A few years ago, monetary and non-financial remuneration systems were mainly used by large companies, but today, in the toughened conditions of the personnel market, many enterprises are adopting this method of attracting valuable personnel. Rightly wanting to get the maximum productivity from the staff, small business owners understand that a qualified employee also wants to get the maximum from the employer that he deserves. Encouraging employees for a manager is the golden key to improving the overall order and productivity of his employees. In addition, it is a very effective way of motivating work and encouraging employees of a material and moral nature.
Reward Environment of the Organization
Managers encourage their employees not only because of the desire to look better in the eyes of subordinates but also to set a positive motivation for the awarded employee and the entire team as a whole. When the colleagues of the employee assigned to the award see that a person has been praised for good and conscientious work, they begin to approach their official duties with a greater degree of dedication, in order also to receive a salary increase or any other encouragement (Idemobi et al., 2017). Martono et al. (2018) highlight that remunerations are expected to improve employee’s creativity. The most important thing is that the employee awarded for merits begins to increase the degree of the commitment to the company to which a person devotes time and effort.
A reward is the sum of all incentives provided to employees:
- direct rewards – any payments that an employee receives in excess of the established salary (bonuses for the implementation of the plan, bonuses for experience);
- indirect rewards – material incentives in non-monetary form (compensation for food, travel expenses, communication services, extended medical insurance).
When creating a remuneration system, the owner of the company should make sure that it has a clear and obvious division for employees with the institute of remuneration. The system of remuneration for work is, as is well known, the subject of attention and interest of both employees and employers, for whom it is a source of personal income. At the same time, for the employee and the employer, the components of the remuneration system, its structure, the vector of change and development, for obvious reasons, have different significance. The guaranteed salary amount is a fixed monetary remuneration of the employee (Brekke et al., 2018). This part of the remuneration does not depend on the financial condition of the organization, the personal qualities of the employee or other factors.
Factors that Impact an Organization’s Reward Policy
Since the positive effects of rewards and reinforcements are extremely significant for employee behavior, reward systems have become extremely important for the performance and success of the organization. An organization may have the latest technology, a well-thought-out strategic development plan, but if employees are not rewarded in the course of their work, then all the advanced aspects that determine the behavior of employees will be ineffective (Sitio & Susanty, 2017). The monetary system of rewards plays a dominant role (Hua et al., 2020). However, in recent years, as organizations become more economical and efficient, material remuneration is limited, which leads to an interest in non-material forms of compensation.
The external environment represents a certain number of factors, conditions, and legal restrictions that influence and control the activities of firms at the state level. These include:
- the laws of the country in the field of labor relations, developed taking into account international provisions,
- resolutions of ministries and departments,
- forms of state regulation and state bodies controlling labor relations,
- the state of the labor market. The labor market allows getting information about the trends in demand and supply for labor by sectors of the economy, competitors, by individual professions, and about the formation of the average market rate for it.
The internal environment is a set of factors, conditions, legal restrictions that influence and control the activities of firms within the framework of internal company policies and standards adopted in certain organizations. These include:
- form of ownership,
- field of activity,
- the organization’s strategy,
- financial condition,
- the size of the organization and its internal organizational structure,
- the quality of the workforce,
- organizational culture.
The form of ownership affects the freedom of management decisions in the design of organizational remuneration systems. Enterprises financed from the budget use mandatory standards approved by the government, and all other enterprises are free to design a remuneration system, which allows them to respond more flexibly to changes in the quality of the workforce. The needs of the labor market for new professions are due to advances in the field of electronics, the mass use of personal computers, modern means of communication, and the development of the service sector, which imposes new requirements on the professional qualities of the workforce – special and managerial knowledge.
Meanwhile, factors of the internal and external environment do not always have a positive impact both on a single organizational remuneration system and on the entire organization as a whole. For example, such an internal factor as the poor financial condition of an enterprise can cause a negative impact on the company from an external factor. Therefore, in order to start developing a new model or reward system, it is necessary to create suitable conditions for the external and internal environment.
Types of Cash Reward
Despite the tendency in recent years in the United States to downplay the importance of money as an organizational reward, there is strong evidence that money serves as a positive reinforcement for many people. Recent studies show that any increase in the salary of employees, regardless of the amount, only strengthens their belief that they deserve more (). Money remains extremely important, although admittedly difficult, reinforcing factor.
Using the SWOT analysis, it can be concluded that the standard method of basic payment (base-pay) acts as an advantage for the company because it guarantees minimal compensation for the performance of a specific job and is a kind of continuous reinforcement scheme. Examples are the salary system for workers and managers. This method does not reward activity above the average level and does not punish work below the intermediate level; it is applied on an ongoing basis, and within its framework, control is carried out mainly for the job but not for the performers themselves. The variable payment method is a scheme of periodic reinforcement and is aimed at generating remuneration in accordance with individual or group differences. Variable pay is highly dependent on future specific performance standards and can therefore reduce intrinsic motivation (Kuvaas et al., 2018). However, the advantage of this scheme is that it controls people more than work to a greater extent.
