Reward Systems Essay
Once of a manager’s most important tools is the ability to select rewards and time the rewards properly. Even if managers are not solely responsible for financial rewards, they can use a number of tools to increase the effectiveness of their organization. Reward systems can address several important managerial objectives as they relate to employee motivation. A solid reward system requires concerted attention in its development. The following sections provide a basis for a well-contructed reward system.
Purposes of Reward Systems
Reward systems serve several purposes in organizations. Effective reward systems help an organization be more competitive, retain key employees, and reduce turnover. Reward systems also can enhance employee motivation and reinforce the image of an organization among key stakeholders or future employees. People are the most important resource for organizational competitiveness, and keeping them on the job is a key task for any manager. Competition to attract and keep the best employees is intense. For people looking for a career opportunity, that’s great news, but as a manager of an organization needing to keep the best and brightest, it is a challenge. It may be even harder in the nonprofit and public sectors where flexibility in providing financial rewards may be more limited than in a commercial context. Retaining employees saves money on retraining costs, improves the consistency of services, and allows for relationships to develop between clients and the organization. In addition, proper rewards systems can reduce absences. Absences cause innumerable headaches for managers. Instructors who don’t show up, too few staff members at busy times, and the lack of a cleanup crew can all increase workplace stress. Absences not only affect the manager but also fellow employees who need to pick up the slack and clients who feel the brunt of too few employees on site. As suggested earlier, understanding who, what, and when to reward can improve employees’ performance.
However, the improper use of rewards can have a debilitating effect on employee performance. Managers need to understand their employees’ perceptions of the importance and fairness of the reward and then clearly communicate what needs to be done to receive the reward. Effective use of rewards can encourage employees to gain the skills that are necessary to help them and the organization grow. This can also increase their desire to continue being part of the organization. For example, an organization can pay and provide time off for employees who want to take advanced courses in an area that is valuable for the organization. Some organizations may even provide time off or support to help employees advance their own personal goals or skill sets. Ideally, an organization wants employees who not only show up to work but are excited about being there as well. This passion for work has been referred to as affective commitment. Although research is somewhat preliminary, there is some indication that affective commitment can be strengthened by rewards that enhance employee perceptions of being supported and having control of the work situation. Finally, reward systems can also help with recruiting efforts. Just as happy customers may be the best advertisement for a particular product, happy employees are often a great tool for recruiting new employees and making the organization a workplace of choice. Think about the kind of job you want. Often you will easily be able to identify an organization that stands above the others as a great place to work. As a consequence of this, the organization can attract the best and brightest, creating a virtuous circle whereby it becomes an even more attractive workplace. Hopefully you can see that establishing the right reward structure for an organization is critical to its success. The following sections delve into the details of various reward structures.
Types of Rewards
Understanding how each employee perceives and values different rewards is an essential part of management. Managers need to grasp an understanding of extrinsic and intrinsic rewards. Extrinsic rewards are external rewards tied to certain employee behaviors, skills, time, or roles in an organization. How employees perceive these rewards relevant to their performance and the rewards given to others will ultimately determine the effectiveness of the rewards. Managers also need to understand how much value each employee places on specific extrinsic rewards. For example, a well-paid but overworked employee may value additional vacation time or a reduced workload more than a few extra dollars. Money, praise, awards, and incentive prizes such as tickets to a concert or a game are all examples of extrinsic motivators. Whatever motivator the manager chooses, the employee must see the reward as a motivator for it to be effective. For example, if the extrinsic reward is tickets to the opera, an employee who hates the opera likely would not be motivated by the tickets. On the other hand, if the employee is a football fan and the extrinsic reward is tickets to a major game, the motivator might be more effective. It is simpler to explain what intrinsic rewards are by discussing what they are not. Intrinsic rewards do not have an obvious external incentive; that is, people are not acting to get a tangible reward, be it time off or money. Instead, they act because it feels good or provides some form of internal satisfaction. Intrinsic rewards are often more highly valued and more effective over time, yet using them is a difficult managerial task. Intrinsic rewards derive from employees feeling good about the job they have done, the effort they have put forward, or the role they played in a team project. Intrinsic rewards in the workplace come from the job itself, so to provide intrinsic reinforcement, a manager should enrich the job. Job enrichment involves improving work processes and environments so they are more satisfying for employees, such as eliminating dysfunctional elements or enlarging jobs (increasing the duties and responsibilities of a job). Developing an effective reward system can be a difficult task. The following sections provide some guidance on the basics of an effective reward system. These sections focus almost exclusively on extrinsic rewards, but intrinsic rewards should also be considered when developing each employee’s job.
