In the contemporary world, rewards for better performance and success matter more than the actual achievement itself. Indeed, as the global financial crisis showed, rewards were everything for the bankers as they strove for more reckless bets and increasing risk taking. Because of the system of flawed incentives, rewards were seen to the ultimate prize that was greater than the actual process of winning. Hence, rewards management has to be seen in the context of what are proper and just rewards and what are disproportionate rewards. The point here is that rewards ought to justify the performance and not exceed them. What we mean by this is that it is okay to reward a high performer for his or her stellar performance but not to the point where in the pursuit of rewards, the individual throws caution to the winds and indulges in unethical behavior.
For the present day generation, rewards matter more than the actual performance and this is reflected in their increasing demands from the employers for salary hikes and bonuses.
If not anything else, the millennial generation believes that excessive rewards are their due. Though this is not to say that only this generation behaves that way (this pattern can be seen in the Generation X as well), it is the case that undue emphasis is being placed on the rewards alone as opposed to the fulfillment one gets by getting the job done in a proper manner. If the baby boomer generation taught us anything, it is that doing the job for fulfillment sake is more important than the reward system in place. Of course, it goes without saying that in a world of diminishing resources, everyone is concerned with earning as much money as possible, and hence some of this behavior is indeed justified.
However, the point needs to be made that while rewards are one way to motivate individuals and incentivize good performance, they are not the be all and end all that everyone likes to believe. Hence, a proper reward system in organizations would be aligned with the correct strategic fit between internal motivation and external rewards and only when they are in balance can organizations grow in a healthy manner.
Much has been written about how excessive CEO compensation is hurting the corporate world and hence, the debate over whether CEO’s are being paid excessively is indeed justified in view of the ongoing global economic crisis. The point here is that a reward system that does not increase the gap between the CEO and the lowest paid worker by more than a ratio of 15:1 is the correct one according to studies done in this field. Hence, all possible efforts must be made to decrease the gap between the lowest paid employee and the highest paid employee. Of course, in practice this might not be possible completely due to entry-level salaries being much lower. Therefore, a way out would be to determine the cap according to each company’s requirements and then pay the employees at all levels accordingly.
Motivation and Financial and Non-Financial Rewards
All of us need to be motivated to get work done. We might be motivated by the lure of financial rewards like bonuses, pay hikes, and other monetary benefits. We also might be motivated by recognition, reward, fame, and glory. Thirdly, there are some of us who are motivated by the fulfillment that comes from doing a good job. Finally, we might be motivated by altruistic desires of helping society and building a better world. This is the model of motivation that has been described by the legendary organizational behavior theorist, Abraham Maslow. The different levels of motivation in each case correspond to the different life stages that an individual goes through and hence, the level of motivation and the drivers of motivation vary from individual to individual. The Hygiene theory makes the case for the presence and absence of motivators. In this theory, we would be demoralized if the motivators are not in place and when they are in place, the base level of motivation is guaranteed. Hence, the implications of the theories of motivation are that rewards (financial and non-financial) play an extremely important role in motivating individuals.
Given the background described above, organizations must evolve reward systems that motivate each individual according to his or her level of self-development and need for either monetary benefit or fulfillment imperative. In this context, it is important to note that many multinational companies have a financial component that motivates employees and a non-financial component like honoring the employees, publicizing their achievements, and making senior management talk to these employees for their contributions. The point here is that both financial and non-financial rewards are important for individuals to be motivated and organizations must design reward systems that take into account these aspects.
In many companies, it is the practice to earmark certain employees as those in the “Fast Track” or “High Potentials” and then devise specific reward systems for these employees. This is the practice in companies like Infosys where employees are identified early on and appropriate reward systems designed to ensure that they retain their motivation levels throughout their careers with the company. The important aspect here is that one need to stay focused and motivated throughout one’s career and it is easy to lose focus and be demoralized at each stage of one’s career. As those in the corporate sector would attest, once one loses focus and is distracted, the downward slope is swift and steep. After all, in many sectors, the last performance is the one, which counts, and hence, there is a need for individuals to stay focused throughout.
