1、A broad definition of reward schemes is provided by Bratton:Reward system refers to all the monetary, non-monetary and psychological payments that an organisation provides for its employees in exchange for the work they perform.Rewards schemes may include extrinsic and intrinsic rewards. Extrinsic r
2、ewards are items such as financial payments and working conditions that the employee receives as part of the job. Intrinsic rewards relate to satisfaction that is derived from actually performing the job such as personal fulfilment, and a sense of contributing something to society. Many people who w
3、ork for charities, for example, work for much lower salaries than they might achieve if they worked for commercial organisations. In doing so, they are exchanging extrinsic rewards for the intrinsic reward of doing something that they believe is good for society.OBJECTIVES OF A REWARD SCHEMEWhat do
4、organisations hope to achieve from a reward scheme? The following are among the most important objectives:1. To support the goals of the organisation by aligning the goals of employees with these.2. To ensure that the organisation is able to recruit and retain sufficient number of employees with the
5、 right skills.3. To motivate employees.4. To align the risk preferences of managers and employees with those of the organisation.5. To comply with legal regulations.6. To be ethical.7. To be affordable and easy to administer.ALIGNING THE GOALS OF THE ORGANISATION AND EMPLOYEESThe reward scheme shoul
6、d support the organisations goals. At the strategic level, the reward scheme must be consistent with the strategy of the organisation. If a strategy of differentiation is chosen, for example, staff may receive more generous benefits, and these may be linked to achieving certain skills or achieving p
7、re determined targets. In an organisation that has a strategy of cost leadership, a simple reward scheme offering fairly low wages may be appropriate as less skilled staff are required, new staff are easy to recruit and need little training, so there is less incentive to offer generous rewards. The
8、US supermarket group Walmart competes on low cost. It recruits employees with low skills, and pays low wages. It discourages staff from working overtime, as it wishes to avoid paying overtime rates.TO RECRUIT AND RETAIN SUFFICIENT EMPLOYEES WITH THE RIGHT SKILLSIf rewards offered are not competitive
9、, it will be difficult to recruit staff since potential employees can obtain better rewards from competitors. Existing staff may also be tempted to leave the organisation if they are aware that their reward system is uncompetitive.High staff turnover can lead to higher costs of recruitment and train
10、ing of new staff. Losing existing employees may also mean that some of the organisations accumulated knowledge is lost forever. For many knowledge-based organisations, the human capital may be one of the most valuable assets they have. High technology companies such as Microsoft are companies that t
11、rade on knowledge, so offer competitive remuneration to key staff.TO MOTIVATE EMPLOYEESMotivation of employees is clearly an important factor in the overall performance of an organisation. Organisations would like their employees to work harder, and be flexible. The link between reward schemes and m
12、otivation is a complex issue that is hotly debated in both accounting and human resource-related literature.A well-known theory relating to motivation is Maslows hierarchy of needs. Maslow stated that peoples wants and needs follow a hierarchy. Once the needs of one level of the hierarchy are met, t
13、he individual will then focus on achieving the needs of the next level in the hierarchy. The lower levels of the hierarchy are physiological, relating to the need to survive (eg eating and being housed); once these have been met, humans then desire safety, followed by love, followed by esteem, and f
14、inally at the top of the hierarchy, self actualisation, or self fulfilment.Applying Maslows hierarchy of needs to reward schemes suggests that very junior staff, earning very low wages will be motivated by receiving higher monetary rewards, as this will enable them to meet their physiological needs.
15、 As employees become progressively more highly paid, however, monetary rewards become relatively less important as other needs in the hierarchy, such as job security, ability to achieve ones potential, and feeling of being needed become more important.Herzberg argued that increasing rewards only mot
16、ivates employees temporarily. Once they become de-motivated again, it is necessary to recharge their batteries with another increase. A far better way to motivate employees is to install a generator in an employee so they can recharge their own batteries; in other words to find out what really motiv
17、ates them. According to Herzberg, it is the intrinsic factors in a job that motivate employees, such as achievement, recognition for achievement, the work itself, responsibility and growth or advancement. Giving greater responsibility to employees, for example, can increase motivation.Perhaps the co
18、nclusion to be gained from this is that monetary rewards alone are insufficient to motivate employees. Other factors such as giving greater recognition and greater responsibility may be equally important, for example giving praise at company meetings, promoting staff, and involving staff more in dec
19、ision making.ALIGNING THE RISK PREFERENCES OF MANAGERS AND EMPLOYEES WITH THOSE OF THE ORGANISATIONManagers and senior employees make decisions on behalf of the company, acting as agents of the company. It is desirable that the risk preferences of these employees should match the risk preferences of
20、 the organisation and its stakeholders. One problem with many reward schemes is that managers are too risk averse, and will not make investments that may risk their targets not being met.The events leading up to the financial crisis of 2008 are a good example of the opposite situation, where the ris
21、k appetites of employees at investment banks did not match the risk appetites of the owners. During this period, individuals working in the banks were paid large commissions for selling mortgage loans to customers. The problem was that the employees were selling loans to customers that posed a large
22、 risk to the banks, due to their low credit worthiness.The problem was confounded by the fact that in many cases, the employees of the banks were paid commissions on the date that the loan agreements were signed, while the loans lasted for 25 years. In situations where the borrower defaulted, howeve
23、r, there was no claw back, so the employee would not be required to repay the commission.Many countries have put in place new laws and codes to change this situation. In the UK for example, the financial services authority introduced a code whereby remuneration structures should be based on sound ri
24、sk management practices,incentive payments should be deferred over a number of years, and there should be claw back provisions whereby employees are required to repay bonuses in the event that the longer term results of their actions leads to similar problems experiences in the financial crisis.Shar
25、e options may also create a miss-match between the risks faced by the organisation and the risks faced by the holders of the options, since the holders benefit if share prices increase, but do not bear any losses if the share price falls. Share options are discussed in more detail later in this arti
26、cle.COMPLYING WITH LEGAL REGULATIONSRewards should comply with legal regulations. Typically, employment laws include areas such as minimum pay, and equal pay legislation to ensure that no groups are prejudiced against. There have been high profile cases of female investment bankers winning legal cas
27、es against their employers because their bonuses were far less than those paid to male colleagues.ETHICS AND REWARD SCHEMESIn recent decades there has been a move away from fixed remuneration systems towards reward systems where at least part of an employees rewards are based on performance of the i
28、ndividual and the business as a whole. Some writers claim that this is unethical for two reasons. First, such systems tend to place increased business risk onto employees. Second, such systems undermine collective bargaining systems, and reduce the power of unions. This leads to a situation where em
29、ployees as a collective have less bargaining power.The size of total remunerations paid to directors of large public companies has also become a hot political issue, with a perception that the gap between top earners, and average earners is becoming larger. In the US, the average directors of S&P 50
30、0 companies earn 200 times more than the average household income in the US. Defenders of such large differences in pay point out that this difference has actually declined in recent years; in the year 2000, directors of S&P 500 companies earned 350 times the average household income. According to s
31、ome research, such high packages are justified as they do reflect the performance of those directors.AFFORDABLE AND EASY TO ADMINISTERIt is an obvious fact that there is an inherent conflict of interest in the relationship between employer and employee. The employees rewards represent a cost to the employer, which the employer wants to minimise. Clearly whatever reward scheme is in place, it must be affordable to the employer.TARGET SETTINGMany reward schemes a
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