Performance Linked
Reward System
Reward management
Reward management is concerned with the formulation and
implementation of strategies and policies that aim to reward people
fairly, equitably and consistently in accordance with their value to the
organization.
Objectives of Reward management

Attraction and Retention

Motivation of Performance

Create Positive Organizational Culture

Improve on Skills and Knowledge

Reinforce and Define Organizational Structure

Operate in ways that are fair and equitable
Designing Reward System
The organization should be clear about what it would like to reinforce
through rewards - performance, effort, process, credibility, team building,
loyalty (retention), sincerity etc. This needs to be clearly communicated
advance to the employees concerned.
Organizational culture is created and maintained and organizational
goals are fulfilled not only by individuals but also by teams. In fact, was
organizational tasks are carried-out in teams. So it is necessary to
think of rewarding both the individuals and the teams.
As the first step in designing a reward system, an organization should
develop consensus on the values, norms, and behavior it wants to
reinforce in its members. In short, is should be clear on the kind of
organizational culture it wants to create
The following points may be kept in
mind while designing reward system
: Rewards should be given to both individuals and teams.

A multi-dimensional and wider reward system is likely to
reduce undue pressure on promotions from which many
organizations in India suffer.

Variable component of compensation may be included in the
reward system.

Extra increments, as reward are dysfunctional lump-sum
rewards may instead be considered.

Rewards should promote teamwork and inter-team collaboration,
and should reinforce organizational values and what is desirable in
the organization and the unit/department concerned.

A manual for reward system may be developed, so that all
employees may know about the system Corporate and Department
Rewards Committees may be constituted. The Corporate Rewards
Committee may collect data, rate various units/departments on
different dimensions, receive recommendations, approve (after
discussions with respective unit/departments heads), etc.

It is very important that there is transparency and fairness in the
reward system and is perceived so by the employees.
Issues in Designing Reward System
Designing a reward system involves the following challenges / issues :

Whom to reward ?

What to reward ?

What kind of reward ?
Whom to Reward ?
Organization need know whom to reward. In general, it relates to the
question if organization should reward all employees of company or
only a certain kind.
In teamwork, the reward target relates to the question if reward should
be given to the team, the team's individuals or both.
This implies that all employees are suitable for rewards.
Certain types of employees need special consideration. For example,
sales staff and top managers are particularly predestined for rewards
due to the nature of their job.
What to Reward ?
Results-Based Rewards : It means payment by piecework.
Performance-Based Rewards : It needs good benchmarks that the
actual performance can be measured against. Otherwise, employees
will feel assessed unfairly.
Competence-Based Rewards : It focuses on "the ability to perform".
Skill-Based Rewards : It supports the development of skills. It makes
sense when companies want flexible employees.
Loyalty
Innovation
How to link performance with
compensation

https://www.superbeings.ai/blog/how-to-align-compensation-andperformance-management

Besides performance-based pay increases, bonuses and incentives
are the most common way employers are linking pay and
performance.

Pay Scale’s 2017 Compensation Best Practices Report found that
74 percent of all employers offer some type of variable pay. Of
these employers, 64 percent give individual bonuses, and 25
percent give team bonuses.
A few other pointers on linking pay
to performance:

Differentiate bonuses from incentive pay. Bonuses are paid based
on past outcomes. Incentives are intended to motivate future
outcomes.

Consider linking incentives to the speed of work. For example, if
your employee has just finished a six-week project, pay the
incentive at the end of that six weeks.

Align your incentives at the individual, team and organizational
level.
A few other pointers on linking pay
to performance:

Think about the mix of base pay to variable pay, depending on your
organization’s size, the types of jobs, your industry and so on.

Aim for self-funding, i.e., plan for incentives to come out of
increases in sales or productivity. (Making cash payments available
for on-the-spot recognition)

Keep it simple. If your comp plan is too complicated, your
employees won’t understand it and won’t be motivated by it. Plan
administrators will struggle with it, too.

Inviting employee input and feedback when designing new pay
policies.
Benefits of Performance-based
Rewarding approach

Decreased attrition rate, which empowers employee retention in
long run and commitment.

Motivate employees to perform better

Employee involvement (Participation Management) is increased
which results in autonomy, more productivity and satisfaction

Rather than working on routine jobs, employees volunteer to work
on challenging jobs to increase their recognition levels in the
working society.

Employee gets a chance to learn and enhance their skills, which
highlights their development in career.
Components/Types of Performance
Linked Reward system
Financial Reward: Salary, incentives, commission
Non-Financial Reward: medical insurance, life insurance
Psychological satisfaction: recognition, career advancement opportunities
Rewards can be broadly classified into extrinsic and intrinsic rewards.
Extrinsic rewards & Intrinsic
rewards

Extrinsic rewards are bonuses, paid holidays, etc. These can be
classified as monetary and non-monetary rewards. Examples of
monetary towards are performance bonus, profit sharing, stocks,
etc. Whereas non-monetary rewards include gifts, holidays.
facilities, etc.

Intrinsic rewards include providing more responsibility, greater job
freedom and discretion, more interesting and challenging work,
opportunities for personal growth toot vertical tine-band promotion),
diversity of activities, etc. Since rewards are symbols of recognition,
non-monetary rewards are preferable.
Pay for Performance

https://www.upwork.com/resources/what-is-pay-for-performance

https://hrmhandbook.com/hrp/pay-for-performance/