REWARDS AND RECOGINITION:

Rewards and recognition may be monetary (bonuses) or non-monetary (acknowledgement

in a company newsletter or during a regular team meeting). They may also be tokens that cost
money such as gifts or celebratory meals.
Companies use rewards and recognition to motivate employees and demonstrate that they are
appreciated. Often, rewards and recognition take the form of extra compensation for
employees who carry out the activities in their role description and meet their objectives.
Rewards and recognition can also be given for team-based accomplishments or for meeting
project-based targets.

Rewards and recognition have many uses, but in general they help:

● Shape employee behaviour and work ethic

● Give employees the opportunity to share in the benefits of their work
● Make employees feel like an integral part of the company

Rewards and recognition may be monetary (bonuses) or non-monetary (acknowledgement in

a company newsletter or during a regular team meeting). They may also be tokens that cost
money such as gifts or celebratory meals.

Measurements also calculate the per-employee cost of developing and maintaining benefits
programs.

1. Obtain materials related to your employee rewards and recognition program from the
human resources employee responsible for organizing events and award presentations. Many
organizations delegate this task to an employee relations specialist.

2. Compensation specialist is asked to assemble records pertaining to expenditures for

employee rewards and recognition. Include records for cash incentives, bonuses, prizes and
gift cards, as well as expenses for event planning.
3.  Calculate expenses for employee rewards and recognition programming separately from
the actual payments to or bonuses for employees. Add the total amounts expended for cash
awards, incentives, bonuses and other payments and divide that figure by the number of
employees to determine the per-employee cost for your company's employee rewards and
recognition.

For example, if your company awarded 10 employees each an annual bonus for 2,500 and
your employee base consists of 150 full-time employees, the average cost budgeted for
rewards is 25,000 divided by 150, which equals approximately 166 per employee.
4. Create a spreadsheet to analyze the types of rewards, the departments in which award
recipients work and the length of service of award recipients. Look at the dates when rewards
and recognition were presented to employees to determine how frequently employees receive
recognition.

5. Review your employee rewards and recognition program guidelines. Distinguish between
rewards and recognition, if necessary. In most circumstances, employee rewards are
monetary incentives or forms of appreciation. Recognition, on the other hand, includes non-
monetary acknowledgement, such as a plaque, a letter of commendation, congratulatory note
or a coveted parking space.

6. List the criteria for determining who is eligible for an award or recognition. Ensure criteria
are clearly stated so peers, supervisors and managers understand how to properly submit
nominations.

7. Form a committee comprised of human resources staff, department managers, supervisors

and front-line employees to evaluate the perception and value of your rewards program. Keep
in mind only human resources staff and certain upper-level managers should have access to
information about cash incentive amounts, bonuses and other budget information

The basic objectives of appropriate and sound compensation and reward system : 
1. It aims to develop skills and personality of employees by which they can earn better and
attractive compensation;

2. It aims to pay fair and justify remuneration on the basis of their efforts, skills and
competencies

3. To obtain able and efficient employees and retain high performing employees;

4. It aims to improve the quality of services as rendered by employees;

5. To communicate the employees for their worthwhile and needful role in organisation;

6. It aims to increase the level of efficiency and productivity of employees on the basis of
motivational grounds;

7. It aims to develop and enhance cooperation and collaboration among employees;

8. It aims to motivate employees towards higher work performance;

9. It aims to make better employer employee relations;

10. It aims to provide employees social recognition and status;

11. It aims to reinforce desirable and applicable employee behaviour.

Major Areas: Financial and Non-Financial Methods

Financial compensation and rewards can be classified into two broad categories i.e.,
i. Direct, and

ii. Indirect.

i. Direct Methods:
The direct compensation methods refer to monetary payment to employee on the basis of
their tenure of job and its negotiations with employers. The financial payment to employees
may be in the form of wages, salaries, allowances, commission, monetary incentives, bonus,
overtime payments and profit sharing.

ii. Indirect Methods:

Within the indirect methods, the employees do not receive actual cash or financial payment,
rather, they receive the tangible value of the reward which are based on financial grounds, but
they provide indirect benefits and opportunities to employees. These rewards are received by
employees on the basis of completion of their particular tenure of work.

