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Importance Of Reward Management

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Discuss the importance of reward management and organizations use two types of rewards as employee incentives?




The concept of reward system has been introduced for acknowledging the efforts and contribution of the employees towards the overall goal attainment of the business organization. This reward system management mainly concerns with rewarding the deserving candidates in the workplace based on their worth for the business and in the fair and just manner (Armstrong and Cummins, 2011). The management system is accounted to be an effective tool used by Human Resource management team while managing the performance of the employees in the organization. This essay has dealt with the assessment of significance of reward system management for the business organization and why organizations use two types of rewards as incentives for the employees.

Importance of reward management

The key importance of reward system in the organization it helps in motivating the employees and encourages them to perform better.  This management system enables the organizational leaders to boost up the employee’s retention ability of the organization and thus, develop a stronger bond between the employees and organization (Aguinis, 2009). There are different types of rewards which are given to the employees such as, the minimum wage, earnings, share options, merit increase and long term incentive plans.

Minimum Wage:

The minimum wage system is considered to be the compensation provided by the business organization for the time and effort of the employees and which is provided to the employees as a counter balance. This is the monetary form of compensation which is paid to the employee for the service, the person is providing to the company. Irrespective of the nature and job and organization all the employees are provided with the minimum salary for their service in the organization (Armstrong, 2007). Based on the skill and qualification required for the job a standard minimum wage or salary is provided to the employee staffs. This is also acting as the reward that the person is provided with by the organization for the expertise and support and for this purpose a minimum wage is decided. However, based on the productivity some additional amounts are also given as the reward system of the company. The rewarding system in shape of minimum wage is one of the effective and most widely used methods followed by most of the business organizations. From the general point of view the amount of minimum wage or salary symbolizes the value of the employee in the organization and the higher the amount it is considered to be more prestigious for the employees.


]The earnings system is another effective form of providing incentives to the employees in the process of reward management system. This is the extrinsic form of reward or can be realized in the monetary terms such as the periodic bonus or incentive provided to the achievement of any target by the employee. The earnings is the additional amount of money that the employee can get over and above normal amount of reimbursement for the extra effort made by the employee for the achievement of certain target of the company (Armstrong, Brown and Reilly, 2010). The earnings act like an incentive used by company in the process of encouraging the employees to give their extra effort. This is also considered to be a primary form of rewarding the employees and which is also appreciated among the workforce of the organization mainly in the manufacturing sector. The earnings system has been developed from the concept that the extra efforts of the employees assist a firm to generate more earnings and company share a part of its earnings with the deserving employees. Thus, the rewarding policy through earnings is shaped to gain the satisfaction of the employees and motivate them to give their extra effort (Brown, 2014).   

Share Options:

Offering the share options is another form of reward system used by the companies. The offering of share options as the rewards is not found in all business organizations but, this is recognized as a common method of recognition which is offered to the employees by the companies. Mainly the higher levels of employees are rewarded with share options. This is considered to be a prestigious form of reward that an employee can get for the service as; by offering the shares the management offers a part of ownership of the business to the employee (Korzynski, 2013). Thus, the worth or value of the employee is recognized and the higher level employees are further motivated to shape more effective strategies for the company and help the business to uplift its performance. The share options provided to the employees not only offer them the share of business ownership but, the employee also gets the additional benefit of getting the share of periodic profits in shape of dividend. Thus, it can be said that this form of rewarding system can help the organizations to offer the extrinsic reward to the employees.

Merit Increase:  

The use of merit increase system is the way established by the organizational leaders to pay for the performance of the employees other than the normal pays. The term merit has been used as the pay is based on the performance and based on the past records or improvement in the merit list of the employee that the rewarding amount is ascertained. The amount is used as the increased pay that the employee would get on the continuous basis with the basis pay or salary. The merit increase amount is decided depending on the improvement of performance of the employees studied for the specific time period (Mikkelsen, et al., 2015). Other factors taken into account for deciding the amount is the pay trend in the market and prevailing economic situation of the economy.

This type of rewarding system is one of the most used from of rewarding the employees, followed by the organizational leaders. The merit increase system is used for acknowledging the performance of the employee over the longer time period, and also provides the employee a competitive amount to the employees that helps them to cope up with the increased cost of living (Bamberger et al., 2014). Therefore, this kind of reward system help the employees to uplift their standard of living and this is highly appreciated by the employees.


Long Term Incentive Plan:

The long term incentives plans are generally used by the HR management group so as to help uplift the long term performance of the employees in the workplace. The rewarding system has been designed with a strategic interest of the company it aims to retain the skill and expertise back into the business for the longer time period. Nevertheless, as the system is based on long term basis therefore, there are certain conditions that the employee needs to fulfil in the course of employment (Naile and Selesho, 2014). Within the considered span of time the employee will have to prove his or her worth in the company by helping in elevating the overall productivity of the company. Generally, the company offers its shares to the employee but, the entire ownership of the specified number of shares, is parted and the employee would be able enjoy the reward gradually. This is mainly done to ensure the long term relationship between the company and its employee or executive and thus, a strategy used to reduce the rate of employee turnover (Perkins and White, 2011). Moreover, this reward system not only ensures a long stay of the employee with the company but also encourage the person to improve the performance in the due course.  