In a society with an inflationary economy and intangible social values, money is less likely to serve as a potential reinforcing factor for critical behaviors. However, even here, money cannot be automatically discounted as a positive reinforcing factor. There should be an objective assessment of whether money is an effective positive reinforcing incentive for the considered form of behavior. Due to the complex role of money as a reinforcing factor, at present, more and more attention is being paid to non-material incentives in organizational reward systems.
Types of Non-Monetary Reward
It should be noted that, after the SWOT analysis, even though intangible incentives are considered as a way of motivation without spending money, they can still be associated with certain expenses for the organization. At the same time, remuneration related to the category of social or related to the design of the workplace does not require costs and may be more effective than monetary or cost-related remuneration, but non-monetary (Sureephong et al., 2020). Recognition, attention, and praise are the strongest social rewards for most people.
In addition, few people experience satiety or complete satisfaction with social rewards. However, like monetary remuneration, social remuneration should be applied situationally in order to have a positive impact on the activities of employees. Studies show that non-monetary measures can also be effective in managing resources (Rajapaksa et al., 2019). True social reward, used to encourage desirable behavior, can become a very effective positive reinforcing factor for most employees. An additional advantage of such a strategy in comparison with monetary remuneration is that it is absolutely free for the organization.
Despite the huge amount of data generated by information systems in modern organizations, individual employees still receive extremely little, if any, feedback about their activities. Studies have shown that unbiased feedback has a positive impact (Tunison et al., 2019). In order to be effective, feedback, in general, should be as positive, prompt, visual, and targeted as possible. The feedback coming from formal organizations was perceived least positively, followed by feedback from colleagues, from superiors, and feedback received directly when performing the task. The feedback initiated by the employees themselves was best perceived.
Staff remuneration is an essential factor in the successful implementation of the company’s mission and strategic plans. The processes of formation and use of funds for employee remuneration, proceeding from the general corporate development strategy of the organization, personnel policy, including the personnel remuneration policy, and the concept of profit growth costs, are the central link of personnel management and are of absolute interest for economic analysis. The analysis of labor indicators, the efficiency of using the company’s personnel, improving working conditions, and their remuneration has been developed in the planned distribution economy. There are three reward intelligence sources that can be helpful when forming a reward policy in any company:
- Salary surveys. Salary information is the most commonly used form of reward intelligence. They provide quantitative and qualitative data, with the help of which managers can come to a certain amount of remuneration for employees of a certain department. Most of these salary analyses exist in an online format.
- Recruitment data. Internal recruitment data is also important when forming a bonus policy for employees. The number of candidates, their background, and previous experience also have a direct impact on the work of the company.
- Benchmarking/industry sector analysis. An analysis of employee remuneration policies applied in other companies in the industry will help to analyze the strengths and weaknesses of other policies. Also, the analysis will help to form factors that affect the efficiency of work and motivation of employees.
ADNOC Reward Environment
The leading position in the field of hydrocarbons is occupied by the National Oil Company of Abu Dhabi ADNOC (Abu Dhabi National Oil Company). This company is one of the ten largest oil companies in the world and the first company in the UAE with access to oil and gas reserves. Recently, special attention has been paid to the exploration of new fields, the development of newly found ones, and oil and gas marketing. Oil refining, distribution, and marketing of petroleum products and liquefied gas are gradually fading into the background.
It is considered that remuneration to employees is all the expenses that the employer bears in relation to a certain employee on the basis of an employment agreement. For example, even the location of the office and the equipment of the workplace can be considered a reward. Correctly determine the remuneration is a special task facing the employer and the personnel service (HR). Remuneration should satisfy and motivate the employee while being in the labor market.
The analyzed company can be characterized by the following personnel remuneration system:
- Payments that ensure that employees perform their main official functions and achieve key indicators and results necessary in the work of the organization
- Stimulation, which focuses the employee’s efforts on the selected qualitative and quantitative aspects of his actions and results, on performing additional activities to increase labor productivity
- Increasing loyalty, creating long-term employee attitudes to the choice of this enterprise, acceptance, compliance, and development of the standards and values of the organization.
In case of faulty construction of the personnel remuneration system, staff turnover may increase, productivity decline may begin, conflicts in the team will occur. To avoid negative consequences, it is necessary to think about how to influence the interests of employees so that they are motivated to develop the company in which they work. It is essential to monitor such an indicator as labor costs and keep records of employee benefits. If organizations increase wages to retain employees, they can go bankrupt. Remuneration should be interesting for employees but not too costly for employers.