When the employees have completed a specified or contact period, then after the maturity
period they may be entitled to get the insurance, pension, provident fund and traveling
benefits etc.

2. Non-Financial Methods:

The non-financial components in the compensation package is also an important aspect. The
methods are integrated with some motivational viewpoints by which the mental and social
needs can be satisfied. The methods constitute some intrinsic rewards based on human nature,
praise, morale, recognition, motives and informal interactions. The methods are develop the
human and psychological recognition that employees get when they feel that others have
recognised their skills and contribution.

The methods are proper service conditions, job enlargement, promotions, rights and
responsibilities, opportunities for advancement, recognition, health and maternity leave,
gratuity and medical leave etc. The non-financial methods have some preferential benefits to
the employees.

They are

i. These may be fulfilled the self actualisation needs of employees;

ii. Employees can get better opportunities for personal and career advancement;
iii. Organisations are making better efforts to retain employees;
iv. They create and provide informal relations with employees;
v. They create and develop praise and recognition of employees;
vi. They create and develop the morale and enthusiasm among employees;
vii. They may develop the feelings of reliability and loyalty among employees;
viii. They may be able to recognise the individual and group work performance.

DERERMINANTS: Internal and External Determinants

Organizations need to have a clearly defined strategy for business as well as for
compensating talent. These two decisions in turn should be linked. In the search for
competitive advantage for the business, it is ultimately the employees who help to deliver on
this advantage. Hence mechanisms for rewarding employees should support the business
strategy.

This alignment notion is based on the contingency approach, which specifies that when
variations occur in the strategy of an organization, these should be accompanied by variations
in the human resources strategies including the compensation strategy in order to influence
and shape performance appropriately. Decisions such as whether to lead the industry or lag
the industry when compensating talent are also linked to the business strategy as well as the
value propositions it can offer as an employer.

In order to cope with turbulent business environments, organizations try to decipher

challenges such as changing customer needs, competitors’ actions, changing labour market
conditions, changing laws and globalization. Their compensation elements and strategies
should support the organization in navigating the business environment and dealing with the
challenges mentioned as well as prepare it for the future.

Schneider Electric India Pvt. Ltd realized the value of creating awareness about the reward
programmes as they found that lower manager engagement and a lack of transparency could
lead to undervaluing the benefits of such programmes. An online collaborative platform
called SPICE was established to connect employees with the rewards team to address queries.
Training was conducted for managers to highlight the linkage of performance management,
rewards and development to enable decision making around rewards for employees. This
engagement exercise was conducted in three phases. The first phase created awareness about
the key benefits and differentiating factors offered by the organization as part of the Know
Your Rewards Programme.

In the second phase, information sharing was carried out under the title Enable, and the last
phase of Empower generated understanding of how the employees used information to make
informed decisions regarding their compensation.

Several factors and key issues are considered while aligning the compensation system
with the business strategy in order to reward talent:

1. Culture and shared values are naturally included while the manager is deciding what
criteria will be considered during the appraisal process. These values may include ethical
behaviour, innovation, collaborative behaviour, and transparent communication, openness to
change, learning orientation and commitment, amongst others.

Aligning performance behaviours with culture and shared values is helpful when assessing
efforts and outcomes during the performance evaluation process. Further, the organization
culture also highlights how the organization should create its compensation strategy. In the
case of an organization with a culture of employee orientation, it may provide a friendly work
environment and work-life balance opportunities.

2. The organizational strategy should be taken into account while developing a performance
appraisal system. Clear and widely communicated organizational strategies help the talent
pool to align their efforts in the direction of the desired outcomes thus creating synergistic
collaboration possible.

The appraisal process when linked to the business strategy and outcomes enables the
assessment of how successful the executive has been in moving forward with the articulated
business strategy for that year. Midyear reviews allow for the company to reassess the
performance behaviours of the talent pool and alter them if required.

3. Due to the increased emphasis over the years on contribution to the bottom line, increase in
profit, return on capital, growth in earnings and market share, executive compensation has
become increasingly tied to business performance and outcomes. Flexibility to pay more to
talent that achieves targets can be created by the use of incentive plans, as part of variable
pay.
4. Goals that are measurable and possess criterion validity enable the creation of an effective
and progressive performance appraisal mechanism. Creating goals that reflect financial as
well as non-financial measures gives rise to comprehensive performance evaluation
measures. The mix of quantitative and qualitative measures should reflect the focus of desired
behaviours. Incentive plans linked to achieving specific targets should be supported by clear
quantitative measures whereas qualitative measures though subjective can provide useful
information about the context of performance.