Reward Systems and Policies
Perhaps the most important aspect in any organization is the reward system in place. This is because employees are not providing their services for free and on the other hand, the organizations do not run a charity show. What this means is that the contractual obligations between employees and organizations are about how much work is to be done and how much pay is to be paid for the work done. Hence, the reward policies must reflect this aspect.
However, a significant aspect about the reward systems that is usually ignored is that employees have intrinsic needs other than monetary needs alone. This intrinsic need for recognition, better treatment, and rewarding of their good work forms the other pillar on which the reward system and the reward policies stand.
Monetary Reward Policies
The obvious and natural choice of any reward system is the provision of monetary incentives. This means that pay hikes, bonuses, and allowances that are monetary in nature play a key role in motivating employees. These extrinsic rewards cater to the basic needs of employees to sustain themselves and their families. An ideal reward system would provide for graded pay increases and bonuses that are in tune with industry best practices and are coordinated across the organization without discriminating against specific departments or divisions. Further, the monetary incentives should also not discriminate based on gender, ethnicity, or other aspects of identity. The reward policies must also take into account the fit between the employee and the role that he or she performs. There is no point in having a wrong person for the right job or a right person for the wrong job.
Non-Monetary Reward Policies
As discussed in the first section, a reward system that incentivizes the intrinsic needs of employees is an ideal system. This is not to say that extrinsic rewards like pay and bonuses are not important. Rather, the combination of external rewards and non-monetary rewards like recognition, awards, and publicity for the employee’s good work is the key to actualizing performance. In other words, the ideal reward system manages to reward good performance both with monetary and non-monetary incentives.
Some non-monetary rewards can also include benefits and benefits like memberships to exclusive clubs, company provided housing and transport, and advanced training and soft skill upgrading courses that motivate employees to self-actualize themselves. For instance, companies like Fidelity focus more on the package of benefits at senior levels, which includes a gamut of non-monetary rewards like the ones mentioned above. Further, periodical prizes and publicizing the efforts of top performers is done in many companies including IBM and Infosys.
Factors Affecting Levels of Pay
Skills, Experience and Performance
This is the basic determinant of the pay that is given to an employee. This is the entry-level criterion wherein the skills of the employee are first determined and the pay fixed accordingly. Next, the performance of the employee during the appraisal period forms the basis for the salary hike and the bonus given to him or her. The point here is that when a person is hired, there is no way to determine whether he or she would fit within the company or would perform according to or exceed expectations. Hence, the skills and experience are used to determine the pay and subsequently the performance is used to hike the salary.
Position in the Hierarchy
We have discussed how the skills and performance of an employee is one of the determinants of pay. Apart from that, the position in the hierarchy is another key determinant of pay. For instance, in many companies, it is routine to raise the compensation by a quantum jump as soon as the employee is promoted to the managerial level.
Further, there is a jump when the managerial level employee is promoted to upper middle management and senior management. What the companies are doing here is to reward these employees for making the successful transition from followers to leaders and from managers to executive positions. Hence, the position in the hierarchy is an important determinant of the level of pay that an employee receives.
Alignment of Attributes and Role
Perhaps the most important determinant of the pay given to an employee is the alignment between the individual’s skills and attributes and the role that he or she is assigned. For instance, in many companies, a periodical evaluation of the match between the attributes and the role is carried out to determine whether the employee is doing justice to the role and whether the organization is doing justice to the employee by placing him or her in an appropriate role. After all, one cannot have the right person for the wrong job and the wrong person for the right job.
In some companies, it is common for employees during the appraisal time to demand that they must be placed in another role and it is also common for the managers to move the employees into other roles. Indeed, as discussed in pervious articles, the match between the employee and the role is of crucial importance as the level of pay that an individual is getting depends on the role that he or she is playing. There is no point in rewarding nonperformers at a certain level when they are not delivering according to expectations. Similarly, there is no point in devaluing a performer by keeping him or her in a role, which is significantly lower than their skills and performance.