In a competitive business environment, every employer competes to ensure that his or her business improves the quality of services it offers while at the same time reducing its operational costs. In the meantime, growth in the global economy has led to competition in the job market. While business operators expect their employees to deliver in their organizations, employees on the other hand expect more from their employers (Articlesbase 2009, para. 1). The employee reward system is one of the methods used by employers to motivate their employees. In order to benefit from rewarding systems, people responsible for developing a reward system within an organization needs to be aware of organizational goals and objectives as well as the behaviors that will facilitate the attainment of these goals. While most organizations assume this, companies develop rewarding systems that often fail to help them attain their goals. For instance, a business that aims at nurturing teamwork is not required to reward persons who improve their productivity without involving other employees within the organization. On the other hand, if the business aims at improving the quality of products or services it offers, it is not advisable to develop a rewarding system that rewards employees on increasing the quantity of work attained by the business (Articlesbase 2009, para. 4).
Conducting performance analysis ensures that the business develops a rewarding system that rewards employees based on its goals (Britton, Samantha & Terry 1999, p. 25). Since rewarding systems cost organizations in terms of time and money, employers need to ensure that performance has been improved in their organizations before rewarding their employees. When developing a rewarding system within a business, it is important to guarantee that rewards offered to employees match their output. This leads to employee motivation. Employers also need to make sure that they have rewarded both group and individual achievement in order to foster individual performance as well as teamwork within the organization. For a reward system to be effective, an organization needs to clearly outline what the business expects from every employee (Britton, Samantha & Terry 1999, pp. 27-39). Employees are found to perform effectively in organizations if they are aware of what they are expected to deliver in their respective areas of specialization. Business organizations use various types of rewarding systems to motivate and acknowledge employee performance. Some of these rewarding systems include bonuses, profit sharing and stock options.
Bonus rewarding system
For many years, business organizations have used bonuses as a rewarding system (Clemmer n.d, para. 1-3). Organizations use bonuses to reward individual employees who help in realizing the goals of such an organization. The method is used in business organizations to ensure that employees improve their productivity thus increasing business profit. The system is also used in rewarding group achievements. Certainly, most business organizations are shifting from using the rewarding system in rewarding individual employees to rewarding contributions made by different groups within the business. There are various advantages associated with the use of a bonus as a method of rewarding individual and group accomplishment within an organization. Awarding bonuses to individuals who perform well within an organization leads to employee motivation. Employees perform well when they realize that their contribution to the organization is acknowledged by management. Bonuses lead to individuals within the business striving to improve their performance. The system facilitates the development of employee loyalty to the business. As a result, employees become dedicated to activities within their business (Glasscock & Kimberly 1996, pp. 75-80). The method facilitates in improving the performance of employees who do not commit themselves to the organization. As these employees see the effort of their colleagues being rewarded, they also strive to work hard in the organization to be rewarded in the future.
Rewarding group accomplishment through bonus systems helps in improving group performance within the organization. In most organizations where teamwork is emphasized, employees fail to perform effectively as they perceive their effort in the group as not being recognized. Every employee in the group looks upon the others to perform any responsibility allocated to the group. This is the factor that leads to groups performing poorly. Rewarding group accomplishment facilitates improving employee performance. This is because employees perceive to contribute equally in the group (Glasscock & Kimberly 1996, pp. 81-89). The system helps the company focus on areas that can enhance performance as well as business profit. Business organizations offer bonuses to employees working in areas that increase organization profit. This ensures that employees in these fields work hard thus increasing organization profit.
Not only does the system help in employee motivation but it assists in employee recruitment as well as retention. Organizations incur a lot of expense in employee recruitment. Organizations that do not reward their employees whenever they perform well lose most f their employees. Employees leave the organization to work in organizations where their contribution is acknowledged. Such organizations keep on recruiting new employees to occupy the left vacancies (Henemen & Courtney 1995, p. 3). To get qualified personnel to work for them requires the business to offer a competitive salary. Acknowledging employee performance by giving them bonuses helps business organizations retain their skilled personnel as well as recruit new experienced employees. Consequently, the business is saved the cost of recruiting new employees every time as those with experience leave the business.
On the other hand, the system is seen to be ineffective in improving employee performance as it acts as a short-term motivator. Rewarding employees for their accomplishments in previous years, make every employee work hard to ensure that his or her performance is acknowledged in the next year. The aim of improving employee performance needs not to only facilitate in attaining short-term goals of the business. The rewarding system needs to ensure that it has helped the organization in attaining its long-term goals (Henemen & Courtney 1995, pp. 4-7). Employees strive to improve the quality of their services within the organization at the time in a bid to be rewarded rather than striving to improve their performance in a bid to attain long-term organization goals. The bonus system of employee rewarding focuses on rewarding employees based on their individual and group’s fundamental functions. As a result, most employees perceive it as an entitlement. Failure to reward employees at one time leads to them performing poorly in the organization. Rather than taking the reward as an acknowledgment from the management for their performance, employees take it as part of their pay in the organization. The system is blamed for discouraging innovation within an organization. As every employee or group within the organization strives to improve their performance, they take little time to introduce new performance methods within the organization (Klubnik 1995, pp. 28-32).
