Reward Management

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Part A
Introduction
Reward management relates pay and other benefits to objectives of the company and the individual. Reward Management is of fundamental importance in relation to good management. Without a solid approach towards reward management, an organisation is likely to have an unsatisfied or unmotivated workforce. It covers both strategy and practice in regards to pay systems. It has to support the achievement of the business strategy. The overall aim of reward management is that employees should be rewarded for the value they create.

Individual
Pay is important to the individual worker, as it is the foremost reason why most go to work. According to Milcovich, Newman and Milcovich (2001, p6): “employees may see {reward} as a return in exchange between their employer and themselves, as an entitlement for being an employee of the company, or … for a job well done” (original emphases) An organisation’s reward policy has to take account of individual needs and what influences employee satisfaction with their needs. There are many different ways to reward staff for their performance, but it is essential that the members of staff value the rewards that are on offer. They also have to believe that, in order to obtain a better reward, they have to put in a better performance. Many organisations use contingent pay, pay that is related to “performance, competence, skill or service” (Armstrong, 2003) This results in many different forms of reward for the individual. It can be a cash lump sum, which leads to incentives such as bonus schemes, profit sharing, and share ownership. Then there is a consolidated increase to the basic rate of pay. This can be an incentive which aims to motivate the employee to achieve their objective and improve their performance, or it can be a reward, which provides recognition to the employee for their achievement. But the organisation has to decide which method of contingency pay to use. It can use performance, competence, contribution or service related pay. Performance related pay (PRP) means that increases to basic pay or bonuses are related to performance assessment. There are advantages to this for the individual worker, because it links rewards to objectives and it rewards achievements. It also demonstrates that good performance is important to the business, and that it will be rewarded. However, it does have some disadvantages to the individual, as it relies on the evaluating of performance, which can be subjective. The individual employee also has to rely on the management knowing what they are looking for in terms of performance. On the whole, PRP can only work for the individual when performance in the organisation can be measured objectively. But it is appropriate for an individual who is more likely to be motivated by money. Competence related pay links pay increases to level of an individual’s competence. This encourages the individual to develop their competencies in order to increase their rewards. But, as with PRP, it has to rely on the management who should be trained. Contribution related pay rewards the individual for both competence and performance. The benefits the individual, as they are rewarded for not only what they do, but how they do it. But it suffers from the same disadvantages as both PRP and contribution related pay. The last form of contingent pay is service related pay. This is when pay is related to the length of service an individual has served. This has an advantage for the individual as it eradicates the possibility of the bias from line managers which affects the previous pay schemes. But it means that everyone is treated the same, regardless of how well that an individual does. This pay scheme treats everyone the same, but does not benefit the individual who feels that they have worked above and beyond their duty. It could result in employees doing the bare minimum, as they know that the longer that they work for the organisation,...
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