Designing a Reward System

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“Designing a Reward System”

Tiffany Hautau

Rewarding and recognizing employees is a ticklish business. It can motivate people to explore more effective ways to do their jobs - or it can utterly discourage such efforts. Here are a few tips and traps:

Establish a clear link between what people are rewarded for and the organization's priorities. Does everyone see and understand the relationship between their improvements and financial rewards? Too many profit-sharing plans, for example, are disconnected from daily work. The effect of cost control or customer satisfaction efforts on the bottom line is so fuzzy that it's meaningless. Be careful when offering money or recognition for employee suggestions. This can lead to conflict rather than cooperation. Individuals and groups often end up jealously protecting their ideas or arguing about the source of ideas. Suggestion systems also separate idea generation from implementation. Effectiveness is a function of how strongly ideas or strategies are accepted and then implemented by the people who can make them work. Suggestion systems work best in traditional "command and control" or paternalistic organizations. Workers come up with ideas and managers decide which ones get implemented. In a highly involved organization, teams generate and test ideas as part of a bigger focus on improving their own key processes.

Involve team members, individuals or managers in developing their own incentive and reward systems.   Involvement can be achieved through opinion surveys, focus groups, teams that study and recommend, or teams that design and implement the rewards. The best organizations always use combinations of these approaches.

Despite mountains of evidence to the contrary, many managers believe money is more rewarding than recognition and appreciation. You should balance your incentive plans and reward systems with generous amounts of "thanks pay." And make sure managers have the skills to show recognition when people are doing good work. They often find it awkward to express appreciation. Reward systems and recognition practices speak volumes about your organization's values. Are they designed and delivered to employees - or with them? Do they reflect a management view of "we know what's best for you?" Are they partial and piecemeal or part of a larger system and philosophy?

You should ask if financial incentives seek to penalize people and have them "share the pain," or look for ways to make people feel like winners. Are people given paternalistic pats on the head or treated as equal adults? Like customer service and quality, reward and recognition are highly subjective. Just as they monitor the changing needs of customers, effective leaders constantly try to understand the shifting perceptions and values of everyone in their organization. ==========================================================================

Employees are motivated by both intrinsic and extrinsic rewards. To be effective, the reward system must recognize both sources of motivation. All reward systems are based on the assumptions of attracting, retaining and motivating people. Financial rewards are an important component of the reward system, but there are other factors that motivate employees and influence the level of performance.

Today's emphasis on quality-improvement teams and commitment-building programs is creating a renaissance for financial incentive of pay-for-performance plans.  

To ensure the reward system is effective and motivates the desired behaviors, it is essential to consider carefully the rewards and strategies utilized and ensure the rewards are linked to or based on performance. To be effective, any performance measurement system must be tied to compensation or some sort of reward. Rewarding performance should be an ongoing managerial activity, not just an annual pay-linked ritual. Strategies for rewarding employees’ performance and contributions include both...
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