Organizations use two types of rewards as employee incentives

With continuous changes of the business environment has given birth to a number of new dynamics when it comes to management of the human resources. The organizational managers are considering a number of newer methods of motivating the employees to help them to uplift the standard of their performance and also to improve the bonding of the company and its employees (Armstrong & Taylor, 2014). Therefore, from the broader perspective there are two basic forms of reward systems the extrinsic and intrinsic rewards are offered by organizations as the two major forms of rewards. Where the extrinsic is considered to be the traditional and most used form of reward system, the rewards which come in the monetary forms are known as the extrinsic rewards.

Few decades back the incentives or rewards in the monetary forms were hugely recognized among the employees with the shift in the perceptions and dynamics, as per the present work culture intrinsic rewards are mainly preferred by the employees. Therefore, owing to shifts in the market the business organizations too had to modify its offerings for the employees. This is true that money is the basic factor that the employees are servicing in the business organizations (Thomas, 2016). However, at present the employees consider the aspects of flexible time, job rotations, job enrichments, more responsibilities and offering more motivating and exciting jobs to employees are highly demand rather than only getting the extrinsic rewards. The intrinsic rewards highly motivate the employees to stretch their limits while performing in the organizations.

This is the main reason that the organizations are uses both the types rewards for recognizing the performance of the employees and motivating them. Therefore, most of the leading multinational like Toyota, Ford, Tesco, IBM, A&Z Banks and many others from different sectors are highly regarding the intrinsic rewards for stimulating their work forces. The extrinsic rewards are fulfilling the basic needs of the employees yet; the intrinsic rewards are providing the employees with the sense of meaningfulness, competence and progress (Armstrong, 2012). This is the main reason that the organizations are trying thriving hard to meet with the psychological requirements of the employees by providing them intrinsic and extrinsic as well as rewards.

Such as Tesco is offering a range of competitive benefits and incentives which is also instrumental with the labour laws of the country. The company is offering 75 percent coverage for the medical requirements of the employees in US and is also offering the tuition subsidy in South Korea for the children of their employees. During 2010 the company rewarded their 216000 employees with £105.5 million value shares under the scheme Shares In Success (Rewards and benefits - Tesco PLC, 2016). However, apart from the extrinsic rewards the company is also offering the extrinsic rewards as well such as offering flexible time for working, maternity leave, job sharing, part time jobs and many more.


From the shifts in the management system of human resource this is apparent that motivating the employees for performance enhancement has always been one of the core aspects of the organizational leaders. This is where the consideration of reward management plays a pivotal role and enabling the organizational managers to reward the employees in the most able manner. Nevertheless, at present the intrinsic rewards are highly appreciated by the employees beside the extrinsic. Therefore, this is highly desirable for the companies irrespective of the nature and size that they should value their employees by offering them more responsibilities in the workplace (Armin, 2010). The job enrichment gives the employees the sense of belonging in the organization and they try to prove their worth with added responsibilities.

 Further offering the incentives of flexible timing accompanied with more holidays encourages the employees to accelerate their productivity and efficiency when the employees are at work. This would be further suggestible that all organizations should use the intrinsic benefits along with extrinsic rewards to boost the morale of the employees and encourage them to give their best to the organization, corporate with the entire team and learn more.      


This can be concluded from that the reward management system, at present is used as the essential devise to design the performance and motivate the morale of the employees in the workplaces. There are different forms rewards like the bonus, fringe benefits, increments and others or the extrinsic type of reward but, the intrinsic type is equally important in the proves of valuing the employees or human assets of the organization. 



Aguinis, H. 2009, Performance management. Upper Saddle River, NJ: Pearson Prentice Hall.

Armin, F. 2010, Neural Correlates of the Influence of Extrinsic Rewards on Intrinsic Motivation.Front. Neurosci., vol. 4.

Armstrong, M. 2007, A handbook of employee reward management and practice. London: Kogan Page.

Armstrong, M. 2012, Armstrong's handbook of reward management practice. London: Kogan Page.

Armstrong, M. and Cummins, A. 2011, The reward management toolkit. London: Kogan Page.

Armstrong, M., & Taylor, S. 2014, Armstrong's handbook of human resource management practice. Kogan Page Publishers.

Armstrong, M., Brown, D. and Reilly, P. 2010, Evidence-based reward management. London: Kogan Page.

Bamberger, P. A., Biron, M., & Meshoulam, I. 2014, Human resource strategy: Formulation, implementation, and impact. Routledge.

Brown, D. 2014, The Future of Reward Management: From Total Reward Strategies to Smart Rewards. Compensation & Benefits Review, vol. 46, no. 3, pp.147-151.

Korzynski, P. 2013,  Employee motivation in new working environment. International Journal of Academic Research, vol. 5, no. 5, pp.184-188.

Mikkelsen, M., Jacobsen, C. and Andersen, L. 2015, Managing Employee Motivation: Exploring the Connections Between Managers’ Enforcement Actions, Employee Perceptions, and Employee Intrinsic Motivation. International Public Management Journal, pp.1-23.

Naile, I. and Selesho, J. 2014, The Role of Leadership in Employee Motivation. MJSS.

Perkins, S. and White, G. 2011,  Reward management. London: Chartered Institute of Personnel and Development.

Rewards and benefits - Tesco PLC. 2016, [online] Available at: [Accessed 7 Mar. 2016].

Thomas, K. 2016, The Four Intrinsic Rewards that Drive Employee Engagement | Ivey Business Journal. [online] Available at: [Accessed 7 Mar. 2016].


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