5. Compensation and reward strategies should be linked to the business objectives, but should
also be compliant with the regulatory framework in which the business operates. These
strategies should be a good fit with the culture of the organization and its internal
environment in terms of justness, fairness and transparency.

6. Additionally, the compensation strategy should also be competitive with reference to the
external environment comprising the competitors. Benchmarking practices, conducting
compensation surveys enable an organization to assess their compensation strategy for key
talent in comparison to its competitor. While compensating employees, organizations pay
attention to factors that provide them with a competitive advantage and make them the
employer of choice.

7. Compensation and reward strategies are also influenced by how work is designed
internally and whether compensation and reward schemes should be based on individual
and/or team performance, on experience and/or continuous learning, on improved skills, on
changes in cost of living, on personal needs (housing, transportation, health services), and/ or
on each business unit’s performance.

A major challenge in rewarding talent is to design the next generation reward systems to
better satisfy individual needs and preferences. This can be done by offering more choice to
the employees. While younger employees may prefer more cash in hand on order to build
assets or help finance their education, older employees may look for health and pension
benefits.
Similarly, families with dual-career couples may prefer flexible work schedules to look after
their children, child care facilities, or insurance and health benefits to look after ageing
parents. Organizations believe that allowing their talent pool to choose their own reward or
benefit elements adds value and is also a great way to retain employees since competitors
may find it difficult to replicate such flexible systems. It is, however, extremely critical for
organizations to counsel and communicate the pros and cons of each benefit so that
employees make wise choices leading to an increase in the system’s effectiveness.
8. The team that designs the compensation and reward system is generally reflective of the
organizational culture and can be representative of all concerned stakeholders or then could
be inclusive of external experts too. Managing the performance of talent and compensating
talent appropriately requires the inputs of several stakeholders. However, this decision may
also be influenced by the organizational culture and management style.
These factors help to evolve the compensating and rewarding patterns and strategy of an
organization. While one organization may have an explicitly stated strategy and policy to
reward talent, another may have an unstructured approach to it. In order to attract, engage and
retain talent however, a clearly articulated reward strategy is beneficial.

Compensation and Reward Management – Different Levels for Payments Based on

Work Performance by Employees

Within compensation and reward scenario there are few levels denotes the role and status of
employees. Basically, these levels are based on the parameters of skill, knowledge,
capabilities and qualifications of human resources.

According to the different nature of job and skills and capacity to be required, the basic level
of remuneration can be determine. Generally the levels for payments are merit based pay,
skill based pay, variable pay and competency pay are used in organisation.

Different Levels for Payments Based on Work Performance by Employees:

Within dynamic phenomenon of compensation scenario, there are four major levels to be
followed by employers that are based on different levels of employees’ work performance.

Level # 1. Merit Based Pay:

i. Based on employees’ job appraisal
ii. The merit is a determinant factors in compensation process
iii. The best performing employee gets the highest merit pay.

Level #  2. Skill Based Pay:

i. Those employees who possess more knowledge and skills are more valuable to the concern
and therefore should be rewarded accordingly
ii. The compensation of employees are based on job skills, capacity and knowledge
iii. As employees acquires more skills as well as to learn and gain additional skills then they
can get more pay
iv. It is important for organisations to provide opportunities and career orientation facilities
v. It develop the ways and means to motivate employees.

Level #  3. Variable Pay:

i. In order to control over the labour cost and maintain a high level of performance, it is being
used
ii. It is noted that rewards provided for good performance during a previous employment
period are not added to the base pay or initial pay at the new job scenario
iii. Employees or high performers can get various fringe benefits and incentives
iv. A certain level of pay standard is fixed. If employee’s performance exceeds the standard,
variable rewards lead to more increase in pay. But if performance is below standard, an
employee’s reward get reduced. It leads to financial insecurity among employees and likely
affects employees morale
v. It may be a supplement to merit and competency based pay design.

