Effective Rewards and Incentives Systems Characteristics

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Executive Summary

One of the most important developments in the organizational field in the contemporary times is the increasing attention that is being given the human capital resources of the modern organizations. There is a lot of emphasis given to human the motivational aspects of the personality of a human being and these aspects of personality include group dynamics, self actualization, self confidence and self esteem. This means that the elements of humanism and humanization in the organizational field are important in the success of any modern organization. The major concern in the modern human resources field is the development of people and their competencies because people are the most important resources in any company and the management of their personality and competencies effectively improves organizational performance (Ketchen & Eisner, 2009).

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One of the biggest problems facing organizations in the modern organizational setting is lack of motivation among the employees. The lack of motivations can be attributed to the absence of well developed human resource management structures to address this issue. This paper will therefore look at one of the most important human resource dimensions that can address the issue of lack of motivation among the workers which is the management of rewards and incentives and the improvement of the quality of the workplace and work life. The paper will also look at the six characteristics of effective reward, incentive. It will also look at affective evaluation systems based on performance measurement

Rewards Merit

One of the most important aspects of human resource management that needs to be emphasized in the modern organizational set up is the development of an effective rewards system aimed at attracting, motivating and retaining employees (Seymour, 2003). There are several characteristics of an effective reward, incentive and evaluations system. Starting with rewards and incentive, a good rewards and incentive system rewards superior performance. When superior performance is rewarded, an incentive is created whereby the employees are encouraged to work harder because they are aware that someone has appreciated their performance. This makes the administration of pay and wages an effective tool that can be used to promote organizational performance, job satisfaction and motivation. This means that an organization should establish a clear job performance standard and a very efficient performance appraisal system which will guide the management to reward the workers using merit. Non monetary rewards are also very important in improving the performance of the employees. These rewards include recognition of ideas and awarding of honorary titles to outstanding employees.

Ensures Equity

The second characteristic of an effective reward system internally equity.All workers should be eligible for reward. This means that there should be elements of fair play within an organization to ensure that there is a level playing field that does not favor one group of workers over the others. All the employees should be given equal opportunities for success and evaluation of performance should be based on tools that are specific to each department to promote fair play. Due to the nature of modern organizations, employees work under different pressures and conditions within the same organization.

This means that there should a system of compensating these employees for the hardships that they encounter in the course of their work. There should be a well planned field allowance for the extension workers who work in unpleasant conditions. The organizations’ should provide them with housing, transport, medical cover and many other rewards and incentives to motivate their performance (Sherwin, 1987). The problem with many rewards and incentive systems in many organizations is that they are administered in a discriminative fashion which may lead to discontent that may affect organizational performance. The top managers are given huge incentives that are not commensurate with their nature of work and performances while the hard working junior employees rarely get these incentives and rewards. Organizations should therefore ensure that the rewards and incentive systems are administered effectively because improper administrations of the rewards and incentives can be counter productive.

Progressive

Another characteristic of a good reward and incentive system is the provision of career development for the employees. There are two theories that explain the relationship between human capital and performance. The link between performance and the human capital management can be enhanced through the use of the human resource management practices that promote high skills and capabilities. These include high class selection, high quality training and creation of a supportive environment for the investment of the knowledge and the skills that are inherent in the elected workforce (Keeley, 2007). Early economists focused on the economic benefit that a firm can get it invested in firm specific and general training of the workforce. This is because there was a conventional assumption that the growth of the human capital translates into economic glory of a firm. This can be supported by the general trends of the relationship between the rise in levels of the education of a populace and the corresponding positive economic growth of the company. This is what has been used to explain the earning differences of employees in the workplace. There are those employees that invest their money in improving their knowledge and skills through continuous education. As a result, when their skills get raised, they earn higher income because the input that they bring into the company is better than that of the lesser skilled employee. If the same scenario was translated from the individual development of knowledge to the organizational development, then it can be evident that, just like the person who invested their money and education to improve the quality of their skills and thus get a better pay, a firm can also invest in the overall education and training of its staff (Keeley, 2007). This will increase the quality of their output which will then translate into superior performance, increased competitive advantage, increased customer loyalty, higher revenue and added value for the shareholders of the firm. The advantage of firm specific training is that the employees are motivated to remain in the firm and even if there are incentives that they may motivate the employee to leave, that employee may not be as effective elsewhere because firm specific training covers the routines and the processes of the particular firm and not the general market. Therefore, the most important method of value creation in a firm is effective training of the employees. Sometimes, companies reduce their investment on training by structuring their HR department practices in a manner that the selected and recruited employees do not require additional training. These employees come at a high cost but in the long run, they are cheaper because the company will have made massive savings on training costs. All employees should be presented with an opportunity to develop their competencies, technical and managerial skills that will help them to be eligible for promotion or pay rise.

Immediacy

The other characteristic of an effective reward and incentive program is immediacy. The rewarding and recognition should occur immediately after the performance has been noted because immediacy reinforces behavior that leads to good performance by employees. This means that immediately good performance is noted. The rewards and incentives should be administered when the workers still have that excitement because the motivational impact of such of such a reward is more phenomenal than a reward administered when that excitement has died down. The problem with many organizations is that they delay the administration of rewards and incentives which makes the system unable to ensure maximum performance by the workers. When a reward is administered months after the performance, its impact on performance is reduced. A good reward and incentive system should actually be able to surprise the workers. When the managers conduct performance appraisals, they should actually reward the best performers when they least expect because the level of motivation that comes from a surprise reward is phenomenal. Using this approach, the recognition and reward encourages the behavior that the managers want to reinforce better than any other method.

