Abstract
This research paper aims to review the process of rewarding employees and its link to
motivation. The main purpose of this research is to clarify the term of total rewards and
reward systems, to answer the questions why, when and how to reward employees and
further to discuss challenges with rewarding and motivating employees. Our paper shows
that the impact of an employee rewards system in the workplace can be significant for an
organization. If the rewards system is effective, it can have a positive effect as well on
employee performance, as on company performance. If the rewards system on the other
hand is ineffective, it may have an opposite effect, videlicet decrease employee motivation
and contribute to hostility in the workplace. It is though important to remember that a
company through its rewards system is trying to build a team environment, motivate and
stimulate employee interest and create positive behaviors, and most of all, to reach their
specific organizational goals.
Table of contents
Abstract…………………………………………………………………………….1
1 Introduction ……………………………………………………………………………………………….3
2 Theoretical framework…………………………………………………………………………………3
2.1 Definition of total rewards…………………………………………………4
2.2 Types of total rewards………………………………………………………4
2.3 Link between rewarding and motivation…………………………………..4
3 Challenges with rewarding and motivation…………………………………………………….5
4 Rewarding employees in practice………………………………………………………………….7
4.1 Why reward employees……………………………………………………7
4.2 What activities and when to reward ………………………………………7
4.3 How reward employees……………………………………………………8
5 Conclusion…………………………………………………………………………………………………9
List of references……………………………………………………………………………………………11
1 Introduction
People (employees) are to an organization the most valuable asset; therefore, an effective
employee rewards system-which can have a very powerful influence on employee
performance, motivation and behavior-should be an integral part in every company’s
strategy. To understand the critical importance of a rewards system and its impact on
people in an organization, it is for one thing necessary to get a grasp of the link between
rewarding and motivation. One important thing for any manager to understand is what
really constitutes an effective employee rewards system-why reward employees, what
behaviors or performances (activities) they intend to reward, when they should reward and
what kind of challenges that may follow. These are only some of the complexities that a
manager has to deal with when designing a rewards system.
Our research paper consists of three main parts as following: The paper begins with a
review of the theoretical framework including definitions, types of total rewards and then
the link between rewarding and motivation. For the following, we go into challenges with
rewarding and motivating employees, and finally, we discuss rewarding of employees in
practice in more detail.
The material we used for our research paper is mainly literature on reward systems, as well
as relevant literature on rewarding and motivating, but we also utilized some Internet
sources. Specifically for the last part, when seeking for suggestions to overcome
challenges as well as maximize the efficiency of rewarding in an organization.
2 Theoretical framework
In the context of speedy update of the modern world, the modern rewards management has
broken through the traditional remuneration management in human resources strategy.
According to Jiang et al. (2005), the modern rewards management has developed to cover
both direct income and indirect income, monetary and non-monetary compensation, or a
new definition of “total rewards” has appeared and been widely acknowledged in modern
Human Resources Management (HRM). There are a number of reasons to explain this
broader view of total rewards. First, the increasingly challenging business environment
makes it more and more difficult for organizations, in particular cost-conscious
organizations, to be able to offer a generous remuneration. Consequently, organizations
have to think about alternative methods that can help them cost less but still motivate their
employees (Robert, 2010). Second, organizations have to be more strategic in their HRM
as they realized that cash reward no longer was the most important employee motivator.
Instead, factors such as learning activity, flexible working hours, verbal praise and
increased authority ranked on the top list (Reynolds, 2005).
2.1 Definition of total rewards
In general terms, reward is defined as “a bundle of returns offered in exchange for a cluster
of employee contributions” (Bloom & Milkovich, 1992). This study follows Robert (2010)
to list components that make up a total rewards strategy. Accordingly, total rewards
“encompasses not only compensation and benefits but professional growth opportunities
and a motivating work environment”. He also specified each factor in which the
compensation component comprises base pay, merit pay, incentives and pay increases. The
benefits are composed of health and welfare, paid time off and retirement payment, and
finally yet importantly, personal growth that is made up of training, career development
and performance management.
2.2 Types of total rewards
The idea of “total rewards” has significantly opened up various ways of this concept’s
categorization, among which extrinsic – intrinsic rewards, financial – nonfinancial, official
– unofficial rewards are the most popular classifications. Basically,
extrinsic/financial/official rewards have the same characteristics, and so does the
intrinsic/non-financial/unofficial group. Armstrong and Brown (2006) and Purcell, J., &
Hutchinson, S., (2007) see extrinsic rewards as “being essentially transactional in nature as
in the effort–reward relationship”, while intrinsic rewards are more relational, “being
concerned with learning and development and work experience”. To be more specific,
extrinsic rewards could involve managers rewarding their employees, for example line
mangers setting policies of starting salaries, pay increase, bonuses, plaques paid leaves or
annual recreational plans. Meanwhile, intrinsic rewards, are for example decisions on job
allocation, the reward of time (for example to work from home or have some time away
from normal duties), access to training and recognition. Moreover, extrinsic rewards can
also be small-scale rewards which are mainly symbolic in value, but which can generate
