COURSEWORK OF HUMAN RESOURCE

MANAGEMENT

TOPIC:

‘’THE PURPOSE OF MANAGING THE SYSTEM OF REWARDS WITHIN THE

ORGANIZATION IS TO ATTRACT AND RETAIN THE HUMAN RESOURCES THE

ORGANISATION NEEDS TO ACIEVE ITS OBJECTIVES’’.

SUBMITED TO:

AUSTIN CHAKOADZA

SUBMITED BY:

MUHAMMAD HANNAN KHAN

ID: 38500

British Institute of Technology and E-Commerce Page 1

 TABLE OF CONTENTS

TITLE PAGE NO

Introduction 3

Purpose of managing a reward system 4

Types of Rewards 5-7

The Need to Attract 8-9

The Need to Retain 10-11

Conclusion 12

British Institute of Technology and E-Commerce Page 2

INTRODUCTION

The above-mentioned statement is the subject matter of my assignment and I shall be

discussing the main purpose of managing the system of rewards within the organization.

Evidently, a reward system is maintained in an organization to compensate the employees for

the services rendered by them. This reward system includes but not limited to the salary

compensation and other incentives which I shall be discussing further in this report.

On an individual level, every person has certain needs that have to be satisfied. Some of these

needs can be purchased from the market and some cannot. Considering this, the purchasable

needs or commodities cannot be attained unless they are paid for. And to pay for these needs,

one has to have a source of income. A person may have many sources of income but for the

sake of the topic, I shall contain my report only to the compensation a person receives for

rendering their services at an organization. This kind of compensation is a key factor that

keeps an employee motivated to perform for an organization. Other kinds of compensation

may also include promotions, bonuses and /or other incentives. Compensation may also

include acceptance of opinion, peer recognition and work freedom. These types shall be

discussed further in the report.

British Institute of Technology and E-Commerce Page 3

PURPOSE OF MANAGING A REWARD SYSTEM

Rewards are indeed the most powerful incentives for improving employee performance and

employee satisfaction. It has a very significant impact on the employee’s quality of work and

the effectiveness of an organization. On an individual level, rewards must be high enough to

satisfy the basic needs of an employee. If this is not the case, the employee will never be

satisfied with the organization and will ultimately switch to another one. This brings into play

the federal laws which ensure sufficient wage for low level workers.

Organizations that exist within the same labor market need to ensure that the rewards they

disperse to their employees are favorably comparable to the other organizations of the same

market. If it is not favorably comparable, it is very much possible that the employee’s

motivation level will deplete. Several organizations constantly keep in check their pay scale

compared to their competitor’s organization.

It is also important that the rewards that are distributed among the employees are fair. This is

to remedy the tendency of employees to compare their rewards with employees who are

holding similar jobs. An employee may feel dissatisfied if he observes that another less

deserving employee is receiving more rewards. This is usually the case when employees are

paid by the hour. Employees who put in more effort feel neglected when both, the employees

that are working hard and those who are not, are getting the same reward.

Rewards also need to be specified according to the needs of an individual employee because

at different stages of life, an employee has different levels of satisfaction. For example, a

senior employee may feel more comfortable with rewards pertaining to retirement benefits.

Similarly a junior employee who is just starting his career may feel mare satisfied with

benefits pertaining to life insurance or residential/ travelling allowances. It is the organization

duty to understand the best match for the employees as it makes an impact on the employee’s

performance and in turn, makes the organization perform better.

British Institute of Technology and E-Commerce Page 4

TYPES OF REWARDS

The most common type of rewards can be categorized in the following ways:

 Intrinsic and extrinsic rewards

 Financial and non- financial rewards

 Performance based and membership based rewards

INTRINSIC AND EXTRINSIC REWARDS

Rewards pertaining to personal satisfaction are intrinsic rewards. These rewards are self

initiated such as having pride in one’s work, having a feeling of accomplishment while being

part of a team. These rewards makes an employee feel more important and part of a bigger

picture. Extrinsic rewards include money, benefits and promotions. These are rewarded by an

external source such as the management of the organization. In short, if an employee feels a

since of achievement or personal growth while performing a job, such rewards are intrinsic in

nature and if an employee is given a bonus or a certificate of recognition, such rewards are

extrinsic in nature.

