The business world is highly competitive these days. The organizations keep looking for ways to improve the quality of the work while keeping the costs in check. The job market is tight, and the business owners want to get as much as possible from their employees. At the same time, employees are looking for better opportunities or better recognition of their work. Rewards Systems for employee and recognition programs are one of the best ways to keep the employees motivated. These programs help the employees in changing their key behaviors to ensure their employers get the most benefit.

What is a reward system in an organization?

A rewards system is a program designed by the organizations to reward the employees for their performance. These programs help in motivating the employees at individual or group levels. The rewards are separate from the salary, but they can be monetary. Even the small businesses are using reward systems nowadays to lure the top employees so that they stick to the organization.

Importance of keeping merit pay and performance appraisal separate

While designing Rewards Systems for the employee, the organization needs to keep the salary or the merit pay system separate from the reward system. The financial rewards that an organization gives based on performances should be associated with the performance of the individual or the group. The rewards are considered to be “pay at risk” payments to ensure they are separate from the salary.

When the merit pay increases, it cannot be considered as a part of the reward system. Most of the organizations improve the pay scale of every employee every year to keep the salaries in sync with inflation. The increase in salary is not particularly motivating as it is usually higher for the right employee, and lower for an average employee. However, reward systems do not consider the salaries to be the base for the amount to be paid as a bonus. While merit pay is based on an individual’s performance exclusively, the reward systems are majorly based on the performance of the group or the team.

Key factors to consider while developing a reward program:

• Identification the goals to be supported by the reward program
• Identification of the performance and behavior of the employees that can alter the final results
• Determining the key factors to consider while assessing individual or group achievements
• Determining the rewards that can be given on achieving a milestone

Type of reward programs

Based on the performance of an individual and a team, there are many Rewards Systems for an employee that you can consider:

Variable Pay

Also known as pay-for-performance, variable pay is a compensation program in which the organization considers a portion of the employee’s pay as a reward. Based on the accomplishments of the individual or the company’s performance as a whole, the amount may vary. Some organizations keep the rewards based on the organization’s performance and individual’s performance separate, while some prefer to combine them and decide the variable pay accordingly. These rewards can be paid in the form of bonuses, stock options, one-time rewards and more.

In some cases, the companies prefer to pay lesser than the competition and pay a high percentage of the profits accumulated because of the individual’s performance. Such practices are standard among organizations whose revenue is determined by the individual’s sales. However, employees often ignore the variable pay if the targets are too hard to achieve.

Bonuses

Bonuses are most common among multinational organizations. They can be used to recognize accomplishments or either an individual or the group. Most of the organizations nowadays have shifted to bonuses based reward system. It has to be noted that bonuses are short term motivators. If an organization wants to lure the employees into staying for a substantial period, they should consider long term motivations that are based on future-oriented accomplishments.

Profit-Sharing

In profit-sharing, an organization takes out a percentage of the annual profit and distributes it among the employees based on the salary of an employee. It is usually calculated by equating it to a percentage of the employee’s salary. Profit-sharing based rewards are distributed only after the organization closes its books for a particular year. The sharing can be done via cash rewards, stocks or similar options. The main idea behind such a reward system is to keep the employee in sync with the organization’s profit. It directly motivates employees to work harder and increase productivity. It also helps in keeping the reward systems’ costs on the lower end.

Stock Options

There was a time when stock options were considered to be the territory of the top management. Most of the organizations distribute stocks only to the directors or at max managers. However, in the past couple of decades, the idea to offer stock options to the employees of every level has found its root in almost all major organizations. Even smaller businesses prefer to provide stock options to the employees to keep them motivated. With stocks in hand, the employees become an integral part of the company. In case the employee decides to shift to another company, the current employer prefers to buy back the stocks from the employee. Stock options are generally considered to be long term motivators.

Gifts as rewards

Many organizations offer gifts such as gadgets, holiday packages, etc. as a part of Rewards Systems for the employee. These gifts are based on individual performance. Most of the companies prefer to spend an extra amount on those who have achieved more in a fiscal year. Some companies also choose to give gift cards that the employees can use in different establishments. Prepaid gift cards are gaining popularity among the employers as they reduce the burden of choosing the right gift for the employee.

Group based reward systems

Most of the organizations prefer to use a group structure to achieve milestones. The organizations prefer to build a bridge between departments and individuals, and that is only possible via teams or groups. All types of reward systems such as bonuses, profit-sharing, and stock options can be used to reward the teams. By rewarding the group as a whole, the organizations can give a sense of accomplishment to the underachieving individuals of the group. It helps in motivating the low-performing individuals to work harder in the future to improve the profit of the business, thus increasing the reward percentage for the team.

Reward systems are an essential part of an organization as they keep the employees happy and content. There are many methods that an organization can use to develop reward systems. The reward system should be designed in a way that the employees feel well recognized for their efforts as a part of the organization. By choosing the right reward system for the individual or the group, an organization can reduce the chances of an employee leaving the organization.