Implementation of Reward Policy
When applying the staff remuneration policy, it is necessary to determine the structure and elements of remuneration:
- It is necessary to create a clear structure of staff remuneration. There will be different payment schemes for different categories of positions.
- It is necessary to determine the reference market that the company will focus on when selecting the remuneration of personnel and what position the company occupies in this market. Here companies need to decide who the company takes on a particular place and what results it will expect from employees.
- Kinds of performance results that should be rewarded. These can be individual indicators, corporate indicators.
- It is necessary to determine what benefits will be established. In this case, it is possible to follow the market or develop the company’s own benefits package, which will be a significant addition to the value proposition for the employee.
- Creating a policy for reviewing the remuneration strategy. Here managers need to decide whether employees’ point of view is taken into account when developing personnel remuneration management procedures and how staff remuneration is distributed among different groups of workers.
The idea of total reward is that wages are not perceived as sufficient compensation for the talent, time, loyalty, strength, and energy that employees give to the company. This system is seen as a promising way of enlarging rewards and recognition practices to help employee’s well-being and enhance organizational effectiveness (Rai, 2019). Nowadays in the world of competition for high-quality personnel, progressive employers develop entire systems of material and non-material rewards (Beck-Krala, 2020). Medical insurance, free lunches, participation in conferences, comfortable chairs, and a relaxed working atmosphere belong to total rewards.
The total rewards system is ineffective if employees do not have a clear understanding of what they receive in addition to wages. In the process of building a strategy, organizations should not only formalize this concept and voice a set of bonuses at the interview but also constantly remind colleagues about them. It should be noted that the main set of compensations should not depend on the position or the number of years worked. The total reward is an important part of the company’s corporate culture, which should unite and not cause a sense of injustice. It also has a significant impact on employee work engagement and happiness (Gulyani & Sharma, 2018). Envy, in this case, is not the best way to motivate. However, this does not mean that everyone should receive an identical compensation package. It is necessary to take into account the objective business conditions and the specifics of the work of individual departments.
Furthermore, the total rewards system is important for the work of organizations, as it helps to attract high-quality personnel to the company and reduce outflow. With an overheated salary market, it is difficult to impress a professional with exceptionally serious figures in the contract, and the salary itself ceases to motivate. Chandra (2018, p.1) mentions that “an effective reward system can be a good motivator, but inappropriate reward program increases de-motivation of the employees.” On the other hand, a well-thought-out value package that reflects the care of employees represents not only the advantages that the hired professionals will receive but also reflects the company’s values in relation to them.
The system of remuneration of the workers of the company should be directly related to the achievement of the strategic goals facing the organization. The presence of clear strategic goals provides support in decision-making and allows having specific guidelines in the company’s management process. To build them, it is necessary to take into account the basic principles of employee incentives: equality, fairness, transparency, and consistency.
Equality is of particular importance for establishing an effective system of remuneration of personnel and further successful work. Firstly, ensuring a fair assessment and appreciation of the work of women and men and eliminating wage and reward discrimination is essential for achieving gender equality and is one of the main components of a decent job. Secondly, positions in the company should be systematized according to certain criteria in relation to each other. This should be taken into account when making a decision in order to achieve equality within the organization. In this case, the company provides equal remuneration for positions of similar value.
The company should also have a fair system of employee remuneration. First of all, there should be certain logic of remuneration distribution among different groups of employees. It should be based on some plan, for example, a hierarchy of positions, a classification of ranks or grades. This system should be clear, clear, and understandable for all employees, and then they will not have questions about this system. At the same time, there should be formalized processes for making decisions on remuneration; there is a clear set of criteria and a set of scenarios for how decisions on compensation will be made.
Consistency also plays an important role in the formation of a successful system of staff incentives. This aspect can be attributed to the timeliness, which implies that incentives should be paid on time. The time gap between the achievement and the bonus for it should be minimized. B, it is necessary to take into account the transparency of the system. The reward system should be clear and understandable so that each employee can calculate the amount of remuneration for performing a particular task itself.
Extrinsic and Intrinsic Rewards
There are two types of remuneration of employees in the organization-internal and external. The internal reward is given by the work itself; this is a sense of achieving a result, the content and significance of the work performed, self-respect. Communication that occurs in the process of work can also be considered as an internal reward. The easiest way to ensure it is to create appropriate working conditions and accurately set the task. An external bonus does not arise from work itself but is given by the organization. These are promotion, praise, and recognition, symbols of official status and prestige, salary, as well as additional payments.
