When discussing rewards, classifying multiple ways to appreciate your employees comes into the light. In the past two decades, we have viewed a constant surge in companies investing rewards in HRM systems. What is the core reason behind it? Appreciation is always considered a constructive way to motivate employees.
When people feel esteemed, they:
- Get the feeling of accomplishment, which results in higher job satisfaction and productivity.
- More likely to improve job performance and organizational results.
- Enhances employee experience and inspires loyalty.
Altogether, having a reward and recognition program is beneficial for the workforce and the company. Let’s have a look at the different types of rewards and what each of them carries.
Major Types of Employee Rewards
1. Intrinsic vs. Extrinsic Rewards
The fulfillment one gets from the job itself is its intrinsic reward in HRM. These rewards are part of non-financial nature. Any satisfaction achieved is example of dedicated rewards, such as having pride in one’s work, feeling of achievement, or being part of a creative team. For instance, a software developer who enjoys solving complex problems and receives recognition for their innovative solutions; they are experiencing intrinsic rewards.
On the other hand, extrinsic rewards usually include promotions, money, and other fringe benefits. These awards are of financial nature. Their common feature is that extrinsic rewards are visible to the job and come from an outermost source, mainly including the management. Research from the Harvard Business Review found that 63% of employees consider monetary bonuses and promotions to be crucial for retaining top talent.
Thus, if an employee undergoes feelings of achievement or personal growth from a job, we label such rewards as intrinsic ones. If the worker receives a salary or a wage increase, or a write-up in the company magazine, we will mark those rewards as extrinsic ones.
2. Financial vs. Non-Financial Rewards
Financial rewards directly or indirectly increases the worth of the financial compensation given to employees. Direct financial reward comprises of Wages, salaries and bonuses.
For example the marketing manager gets an annual bonus because the set campaign goals have been met, they receive direct financial rewards. Statistics found on Glassdoor indicate that 60% of the workers consider the remunerations such as the wages and the bonuses as important factors while at work.
In contrast, non-financial rewards enhance the quality of the employee’s life but not his/her financial status. This can include; flexible working hours, development opportunities, and a comfortable working environment; this can be illustrated by the case of a graphic designer who has flexible working hours that allows them to work from home twice a week; they gain non-financial rewards.
3. Performance-Based vs. Association-Based Rewards
Performance-based rewards are given based on individual or group performance, such as commissions, incentive systems, and group bonuses. These rewards encourage higher levels of performance in relation to work among the employees in question. Imagine a project manager who gets a bonus every time that s/he ensures that a project is delivered before the expected time.
The report by WorldatWork shows that to companies that apply performance based rewards there is a 22% increase in productivity of its employees.
Meanwhile, association-based rewards are based on membership or association with the company. Examples include benefits that increase with seniority, standard company-wide benefits like health insurance, and executive privileges such as company cars or club memberships. Think of a senior executive receiving a company car as part of their benefits package; this is an association-based reward.
Distinguishing Membership-Based Rewards
Explicit vs. Implied Membership-Based Rewards
For practical purposes, we need to break membership-based rewards into two groups. One group comprises benefits and services that go to all employees regardless of their performance level. We will call them explicit membership-based rewards because benefits and services are explicitly acknowledged to be allocated based on membership.
All the other membership-based rewards will be catapulted into the second group that we will call implied membership-based rewards. You may ponder on why the need to differentiate between two groups.
Understanding the Need for Differentiation
We have separated the membership-based rewards into two groups to elaborate on what is often disconcerting in practice. Most companies treat benefits and services as the only membership-based rewards. All other rewards are traditionally treated as performance-based. This, of course, is both inappropriate and deceptive labeling.
Performance-Based Rewards vs. Membership-Based Rewards
In practice, performance is only a smaller determinant of rewards. This is a fact despite academic theories holding that high motivation depends on performance-based rewards. In practice, much lip service is given to the value of good job performance. But the organization’s rewards do not closely parallel employee performance.
In summary, you must acknowledge that there are performance-based rewards, explicit membership-based rewards (which we call benefits and services), and implied membership-based rewards. Practicing managers often call the latter group performance-based, but they are not.
Practical Examples
Case Study: Google’s Approach to Rewards
Google is indeed recognized for its innovative rewards systems it has come up with. They provide training and development that enable improvements in skills, employees’ working schedules to balance between work and other responsibilities, and financial incentives such as bonuses and stocks for higher levels of productivity.
For instance, employees at Google are allowed to adopt others projects, and attend workshops and training, fostering a culture of continuous learning and personal growth.
Case Study: Salesforce’s Employee Recognition Programs
Salesforce’s comprehensive recognition program is an extensive one when it comes to remunerating its employees. They concern themselves with peer reward, where employees can nominate their colleagues for rewards and acknowledgement at business meetings, and the physical well being of the employees includes provision of facilities such as gym and wellness programs.
For instance, Salesforce regularly hosts company meetings in which many of the employees’ accomplishments are applauded, which creates pride and promotes productivity amongst the employees.
Current Trends in HRM Reward Systems
Personalized Rewards: The use of incentives that are inclined to target an individual’s preferences and their needs is gradually emerging. Employees value rewards that are meaningful to them personally .While some of the employees may be motivated by more paid leave and others may prefer to be motivated by other things such as training.
Technology Integration: As for the practices of performance and rewards, HR technology has been applied in many organisations by tracking the performance and managing the rewards system. For example, an HR software may give information on employees’ performance in real-time and could also give information on rewards to issue and to issue immediately without favoritism or delay.
This technology integration helps streamline the reward strategy and makes the management of rewards more transparent and equitable.
Remote Work Considerations: Thus, due to the increasing popularity of remote work, companies try to diversify the possible bonuses for remote workers for example, home office stipends and virtual team-building activities. Companies could give remote workers with stipends to buy equipment and furniture for a proper workstation at home and therefore improve the work from home conditions.
Sustainable Practices: Taking advantage of environmentally friendly benefits including green commuting incentives or company sustainability initiatives is becoming a trend in 2024. For instance, some companies provide incentives for employees who use public transportation or electric vehicles, promoting a more sustainable lifestyle.