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Objectivity

Another characteristic of a good reward and incentive system is independence from bias. The system should be designed in an open and objective manner. It is worth noting that most reward systems in most organizations are full of favoritism and subjectivity and this has proved to be counter productive. The reward and incentive system that single out a single individual have never been effective due to subjectivity and bias. That’s why programs like employee of the month have never worked because they are highly subjective and do not necessarily reflect on performance trends in the organization. This means that recognition should be attached to real accomplishments and the achievement of targets as stipulated in the performance contract. If the reward system does no rise above the requirements stipulated in the performance contract, then it becomes questionable because it is no longer objective. The criterion that is used to reward the workers should also remain consistent because this will give it a high level f reliability and validity. Rewards should also be premised on the individually negotiated goals.

Unpredictability

The last characteristic of a good reward system is unpredictability. When recognition and rewards programs are random, they become more efficient because they are able to trigger excitement which can really motivate some behaviors that the employer wants to encourage among their workers. Rewarding employees every time they perform well may in the long run fail to produce increased performance because it no longer becomes motivational. Constant rewards end up becoming entitlements whereby the employees start demanding the rewards and start acting unprofessionally in the absence of those rewards.

Evaluation and Performance Measurement

Why are organizations interested in the development management and promotion of human capital? Is human capital becoming more and more relevant to organizational performance? Studies have indicated that there is a huge overt and covert influence of human capital on the performance of any organization and business and there has been intensive research on human capital as a factor in business and organizational performance (Lusch, 1987). One aspect of performance management is the measurement of performance. Why is the measurement of performance important? To start with, measurement of performance is important because it helps the companies to address any deficits in the performance of the employee that may affect customer satisfaction. Secondly, the measurement of performance helps in the determination of how well a company is performing and the helps the managers to formulate visions and strategies that are meant to improve standards. Companies have been able to remain competitive because their performance measurement strategies have helped them to improve their standards in a way that has created a competitive advantage for the firm.

Thirdly it helps the managers to monitor their subordinates to ensure that they are doing the right thing. Managers usually create measurement systems that specify the actions that they want their juniors to execute. This helps them to determine the behavior of the employees and check what has not been complied. Finally measurement of performance helps in the process of budgeting. Sometimes performance can be improved through more financial resources and before these resources are allocated, performance must be measured first. Performance appraisal practices have shown to have an influence on organizational performance and the subsequent profitability of the company. However, focusing on individual human resource practices my not create an affective framework of analysis (Senge, 1990). To get the competitive advantage that any firm yearns for, it must ensure that all the Human resource practices in the firm have been carried out effectively so that there can be accumulated gained from a combination of the outcomes of these human resource practices, which will have added value on the performance of the firms. Companies need to be efficient to improve the quality of service.

The biggest headache for economists has been the accounting of the human resources. Human assets are different from capital asserts. One can measure the value of a capital asset because they are tangible but the contribution of the human assets cannot be measured empirically (Levitt, 2004). This brings in the perspectives of human resource accounting that determine the value of a worker by looking not at the value of the present and the past input, but also by looking at the individual relative to his or her role in the firm. However, the issue of human resource accounting has been receiving waning interests from economists because accounting standards were not flexible enough to allow the estimation of the actual value of an individual in relation to the role they play in an organization. If there is any tool that can measure the value of an employee with a lot of validity and reliability, then this could of greater advantage to the management of many organizations because its results could be used comparatively to advise the decision of investors on how much to put into the development and the promotion of human capital. In the analysis of the relationship between human capital and performance, economists have tried to look at the value of the independent human resource process to a business by linking them to performance. The first human resource practice to be analyzed was training and all the studies conducted indicated that there was a positive correlation between the financial growth of firms and their training programs that adopted for their human capital (Keeley, 2007). The other human resource practice under study by the economics was the compensation and incentives schemes management and just like training, this human resource practice recorded higher scores when it as linked to the levels of performance of the human capital and the overall financial prosperity of the employees. The other practice under study by these economists who were interested in establishing the relationship between performance of firms and the human capital management was the validity of the selection and the recruitment tools, plus the formal procedures of selection and recruitment. A positive link was found where selective staffing was seen as a positive factor that promotes performance in organizations (Keeley, 2007). Performance appraisal practices also have shown to have an influence on organizational performance and the subsequent profitability of the company. However, focusing on individual human resource practices may not create an affective framework of analysis. To get the competitive advantage that any firm yearns for, it must ensure that all the Human resource practices in the firm have been carried out effectively so that there can be accumulated gained from a combination of the outcomes of these human resource practices, which will have added value on the performance of the firm.

References

  1. Ketchen, D & Eisner,E.(2009). Strategy 2008-2009. NY: Willey
  2. Keeley, B. (2007). OECD Insights; Human Capital. NY: Willey
  3. Levitt, T. (2004). Marketing Myopia. New York.Routledge
  4. Lusch, V. N. (1987), Principles of Marketing. Kent: Kent Publishing.
  5. Sherwin, R. (1988). A Dictionary of Economics. NY: Sage
  6. Seymour, W. I. (2003). Intellectual Capital in Twenty-First-Century Politics. MA: Paideia

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BusinessEssay. "Effective Rewards and Incentives Systems Characteristics." December 4, 2021. https://business-essay.com/effective-rewards-and-incentives-systems-characteristics/.