Monetary Versus Nonmonetary Rewards
Monetary rewards are most commonly given in the form of pay increases, bonuses, or increases in benefits, such as pension or health care premiums. Such rewards can be divided into two categories: direct and indirect compensation (table 11.1). Both contribute to the financial betterment of an employee. Direct compensation is relatively straightforward and consists of increases in hourly pay, increases in hours (for nonsalaried employees), increases in salary, merit pay based on performance, seniority pay based on time with an organization, and bonuses based on the achievement of individual, group, or organizational objectives.
Indirect monetary compensation includes increases to benefits or the addition of benefits such as a dental plan. It can also include paid leave in the form of vacation days, days off for training, or longer time off such as a sabbatical, as well as paid leave for illness, caring for a child, or caring for an elderly parent. Additionally, some organizations may offer services as part of an indirect compensation package, such as on-site child care, an elder care program, an on-site cafeteria, a games room or gym, and confidential counseling services for employees and their families. Again, indirect compensation should be valuable to employees and ideally should offer choices from a range of services. Nonmonetary rewards cost the organization but do not directly improve the employee’s financial position (table 11.1). Supplying employees with the best tools possible to do their job is an example, such as providing a new high-end laptop or having an excellent training facility for coaches at a university. A good office location, choice of furnishings, or special parking place can all be nonmonetary rewards. Employees may not know the full details of pay and other monetary benefits of coworkers, but nonmonetary rewards are often visible and can create perceptions of inequity in an organization. In some cases, this may be the intent of managers who want employees to strive to achieve the stereotypical corner office, but often it may also unintentionally encourage feelings of inequity. That inequity may have positive implications for an organization if employees strive to increase performance, or it can result in turnover and reduced performance. As with any reward, nonmonetary rewards need to be carefully thought out before being implemented.
Performance-Based Versus Membership-Based Rewards
One of the most difficult challenges for managers is to decide what to base rewards on. A common distinction is performance-based versus membership-based rewards. As the name implies, performance-based rewards are tied to the ability of an individual, team, group, or organization to meet some previously agreed-upon standard of performance. Performance rewards are based on an evaluation of contribution and awards are allocated based on that evaluation. Membership-based rewards are allocated solely for being part of a group within an organization. These rewards commonly include annual cost-of-living increases to a base salary or support for an equity policy. For example, if a park and recreation department was looking to encourage staff to have master’s degrees or obtain certification, they might offer pay incentives for having either or both. Membership-based rewards are also often tied to length of time with an organization. For instance, after a certain length of service with an organization, employees may receive a certain percentage increase to their pay or be eligible for additional benefits. In a unionized environment, many of these rewards are spelled out in a labor agreement. To illustrate the difference between the two structures, let’s look at annual raises. A performance-based structure means that each employee’s performance is evaluated and raises are based on performance, with the highest performers getting the most money. A membership-based structure means that all employees receive the same raise regardless of performance. Membership structures can be demotivating to high performers because they get the same rewards despite working harder.
As more and more managers understand the importance of individualizing reward systems, the use of nontraditional rewards will continue to grow. Time is often a key constraint, and for many people work is a major time commitment. Ways in which employees can individualize their work schedule are becoming increasingly important rewards. Four methods of individualization are reduced workweeks, staggered daily schedules, flextime, and working from home.