FINANCIAL AND NON-FINANCIAL REWARDS

Financial rewards, which are the most highlighted rewards ever to be discussed by employees

of all caliber can be the salary, bonuses, share in profit, attractive retirement plans, paid

vacations and sick leaves. The concentration is more on the monetary gains. Non-financial

rewards do not increase the financial position of an employee rather it emphasizes more on

the status of the employee. It concentrates more on the behavioral aspects of an employee.

Some employees consider a large desk as a reward. Or they may feel motivated by having

their own labeled parking space or stylized business cards with impressive titles. It is up to

British Institute of Technology and E-Commerce Page 5

the organization to find the best match between the employee and the non financial rewards.

If implemented carefully, it definitely motivates employees.

PERFORMANCE BASED AND MEMBERSHIP BASED REWARDS

Rewards based on the performance of an employee are performance based rewards. These

rewards include commissions, piecework pay plans, performances bonuses, merit pay plans

etc. Membership based rewards includes cost of living increases, benefits and salary

increments which have been caused by changes in the labor market, seniority or time in rank

of an employee, upgrade in credentials such as an added degree or diploma, a specialized

skill attained by an employee.

British Institute of Technology and E-Commerce Page 6

 TYPES OF REWARDS

Intrinsic Extrinsic

Participation in Financial Non-Financial

decision making

Performance based Implied membership Explicit membership

Preferred office
based based
Greater job furnishings
freedom and
discretion
Preferred lunch
Piecework Cost of living Protection hours
More increases
programs
responsibility

Assigned parking
Commissions Labor market Pay for time spaces
adjustment
More interesting not worked
work
Preferred work
Incentive plans Time in rank Services and assignments
increases perquisites
Opportunity for
personal growth
Business cards

Performance Profit sharing

bonuses
Diversity of
activities Own secretary

Merit pay plans

Impressive titles

Source: Human resource management, David A. Decenzo, Stephen P. Robbins (seventh edition)

British Institute of Technology and E-Commerce Page 7

THE NEED TO ATTRACT:

So far, I have discussed the purpose of having a reward system and the different ways an

employee can be compensated for the services he has rendered to the organization. Now, I

shall elaborate on the need to attract employees and the need to retain them within an

organization. Firstly, let’s look at the importance of attracting employees. In a highly

completive job market, it is important for an organization to keep looking for more talented

and skilled work force. This is true because it is actually the talented and skilled work force

which converts the investments of an organization into successful businesses.

The challenge lies in attracting these employees. As the trend goes, it is possible that the

talent and skill an organization is looking for is usually employed at some other organization

and is satisfied with the benefits he or she is receiving from that organization. The challenge

is to convince the employee to switch and join our organization. This can be done in several

ways.

BETTER SALARY PACKAGE

As I stated earlier in this report, every employee has certain needs that have to be satisfied.

Some of these needs can be purchased from the market and some cannot. It is possible to

attract an employee into joining our organization by offering him, or her, a higher pay scale.

This is one of the simplest ways to attract employees.

BETTER BENIFITS

Provide benefits which are more attractive than the competition. As most employees do not

consider just the salary package, it is important to offer benefits which are more attractive

than the competition. This may include commissions, bonuses, travelling and dearness

allowances, medical insurances and good retirement plans etc.

British Institute of Technology and E-Commerce Page 8

FAVORABLE WORK ENVIRONMENT

Many employees want to work in a comfortable and constructive work environment as they

feel it makes an impact on their overall performance. A favorable work environment may

include a friendly work atmosphere, well designed work place and decent furniture and

fixtures.

JOB SECURITY

The organization needs to make an employee feel safe and secure with regard to his or her

job and has to ensure that the employee is not under the constant threat of being laid off. Of

course, considering the current market situation, an employee feels this threat even if the

organization takes measures to ensure job security. But this factor is not to be taken lightly.

