What Are Successful Employee Reward Systems?
An organization's employee reward system determines its ability to attract new recruits while retaining and motivating talented employees. It is also an important contributor to job satisfaction. The key to ensuring that a reward system is successful is to align it with the organization's values and goals to ensure that appropriate employee behaviors and achievements are rewarded and encouraged.
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Total Reward
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An employee reward system consists of three elements: financial compensation, employee benefits and non-financial rewards, such as recognition. This whole package is referred to as total reward. Taking a total reward approach allows employers to offer a flexible package that employees can tailor to their individual preferences. The company can vary elements of the package to meet changing circumstances. It also enables the employer to promote the total value of the package offered to employees.
Financial Compensation
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The financial compensation an employee receives is made up of fixed elements, such as salary or hourly rate, and variable elements, such as incentive pay, stock options and monetary bonuses. Companies benchmark the fixed elements of pay with other companies in the industry sector and local area to remain competitive. The variable elements of pay are less straightforward. Companies aim to reward desired behaviors and achievement of goals aligned to company strategy. Unfortunately, some reward systems can unintentionally reward the wrong behaviors. Companies must build their incentive and bonus schemes with care.
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Employee Benefits
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A wide range of employee benefits are available to employers, including health insurance, retirement programs, paid leave, childcare subsidies and relocation expenses. All of these items have a monetary value. A company will choose benefits that align with its values and the aims of its total rewards package. If a company values loyalty and wants to minimize turnover, it may offer bonuses based on years of service. Relocation expenses can be used to widen the pool of candidates if a company has vacancies that are difficult to fill locally.
Non-financial Rewards
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The total reward system includes rewards with no monetary value, which are nevertheless important to employees. Employees want their efforts to be recognized and appreciated by those in authority. Recognition and feedback from line management is part of the total reward system. Employees with commitments outside of work, such as childcare or elderly care, value flexible work highly. Ambitious employees value career development and opportunities for advancement. Total reward also includes the satisfaction that employees derive from accomplishing tasks and socializing with colleagues.
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References
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