Level #  4. Competency Based Pay:

i. The employees are paid on the basis of their skills, knowledge, motives and attitudes etc.
ii. More emphasise is given to the job contents and job performance.
iii. The proficiency level may also be determined for making an overall competency bases.

Compensation and Reward Management – 3 Major Approaches: Bargaining Approach,

Traditional Approach and Contemporary Compensation Approach

Over the years, the viewpoints and approaches have undergone tremendous changes.

There are three major approaches as given here:

1. Bargaining Approach:
For a long, within the HR scenario, whatever the employees required to get some
consideration or wages that were the mutual rate towards the compensation structure. The
capitalist and workers have been mutually determine the considerable amount between them.
So it was the long back approach which determine the compensation based on bargaining
capacity of workers with their employees.

2. Traditional Approach:
This approach compensates employees through job based pay system. It is based on the
analytical study as well as job evaluation of a particularly job and its design. It is determine
the relative worth and technological factors concerning of jobs or a specified job.
3. Contemporary Compensation Approach:
This approach has more emphasise on skill, efficiencies and competencies which are
worthwhile aspect to determine the compensation and rewards. Today, within HR scenario,
there is need to promote and accommodate most skilled and knowledgeable employees. The
employees can influence their compensation through their efficient performance.

Compensation and Reward Management – Important and Worthwhile Trends, as

Arising out of Developmental Stages
Within present HR scenario, different organisations are much devoting their personnel efforts
to manage and maintain their compensation and reward system.

Some of the important and worthwhile trends, as arising out of developmental stages
are studying here:

1. Mandatory Benefits:
During these days several organisations are much emphasise to provide the mandatory
benefits to their employees. In most of the cases the employers are legally bind to make for
these benefits. The provident fund, gratuity, health plans, maternity benefits and medical
leaves are the examples of mandatory benefits.

2. Maintain Compensation System:

It is a consent and existing reward system to make pay package and policies to maintain the
present state of signifying components. It aims to maintain present HR market share with
available talented persons. The organisations provide the work reward to expertise personnels
for a long tenure. They are intend to preserve the present state of competencies and skills of
employees.

3. Incentive Systems:
Within compensation plans, the incentive systems plays a key role to motivate the employees
for achieving a goal oriented aspects. Incentives have the potential to dynamism the work
performance with better achievements of results. The incentives may be profit sharing, bonus
and different fringe benefits that are most suitable systems to follow different organisations.

4. Team Based Pay and Rewards:

Organisation are increasingly follow the self-managed team or work teams to managed and
organised the compensation plans. Basically, the group of persons or a specified team aims to
determine individual and group performance. Team objective are specified and rewards to
each team member are linked to team performance. Thus, each team member gets a reward if
the team achieve its target.

Some of the concern use team rewards to provide basic pay to individual, though they possess
different levels and status in the team. In order to design a better team based reward system, it
is needful to determine to compensate basic pay for each individual performance.

5. Competency Pay System:

A competency pay system is one in which employees are paid on the basis of their skills,
knowledge, attitudes, competencies etc., that they bring to the job. It is required to identify
the competencies for various jobs and then assign a value to various competencies.
Broadly there are few major steps in designing this system are as to identify competencies
relevant to carrying out a particular task to identify the proficiency level for each
competencies, to determine a relationship between competencies and variations in
employees’ performance. The proficiency level through employees’ competencies may be
assessed through job simulation, job specified performance and behavioural rating scales etc.
As such, the compensation and reward management is an important and decisional process
which involves the design, formulation and evaluation of compensation system. For fair and
justified remuneration to improve the efficiency and productivity of employees, it is needful
to motivate them towards higher work performance.

Compensation and Reward Management – Strategy and Design Issues

Attractive and effective compensation and reward mechanisms serve to motivate and engage
talent, thereby drawing out desirable behaviours from them. Effective reward systems enable
the recruitment, motivation, engagement and retention of key talent for organizational
objectives. This is more so since people generally link their financial security with the
compensation they receive. In a way, compensation and reward mechanisms also contribute
to maintaining the economic and social well-being that an employee enjoys.

While designing effective compensation and reward mechanisms, organizations draw upon
their business strategy, culture and human resource strategies. These reward mechanisms
include all the monetary, non-monetary payments and benefits an organization provides to its
employees in exchange for the work they perform.