BETTER FIT FOR SKILL AND TALENT

Sometimes an employee working for another organization may feel that he or she is not able

to express their full potential as they are not exactly working in their area of interest or skill.

This can be an advantage for an organization that is on the lookout for new employees. If

such employees are offered a job of their interest and skill, they would definitely consider

switching.

British Institute of Technology and E-Commerce Page 9

THE NEED TO RETAIN:

Also important is to retain our current human resource as it might prove to be fatal to lose

experienced employees or, for that matter, fresh employees as the organization has definitely

gone through a well defined process to select the best employee. Therefore, an organization

needs to take certain measures to ensure it keeps its employees retained. The ways to do this

are similar to attracting new employees but are more inclined towards retention. Some of

these are mentioned below.

JOB ENRICHMENT

This means that the job of a certain employee is redesigned so as to increase the opportunities

of a worker and so he may experience feelings of achievement, responsibility recognition and

growth. This may also include giving the employee more authority over his or her

subordinates or giving the employee the freedom of choice to perform the tasks at will. Of

course the employee is accountable of the end result in this regard.

OPEN COMMUNICATION

This is important as the employee might be harboring hostilities within him and does not

know who to consult. Many times these hostilities can be dissipated if the organization just

listens to what an employee has to say. Most of the times it is actually the employee who is

facing the problem first hand and the top level management cannot see the exact nature of the

problem. Therefore, it is highly important to keep open channels of communication at all

times.

British Institute of Technology and E-Commerce Page 10

SALARY INCREMENT

One of the most common ways deployed by an organization to retain its employees is to

increase the salary of the dissatisfied employee. An employee may feel he or she is

overworked and underpaid and this often occurs when he or she compares their salaries to the

ones of the same designation within the organization or outside the organization. And if

salary is the reason for dissatisfaction, an organization needs to understand that in order to

retain a good employee, an increment in the salary should be implemented.

APPRECIATION

Often the neglected aspect of an employee’s job performance, he feels neglected and

forgotten. The organization need to understand that good performance and hard work of an

employee should not go unnoticed. Usually the ones who want to leave an organization feel

that they were not given their due appreciation and recognition. The organization must keenly

observe the performance of its employees and appreciate them accordingly. The level of

appreciation should be proportionate to the level of performance.

BENEFITS AND INCENTIVES

Offering better incentives and benefits are also a constructive way to retain employees. As

mentioned above, this may include commissions, bonuses, travelling and dearness

allowances, medical insurances and good retirement plans etc. Sometimes employees feel

that a higher salary is not enough to satisfy their needs. Thus, these can be brought into play

by an organization to retain their employees.

British Institute of Technology and E-Commerce Page 11

CONCLUSION

A good organization always understands the importance of managing the system of rewards.

This is a key role in ensuring the satisfaction of the organizations employees and the success

of the organization itself. Apart from being a key role, it is also one of the most difficult tasks

a human resource department has to manage. Difficult because the human resource

department has to strike a balance between what is the skill set and talent of an employee and

way he or she is to be rewarded and compensated. Any error in this area leads to the

dissatisfaction of the employee of that particular organization. It is also important to have

competent, talented and skilled employees as their efforts shall ultimately reflect as the

success and growth of the organization. Attracting such employees is indeed a challenge but

not impossible. As mentioned above, there are certain ways an organization may attract such

employees from the market. Also important is to retain the skilled employees we already

have which can e done by the methods mentioned above.

In an organization, it is actually the people who are working. Many organizations may have

the latest equipment and state of the art technology. But unless and until you have the right

people to run these equipment and technology, it does not matter how up to date an

organization is. Having the right employees and keeping them satisfied by meeting their

needs by an elaborate system of rewards is indeed the best path on the road map to success.

Sources:

Human resource management, David A. Decenzo, Stephen P. Robbins (seventh edition)

Human Resource management, Gary Dessler (ninth edition)

Organizational development and change, Thomas G. Cummings, Edgar F. Huse (fourth

edition)The new management, Robert M. Fulmer (fourth edition)

www.about.com

British Institute of Technology and E-Commerce Page 12