A reduced workweek often sees employees working a 4-day week instead of 5 days. In return for that extra day, employees work longer on their 4 days in the office. For example, in a 40-hour workweek from Monday through Friday, employees would work 8-hour days, but the reduced workweek would see hours increase to 10 hours a day for 4 days. The benefits to the employees are longer blocks of time to take care of their personal lives, less frequent and often less busy commutes, and ultimately more useful time for themselves. The organization has no additional expenses and evidence suggests that absenteeism and time lost for personal reasons decreases. However, there are also downsides for both employees and the organization. Parents, for example, may find it difficult to find child care that is open late or early enough to accommodate the longer work schedule. The longer work day may also be a constraint to people who are involved in weekly evening activities, be it coaching a team or attending an art class. Some jobs may also not lend themselves to longer days. A lifeguard or sport instructor may be considerably less effective in those last 2 hours, which can lead to decreased performance and in some cases safety risks. Also, the hours and timing of work may affect service to clients. Even if an organization maintains its regular schedule, clients expecting to reach a particular person during traditional business hours may find the new schedule frustrating. Finally, reduced workweeks seem to be most effective when employees themselves are involved in creating the schedule. Understand that employees participating in reduced workweeks need to be scheduled so that the entire organization is not gone on Friday!
Staggered Daily Schedule
An alternative to a reduced workweek may be a staggered daily schedule. Employees still work their designated weekly hours but can allocate those hours in different ways. For example, one employee may want to come in late and leave later to accommodate dropping off children. Someone else may prefer being in the office an hour earlier and leaving an hour earlier. These schedules may even be adapted weekly or monthly to accommodate changing employee needs. This idea meets employees’ individual needs but can often be difficult to manage. Again, a staggered daily schedule may not be appropriate in all settings and must consider not only employee needs but also organizational requirements and client desires.
Flextime allows some employee freedom while still meeting client and organizational needs. Employees are expected to be in the office during a certain time frame, usually ranging from 4 to 6 hours, such as 9:30 a.m. to 3:30 p.m. Flextime emphasizes productivity and allows the employee some leeway in that flexibility zone (before 9:30 a.m. and after 3:30 p.m.). For example, take Pat, an aquatics programmer. Pat has two school-aged children and requires some flexibility to drop them off and pick them up at school. Pat has worked with the employer and agreed that he will be at the pool between the hours of 9:30 and 3:30 but will complete the rest of his work elsewhere. This ensures that Pat’s coworkers and clients can reach him at predictable times while still allowing him the personal flexibility he requires at this point in his life. This type of arrangement has been effective for many organizations and employees, although obviously it won’t work in all situations. Flextime also allows a staff person more control over their hours. For example, a special events coordinator works 5 hours over the weekend. The following week, the coordinator comes in an hour later than usual each day.
Working From Home
As technology has advanced, the option of working at home for some or all of the workday is becoming increasingly possible. A high-speed Internet connection and a laptop computer connected to the workplace network provide many people with everything they need to do their job. Obviously this arrangement is more suited to some positions than others. A job developing programs for a municipal recreation department would be more suited to a work-at-home plan as opposed to the job of instructing the programs. Working for some or all of the workweek at home can offer fewer workplace distractions, allow employees time to concentrate on projects that are important to the organization, and make more effective use of the day by eliminating the need to commute as well as the usual time killers present in most offices. However, working from home is not for everyone. The distractions of the home require discipline, and for those who consistently work at home the blurred distinction between home and office can be unsettling. Additionally, monitoring employees at home is nearly impossible. Evaluation needs to be performance based and work-at-home schemes do not work for organizations that want to monitor how employees spend their time. Allowing employees to work at home part of the time, however, may be an excellent compromise for both employees and the organization.