Explain what is reward system?

Explain what is reward system? Describe the reward system of your organization or any organization you are acquainted with. How financial reward systems have been helping in improving organizational performance? Explain with example.

Ans. Reward System : -

Since positive consequences are so important to employee behaviour, reward systems become critical to employee performance and organizational success. The organization may have the latest technology, well thought out strategic plans, detailed job descriptions, and comprehensive training programme, but unless the people are rewarded for their performance related behaviours, the ‘up-front’ variables or the rules that govern their behaviour have little impact. In other words, going back to skinners original conception, the antecedent cues have power to control or provide rules for behaviour only if there are reinforcing consequences. As one behavioural management consultant points out : -

A company is always perfectly designed to produce what it is producing. It is has quality problems, cost problems, productivity problems, then the behaviours associated with those undesirable outcomes are being reinforced. This is not conjecture. This is the hard, cold reality of human behaviour.

The challenge for management is to understand behavioural reality, eliminate the reinforces for the undesirable behaviours, and more importantly and effectively, reward the desirable behaviour. Thus, organizational reward systems become the key, often overlooked, factor in bringing about improved performance and success.

When anyone mentions organizational reward systems, money comes quickly to mind. Monetary reward systems do play a dominant role. As organizations in recent years have become leaner and more efficient, monetary rewards have become very limited and increasingly are just not available. More and more interest is now being given non financial rewards.

In the past, most reward systems were geared to the individual. With the emergence of teams in most of today’s organizations, systems are being revamped to reward teamwork. A good example is Behlen Manufacturing in Columbus, Nebraska. The 1100 mostly production employees are organised into 32 teams. Some of these teams have only a handful of members, while others have as many as sixty. Although each individual receives a base pay component, which comes to about $8 an hour, the rest of the compensation is variable and is determined in a number of different ways, including how one’s team is performing.

The centrepiece of the manufacturing company’s variable reward plan is gain-sharing, an increasingly popular form of compensation whereby all members share a usually fixed percentage of the documented savings or performance gain accomplished by the team. Behlen employees can earn monthly gain-sharing of up to $1 an hour when their teams meet productivity goals. The CEO explained this team reward system as follows: “If you’re in a group that makes stock tanks, for example; from the start of the process to the end of the process, overall shifts, all month long, if the team achieves certain levels of productivity, each of its members is rewarded anywhere from Ocents to $1 an hour for every hour worked in that area . “Documentation of the gains is based on actual pounds of products, so that everyone on the team knows exactly how well they are doing. Another part of the company’s variable reward system involves profit sharing. Employees receive 20 percent of the profits. In recent years this has resulted in everyone’s getting a profit-sharing bonus equivalent to three week’s salary. Still another part of the reward package is the employee stock ownership plan. Each employee receives company stock equal in value to 2 percent of his or her base salary each year. Senior managers in the company participate in the same reward system as the workers, receiving the same proportional benefits. In the case of managers, performance is calculated on the gross margin of their business unit before selling and administrative costs are deducted.

HELP OF FINANCIAL REWARD

Money as a Reward

Despite the tendency in recent years to downgrade the importance of money as an organizational reward, there is ample evidence that money can be positively reinforcing for most people and, if the pay system is designed properly to fit the strategies, can have a positive impact on overall organizational performance. The downgrading of money is partly the result of popular motivation theories, such as Maslow’s hierarchy of needs, plus the publicity given to surveys that consistently place wages and salaries near the middle of the list of employment factors that are important to workers and managers. In terms of Maslow’s well-known hierarchy of needs, money, is often equated only with the most basic requirements of employees. It is viewed in the material sense of buying food, clothing and shelter. Money has a symbolic as well as an economic, material meaning. It can provide power and status and can be a means to measure achievement. In the latter sense, money can be used as an effective positive reinforcement intervention strategy to improve performance.

New Pay Techniques : -

The standard base pay technique provides for minimum compensation for a particular jobn and is a type of continuous reinforcement schedule. Pay by the hour for workers and the base salary for managers are examples. The technique does not reward above average performance or penalise below average performance, and it is administered on a continuous basis controlled largely by the job rather than by the person performing the job. A variable pay technique is an intermittent type of reinforcement schedule and attempts to reward according to individual or group differences. It is more human than job controlled. Seniority is a traditional variable pay plan which recognises age and length of service differentials. The increasingly popular merit pay and individual or group incentive plans attempt to reward contingently on the basis of performances.

1. Commissions beyond sales to customers : - As with all the new pay plans, the commissions paid to sales personnel are aligned with the organization’s strategy and core competencies, specifically, besides sales volume, the commission is determined by customer satisfaction and sales team outcomes such as meeting revenue or profit goals.

2. Rewarding leadership effectiveness : - This newly emerging technique is based on factors beyond just the financial success of the organization, it also includes an employee satisfaction measure to recognise a manager’s people management skills.

3. Rewarding New Goals : - Besides being based on the traditional profit, sales, and productivity goals, rewards under this approach are aimed at all relevant employees (top to bottom) contributing to goals such as customer satisfaction, cycle time, or quality measures.

4. Pay for Knowledge workers in teams : - with the increasing use of teams, pay is being linked to the performance of knowledge workers or professional employees who are organized into reengineering, product development, inter-functional, or self-managed teams.

5. Skill Pay. This technique recognises the need for flexibility and change by paying employees based on their demonstrated skills rather than the job they perform. Although it is currently used with procedural production or service skills, the challenge is to apply this concept to the more varied, abstract skills needed in the new paradigm organizations (e.g. design of information systems or cross-cultural communication skills).

6. Competency Pay : - This approach tries to go beyond skill pay by rewarding the more abstract knowledge or competencies of employees such as those related to technology, the international business context, customer service, or social skills.

• A recent laboratory study of merit raise is at least 6 to 7 percent of base pay, it will not produce the desired on employee behaviour.
• Beyond ascertain point, increases in merit raise size are unlikely to improve performance.
• When merit raises are too small, employee morale will suffer.
• Cost-of-living adjustments, seniority adjustments, and other non-merit components of a raise should be clearly separated from the merit component.
• Smaller percentage raises given to employees at the higher ends of base-pay ranges are de-motivating.

A recent comprehensive review of the more popular gain-sharing plans was generally positive about their results, but it also noted that gain-sharing is still used mostly by large companies (e.g. Inland container, Eaton, GE, Whirl pool, and Ingersoll-Rand) and pointed out some of the problems involved. A study conducted first in 1989 and again in 1993 found that about two thirds of the gain-sharing plans were flops because of employee lack of confidence in how the payout was calculated, the overselling of the plan, the lack of support from middle management, and changes in the production process and personnel policies. As these gain-sharing plans mature and become increasingly important in the team based workplace, they can still be an effective reward system. For example, a recent field experiment found that a gain-sharing program even a short-lived one, can stimulate and sustain long-term performance.