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.
Reward management consists of analysing and controlling employee remuneration, compensation 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.
History
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.
Defining motivation as "the degree to which an individual wants and choose to engage in certain specific behaviours", to which Vroom (quoted in Mitchell, 1982) adds that performance = ability x motivation. To have an efficient Reward System then, is mandatory that employees know exactly what their task is, have the skills to do it, have the necessary motivation and work in an environment allowing the transformation of intended actions into an actual behaviour. From the company point of view instead, an effective performance appraisal has to be present, in order to let motivation be a major contributor to the rewarded performance.
Objective
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 systems exist in order to motivate employees to work towards achieving strategic goals which are set by entities as well as aligning the actions of employees to reflect the culture, aims and beliefs a business or organisation wishes to uphold. 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. Ultimately, Reward Management is a tool that uses various types of Employee Motivation to align the strategic and cultural goals of an employee, or group of employees, with the tactical targets set by a business or organisation.
Kerr (1995) brings to attention how Reward Management is an easily understandable concept in theory, but how its practical application results often differ. The author, in fact, points up how frequently the company creates a Reward System hoping to reward a specific behaviour, but ending up rewarding another one. The example made is the one of a company giving an annual merit increase to all its employees, differentiating just between an "outstanding" (+5%), "above average" (+4%) and "negligent" (+3%) workers. As the difference between the percentage increasing was so slight, what the company obtained from the employees was indifference to the extra percentage point for a superlative job or the loss of one point for an irresponsible behaviour. In the following table other common management errors are summarised.
Güngör (2011) discusses Reward Management Systems and its applications within organisations. A firms Reward Management System may contain the organisation's processes, practices and policies which correspond to the employees contributions or abilities. The application of these are the relevant types of rewards which are given out to those who meet the criteria of the system. This study in to employee performance found a significant and positive relationship between Reward Management Systems and Employee performance
Types of rewards
Rewards serve many purposes in organisations. They serve to build a better employment deal, hold on to good employees and to reduce employee turnover.
The principal goal is to increase people's willingness to work in one's company, to enhance their productivity and align their actions with the strategic goals and cultural beliefs of the Organisation or Business.