Reward Systems
Why do people work? If the answer to the question is money, then why would someone with the same pay level will work harder than another? Can motivation be bought? The answer to this question is that there are extrinsic and intrinsic rewards. Payment is just one method of extrinsic rewards. There are also intrinsic rewards such as job satisfaction, sense of belonging and influence, sense of accomplishment, share of values, among other. Therefore, motivation which leads to extra-discretional effort cannot simply be empowered with additional pay.
So how important is pay? It is likely to depend on each person. This is relative to their age, qualifications, life-style, likes, culture, nation, etc. But in general, although pay is an important fact it does not have a strong impact on motivation. It is not possible to motivate people just by managing pay related reward systems. People behavior is discretional and how managers try to influence their behavior cannot lead to a standard or automatic process. So managers that try to guide their workforce just by designing reward systems will not achieve the expected result. Designing pay related reward systems is not useful to motivate people, it is a way to being fair to those who outperform for their extraeffort.
There are two steps in designing a reward system. First, what is the fixed salary level. In this aspect, fix salary levels should be enough to recruit, select and retain the employees required for each position. This fixed level should be aligned with internal (peers) and external (market) payment levels. Second, determine a variable pay which rewards effort in a way that is fair to those employees that – having the same skills set and competence than the others – over performed. Variable pay rates should have a clear purpose, which is being fair.
When designing a variable pay system, managers should have into consideration some of the following points:
- Individual or team-based rewards
- How to measure performance (qualitative + quantitative)
- Clear communication
- KISS (keep it simple and stupid)
- Avoid subjective measures
- Employees should have control over the performance measures
- Employees should have the skills, abilities and competences to achieve such goals