Profit sharing rewarding system
The other system used in employee rewarding is profit sharing. This is where a business sets aside part of its profit to be shared among the employees. This is after the business organization has conducted its financial auditing at the end of its financial year. The amount of profit allocated to each employee is proportional to a specific percentage of his or her salary. The main aim of using this system in rewarding employees is to acknowledge their contribution to improving business profit. The system has various benefits to business organizations. As employees get a portion of the profit based on the profit they have accumulated in the business, they strive to increase business profit (Klubnik 1995, pp. 33-41). This facilitates in improving business growth. Business growth depends on the profit made. As employees strive to increase business profit so as to get a big share of the profit, the business benefits as part of the profit are used in its expansion.
For a person to qualify for the profit, he or she is required to have worked in the company for a certain time. For organizations that make a lot of profit, the method facilitates employee retention. Every employee would like to work with business organizations where he or she is able to benefit from the business. Employees will be willing to remain in the organization as long as they are assured that in the future, they will be able to enjoy part of the business’ profit. The method makes employees feel like to be part of the business. By getting part of the business profit, employees feel to co-own the business with their employers (Metzger 1978, pp. 144-163). This makes them wish to remain in the business. Their level of commitment to business activities is also improved. The method fosters a culture of teamwork in the business. Employees work together to improve the profit margin of their business.
Despite the method having some advantages; it is also associated with various disadvantages. Since every employee receives a share of the profit equal to a specific percentage of his or her salary, the method does not recognize individual contributions in the organization. Some employees may not have contributed to the attainment of the profit but since they are part of the organization, they receive a higher share of the profit than those who contributed to its achievement. This leads to employees being demoralized (Parker & Liz 2001, p. 64). For employees who receive less portion of the profit despite their contribution in its attainment, they stop being committed to the business. Employees who do not contribute to improving business profit are never motivated to do so as they are always assured of getting part of the profit. As a result, the method discourages employees from being innovative and creative in the organization as their contribution is not recognized.
The method is seen in a way to hinder business growth. Most business depends on the profit they make for their expansion. Allocating part of the profit to employees leads to the business being left with fewer funds to finance its expansion. Profit in the business comes as a result of numerous activities that take place within the business. This method does not help employees link their actions, decisions, and participation to organization goals. As a result, it does not provide an opportunity for businesses to identify changes that need to be made in the organization to attain its goals (Parker & Liz 2001, pp. 66-75). Just like the bonus system of employee rewarding, this method may be viewed by employees as an entitlement if not well communicated to them. Employees may demand rewards whenever the business makes a profit without considering the amount of profit made by the business. Failure to reward employees may appear as denying them their rights making them fail to actively participate in the business. Some may even quit the business leading to it incurring expenses in recruiting new employees.
Stock option rewarding system
Business organizations also use stock options as a system of employee rewarding. Initially, the method was being used to reward employees in the top management levels within an organization. However, the system is gradually being adopted as a method of rewarding junior management teams as well as other employees in organizations (Sarvadi 2009, para. 3-6). The stock options system gives employees the privilege to buy a specific number of organizations’ shares at a lower price for a certain period. The organization’s board of directors authorizes the system. The number of shares provided for employees depends on the organization’s outstanding shares. For an employee to qualify for the system, he or she has to have worked in the company for a certain time. In case one wishes to leave the company before he or she is fully vested in the company, the person is denied the privilege of enjoying the stock option. Once a person has bought the shares, he is allowed to retain the shares or sell them on the open market at a different price (Spitzer 1996, pp. 12-33).
One of the advantages of this system is that the company is relieved of its tax burden. Since organizations are not taxed on their expenses, this works as one of the organization’s expenses thus it is not taxed. Another benefit accrued from the system is that as the method is considered to be part of compensation, it is not reflected as one of the business expenses in its records. Company value is perceived to be high making it possible to attract and recruit experienced personnel. The method helps a business organization avoid cases of reduction in business earnings. This is through reducing the number of outstanding shares within a business (Torrington, Hall &Taylor 2008, pp. 121-153).
This system of employee rewards poses some threats to both the company and the employee. In case employees buy shares at a price higher than the market price, they do not benefit from the shares as they cannot sell them through an open market. Most of the organization fund is obtained through selling its shares on the open market. Rewarding employees through the system implies that the company is left with fewer shares to trade publicly.
For organization’s rewarding system to be effective in employee satisfaction, it must be developed in a manner that it significantly rewards employee based on his or her contribution in the organization. This is because it is one of the tools that help in employee recruitment and retention. In most cases, employees compare themselves with employees working at a similar level but in different organizations. In case they find that other employees are well rewarded than them, they may decide to leave the organization (Weber 1991, pp. 32-45). Organizations must communicate the rewarding system to their employees. This will help in them not taking it as an entitlement thus eliminating employees protesting whenever they are not rewarded.
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