated by their inability to obtain other rewards,[6] but this behavior can be modified by applying a complete reward strategy.

There are two kinds of rewards:

Intrinsic rewards makes the employee feel better in the organization, while Extrinsic rewards focus on the performance and activities of the employee in order to attain a certain outcome. The principal difficulty is to find a balance between employees' performance (extrinsic) and happiness (intrinsic).[8]

The reward also needs to be according to the employee’s personality. For instance, a sports fan will be really happy to get some tickets for the next big match. However a mother who passes all her time with her children, may not use them and therefore they will be wasted.

When rewarding one, the manager needs to choose if he wants to rewards an Individual, a Team or a whole Organization. One will choose the reward scope in harmony with the work that has been achieved.

Motivation theories[edit]

An interpretation of Maslow's hierarchy of needs, represented as a pyramid with the more basic needs at the bottom[9]

Motivational theories are split into two groups as process and content theories. Content theories endeavor to name and analyze the factors which motivate people to perform better and more efficiently while process theories concentrate on how different types of personal traits interfere and impact the human behavior.[10] Content theories are highly related with extrinsic rewards, things that are concrete like bonuses and will help improve employees' physiological circumstances whereas process theories are concerned with intrinsic rewards, such as recognition and respect, which will help boost employees confidence in the work place and improve job satisfaction.[11]

A famous content theory would be Maslow's Hierarchy of Needs,[12] and a famous process theory would be the equity theory.[13]

Job evaluation[edit]

Job evaluation is closely related to reward management. It is important to understand and identify a job's order of importance. Job evaluation is the process which job's are systematically assessed to one another within an organization in order to define the worth and value of the job, to ensure the principle of equal pay for equal work. This system carries crucial importance for managers to decide which rewards should be handed out by what amount and to whom. Job evaluation provides the basis for grading, pay structure, grading jobs in the structure and managing job and pay relativities.[14]

There also many different methods of job evaluation which can be used, but the three simplest methods are ranking, classification and factor comparison.[15] However, there are more complex variations of methods.

Performance appraisal[edit]

Performance appraisal was set up in the first place, as a justification for the pay of an employee. If his performance was seen as insufficient, his pay would be cut down. However if it was seen of a higher quality, he could receive a pay rise. There are various appraisal methods.

Some of these include « rank and yank » by which an organisation ranks its employees against each other and terminates the employment of the employee who finishes at bottom place. That corresponds to the yanking. Then there is the critical incident technique by which the organisation collects information and observes human behaviour that have a strong impact either positive or negative on an activity or procedure.

Each employee is different and can bring in something special to the organisation. Each employee has a specific job to fulfil. Performance appraisals are needed in order to understand how every employee can produce the best performance.

The effectiveness of an employee is the key factor for the employer, because the profit the company or organisation makes depends on the employees' productiveness.

The training and development needs should begin with an assessment of the company as it lies currently, how it operates and what each employee is best at. This assessment will enable the training to be based on certain factors which seem most important. Knowledge of the organisation's strategic plan and its needs for the future must help the training to bring the company up a step on the ladder.[18]


  1. ^ a b Murlis, Michael Armstrong & Helen (2004). Reward management: a handbook of remuneration strategy and practice (5th ed. ed.). London [u.a.]: Kogan Page. ISBN 978-0749439842. 
  2. ^ Latham, Gary P. Work motivation: history, theory, research, and practice (2nd ed.). London: SAGE. ISBN 9781412990936. 
  3. ^ Armstrong, Michael (2007). A handbook of employee reward management and practice (2nd ed. ed.). Philadelphia: Kogan Page. ISBN 978-0-7494-4962-9. 
  4. ^ Watson, Stephen (December 2003). "Building a Better Employment Deal". Workspan 46 (12): 48–51. 
  5. ^ Gkorezis, Petridou, Panagiotis, Eugenia (2008). "Employees' Psychological Empowerment via Intrinsic and Extrinsic Rewards". Academy of Health Care Management Journal (The DreamCatchers Group, LLC) 4 (1): 17–38. 
  6. ^ Chonko, Tanner, Weeks, Lawrence B, John F, William A (Summer 1992). The Journal of Personal Selling & Sales Management. Pi Sigma Epsilon National Educational Foundation, Inc. 
  7. ^ "Business Dictionary Intrasic Rewards definition". WebFinance, Inc. Retrieved 31 October 2012. 
  8. ^ Reif, William E (Summer 1975). "Intrinsic versus Extrinsic rewards: resolving the controversy". Human Resource Management (Wiley Periodicals Inc.) 14 (2): 2–9. 
  9. ^ "Maslow's Hierarchy of Needs".
  10. ^ Brooks, Ian (2009). Organisational Behaviour (4th ed.). Essex England: Pearson Education Limited. pp. 81–89. ISBN 978-0-273-71536-8. 
  11. ^ Stredwick, John (2005). Introduction to Human Resource Management (1st ed.). Oxford, United Kingdom: Elsevier Butterworth-Heinemann. ISBN 978-0-7506-6534-6. 
  12. ^ Kelly, Phil and Cole, G. A. (2011). Management Theory and Practice (7th ed.). Hampshire, United Kingdom: Cengage Learning EMEA. ISBN 978-1-84480-506-8. 
  13. ^ Buchanan, D. A.; Huczynski A. A. (2010). Organizational Behaviour (7th ed.). Lombardy, Italy: Pearson Education LTD. ISBN 978-0-273-72822-1. 
  14. ^ Armstrong, M.; Stephens, T. (2005). A Handbook of Employee Reward Management and Practice. United Kingdom: Kogan Page Limited. p. 92. 
  15. ^ Armstrong M.; Baron A. (1995). The job evaluation handbook. United Kingdom: The Cromwell Press. p. 46. 
  16. ^ Latham, Gary (1993). Increasing productivity through performance appraisal. Addison-Wesley. ISBN 0201514001. 
  17. ^ Murphy, Kevin R. (1995). Understanding Performance Appraisal: Social, Organizational, and Goal-Based. Sage Publications. ISBN 0803954743. 
  18. ^ Mary Jo Ducharme, Parbudyal Singh, and Mark Podolsky (August 30, 2007). "Exploring the Links between Performance Appraisals and Pay Satisfaction". SAGE Publications. Retrieved 25 October 2012. 

External links[edit]

See also[edit]