The internal reward of an employee is determined to a decisive extent by factors related to the motivational structure of individuals, their psychological characteristics, and attitudes. Intrinsic rewards influence the performance of the staff and result in quality output and effective customer service (Olori & Edem, 2017). Makki and Abid (2017, p.39) write that “when individuals are extrinsically motivated, they take part in actions in search for benefits they wish such as money, reputation, or publication of journals.” The development of a compensation package, that is, a system of external rewards is one of the most important strategic tasks in human resource management. The use of the motivating force of monetary remuneration allows us to solve the problems of ensuring the necessary production behavior of employees by fairly simple methods of designing a compensation package.
An established incentive system directly affects the work and efficiency of the organization. Kalhoro et al. (2017), in their conducted research, came to the conclusion that extrinsic and intrinsic rewards are associated with better employees’ performance and organizational commitment. In addition, bonuses are able to predict trust and engagement in the workplace among employees and heads of the organization (Victor & Hoole, 2017). Thus, the mechanism of motivation through remuneration should focus managers and staff on achieving goals and obtaining high results both in their work and in the work of the company. Also, the remuneration system should be economically feasible in the sense that each element of the compensation package stimulates the competencies necessary for the company, encourages the staff to improve the level of professionalism and skill constantly.
ADNOC Reward Policy
Abu Dhabi National Oil Company (ADNOC) successfully applies various systems to its employees. One of the ADNOC’s perspectives says that they “want people and society to benefit from their presence” (Corporate Social Responsibility, n.d.). Managers are constantly looking for ways to invest in social development programs in order to have a positive impact on employee motivation and thereby increase the competitive ability of the organization. Among them, there is an initiative called “Happy Winter.” It was deployed in partnership with ADNOC Distribution and ZonesCorp to protect workers from winter conditions that spend a long time outdoors (Corporate Social Responsibility, n.d.). A program called the “Rahma Campaign” is also used. Within its framework, led by ADNOC LNG, ADNOC Distribution supported the distribution of water bottles and juices among 12,000 people who worked outdoors in Abu Dhabi and Al-Dhafra (Corporate Social Responsibility, n.d.). Such non-monetary motivation of employees has a direct positive impact on their motivation and increases their loyalty.
When determining the level and structure of remuneration, the company uses data from generally recognized reviews of wages and compensation, in which the largest oil and gas companies participate. Besides, data from regional labor markets are used to monitor the competitiveness of employees’ wages in order to adjust them in a timely manner. ADNOC attaches great importance to the motivation program based on the evaluation of the effectiveness of the results of employees’ activities. The assessment of both the collective component and the individual contribution of each employee to the overall results are carried out. The personnel incentive system is aimed at achieving high production results and increasing labor productivity.
Line Managers and Reward Decisions
The profession of a line manager is one of the key links in the activities of almost every company. The line manager is a first-level manager who provides direct management of direct performers. They make a strong impact on the implementation of HRM systems through engaging their cognitive and political abilities (López‐Cotarelo, 2018). At the same time, this profession is characterized by an extremely wide range of possible duties and necessary qualifications. It is essential to remember that any employee feels honored by the reward that is given by the company and works harder and makes better outcomes (Panekenan et al., 2019). Accordingly, the necessary knowledge and skills for performing such work can differ extremely widely, which makes the position of a line manager one of the most diverse in terms of both salary and employer requirements.
Every line manager is still not just an employee, which means that they should be interested in the development of their structural division and the company as a whole, so they should look for active ways to improve the performance indicators of their subordinates. When determining remuneration, the priority role is assigned to line managers in comparison with the personnel department. In fact, when deciding on revenue, the line manager is the main interested person. Given the severe methodological difficulties in creating a modern, efficient payment system, the role of specialists and personnel departments is increasing. The role of the line manager at the stage of implementing the incentive system is particularly important since this person ensures the adequacy of the personnel performance system and the specific content of the compensation package for each employee of the department. With a fairly obvious and clearly defined difference in the functions and responsibilities of personnel workers and line managers, it is absolutely impossible to get an effective system of payment for work without their close permanent and informal cooperation.
Summing up, we can say that ADNOC is one of the most influential oil and gas companies in the Middle East, which, thanks to its flexible development strategy and attracting foreign investment, is successfully expanding and strengthening its influence worldwide. In addition, the company pursues an effective policy of remuneration for its employees. It not only introduces incentives for the successful results of the work of a particular department but also applies various initiatives to develop the external and internal motivation of its employees.
The remuneration system for work in an organization is a material and non-material remuneration received by an employee for providing the organization with his time, health, and professional knowledge, skills, and experience. The remuneration system in the organization is the only and universal tool with the help of which the tasks that are fundamental for the effective operation of any organization are solved, such as motivating labor productivity growth, satisfying the interests and needs of employees in various aspects of their work and improving the quality indicators of personnel.
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