Apart from the basic pay provided by employers, benefits are also offered to attract talent.
The cost of benefits has been climbing very sharply and so employers are very careful about
designing effective benefit plans that are superior to their competitors but are closely linked
and aligned with the organizational objectives.

Employees on the other hand, make significant investments of time and effort, both physical
and mental. They are also affected at the psychological level by workplace happenings.
Employers need to recognize these efforts and time of the employees as investment in the
organization and design compensation and reward mechanisms accordingly.

Needs of the talent workforce may differ significantly and with a diverse workforce, crafting
well-designed compensation and reward strategies and executing them could make all the
difference in attracting and retaining talent in a competitive industry.

However, in the race to attract and acquire talent, organizations may do well to consider the
affordability of their compensation and reward decisions. Labour costs across organizations
are rising and sometimes may account for more than half of the total costs. In organizations
offering specialized services, these costs may be higher due to scarce availability of
knowledge and skills.

This leads the organizations to take a long and hard look at what they are paying for.
Traditional compensation and reward systems need to be replaced today to respond to the
needs of the next generation of employees. This calls for sensitivity to their needs and
flexibility, all in turn linked to the achievement of the organization’s objectives.

Compensation and Reward Management – Emerging Compensation and Reward

System in an Organisation
Reward systems are often a significant cost factor in organisations. Indeed, the pay system
alone represents about 40 percent of an organisation’s operating cost. Pay systems involve
direct pay and benefit costs, as well as the costs associated with managing and operating the
system.

Some of the emerging compensation and reward systems in an organisation are

discussed below:

1. Gain Sharing:
Gain sharing plans are designed organisation-wide to reward employees for improvements in
organisational productivity. Gain sharing differs from profit sharing in atleast three ways.
First, under gain sharing, rewards are based on a productivity measure rather than profits. The
goal is to link pay to performance outcomes that employees can control.
Second, gain sharing plans usually distribute any bonus payments with greater frequency
(e.g., monthly or quarterly versus annually). Third, gain sharing plans distribute payment
during the current payment rather than deferring them as profit sharing plans often do.

Lawler (1971, 1990) has summarised some of the common results that have been found
in research studies of gain sharing plans:
i. Co-ordination, teamwork, and sharing of knowledge are enhanced at lower levels.
ii. Social needs are recognised via participation and reinforcing group behaviour.
iii. Attention is focused on cost savings, not just quantity of production.
iv. Acceptance of change due to technology, market and new methods is greater because
higher efficiency leads to bonuses.
v. Attitudinal change occurs among workers, and they demand more efficient management,
better planning, and good performance from their co-workers.
vi. Employees try to reduce overtime – to work smarter.
vii. Employees produce ideas as well as effort.
viii.When unions are present, more flexible administration of non- management relations
occur.
ix. When unions support the plan, they are strengthened because better work situations and
higher pay result.
x. Unorganised locations tend to remain non-union.
There are, however, certain limitations of gain sharing plans. Perhaps the most important is
differentially attracting and retaining the best performers. As gain sharing plans do not pay
more for better performance, they do not necessarily motivate them to stay. Unlike profit
sharing it pays bonus even when the organisation is not earning profits. Moreover, gain
sharing plans do not fit in with every situation.

2. Stock Options:
Stock options are similar in many ways to profit sharing plans. The basis for payouts is
organisational performance in the stock market.

Important goals of the plan are:

(a) To motivate employees to act in the best interest of the organisation as a whole,
(b) To enhance employee identification with the organisation, and
(c) To have labour costs vary with the organisational performance.
Stock options have long been a common programme for executives, but some organisations,
like Pepsi-Cola and Hewlett-Packard, grant them to all employees. There is evidence that this
approach is becoming more widespread.
The stock option is the most popular long-term incentive. A stock option is the right to
purchase a specific number of shares of company stock at a specific price during a period of
time. The price at which the employee can buy the stock is equal to the market price at the
time the stock option was granted.

The employee’s gain is equal to the market value of the stock at the time it is exercised, less
the grant price. The assumption is that the price of the stock will go up, rather than go down
or stay the same. Several trends have increased the attractiveness of stock options as a long-
term executive incentive and retention tool.

3. Employee Ownership:

A number of plans exist that help get some or all of the ownership of a company into the
hands of employees. These include stock option plans, stock purchase plans, and employee
stock ownership plans (ESOPs). In small organisations in which participative management is
practiced it has a good chance of increasing organisational performance.
In a large organisation with little employee ownership, it may positively effect the structure
by creating integration across the total organisation if, of course, all employees are included
in the ownership plan. Ownership can have a more positive impact on attraction and retention
than does profit sharing.

The usefulness of employee ownership, however, is likely to be highly situational. For

instance, in the case of small organisations they might make profit sharing and gain sharing
unnecessary, and if combined with an appropriate approach to employee involvement, they
can contribute substantially to employee motivation. In a large organisation they may
contribute to the integration of the organisation and to a positive culture.

4. Competence-Related Pay:

Competence-related pay may be defined as a method of rewarding people wholly or partly by

reference to the level of competence they demonstrate in carrying out their roles. This
definition has two important points – (i) pay is related to competence, and (ii) people may be
rewarded with reference to their level of competence.

Competence-related pay is not about the acquisition of competence. It is about the effective
use of competence to generate added value. Competence-related pay works through the
processes of competence analysis of individual competences and levels of competence.
5. Skill-Based Pay:

Skill-based pay links pay to the level of skills used in the job and, sometimes, the acquisition
and application of additional skills by the person carrying out the job. The term is sometimes
used interchangeably with competence- related pay. But skill-based pay is usually concerned
with the skills used by manual workers, including fitters, fabricators, and operators.

In competence-related pay schemes, the behaviours and attributes an individual has to use to
perform a role effectively are assessed in addition to pure skills. Skill- based pay may in
many ways seem to be a good idea, but its potential costs as well as its benefits need to be
evaluated rigourously before its introduction.

Initially they may provide strong motivation for individuals to increase their skills. But they
may out-live their usefulness and hence need to be revised or even replaced if they are no
longer cost effective.

6. Team-Based Rewards:

Team-based rewards are payments or other forms of non-financial rewards provided to

members of a formally established team which are linked to the performance of that team.
Team based rewards are shared amongst the members of teams in accordance with a scheme
or ad hoc basis for exceptional achievements.

Rewards for individuals may also be influenced by assessments of their contribution to team
results. To develop and manage team rewards it is necessary to understand the nature of
teams and how they function. Team-based rewards are not always easy to design or manage.

7. Profit Sharing:
Profit sharing is better known, older and more widely practiced than gain sharing. Profit
sharing is associated with participative management theories. Profit sharing is a group-based
organisation plan.

The fundamental objectives of profit sharing are:

(a) To encourage employees to identify themselves more closely with the company by
developing a common concern for its progress;
(b) To stimulate a greater interest among employees in the affairs of the company as a whole;
and
(c) To encourage better co-operation between management and employees.
The logic behind profit sharing seems to be two-fold. First, it is seen as a way to encourage
employees to think more like owners or at least be concerned with the success of the
organisation as a whole. Individual oriented plans often place little emphasis on these broader
goals. Second, it permits labour costs to vary with the organisation’s ability to pay.
Some companies have effectively used their profit sharing plans as vehicles for educating
employees about the financial performance of the business. The most important advantage of
profit sharing is that it makes labour costs of an organisation variable and adjust them to the
organisation’s ability to pay. Most Japanese firms have used this approach to adjusting labour
costs for decades.

8. Merit Pay:

Merit pay is the most widely used approach for paying performance. Merit pay systems
typically give salary increases to individuals based on their supervisor’s appraisal of their
performance. The purpose of merit pay is to improve motivation and to retain the best
performers by establishing a clear performance reward relationship.
Considerable evidence suggests that most organisations’ performance appraisal is not done
well and as a result, good measures of individual performance do not exist.

9. Variable Pay systems:

Variable pay is employee compensation that varies with the organisation’s business
performance. The classic type of variable pay is sales commission in which the sales
representative receives an award for each sale. Variable pay is counter-cyclical. It is more
costly to the organisation that is performing well; yet the organisation that is performing well
is better able to afford the expense.
It is less costly when the business is not doing well and is less able to afford variable pay. If
the organisation performs well, then the employee will earn more income. The most effective
variable pay systems have been those that have established business team or business unit
performance targets.