What Are The Types Of Reward In HRM?

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When we discuss rewards, we will proceed to classify the multiple ways to appreciate your employees better. In the past two decades, we have viewed a constant surge in companies investing reward in HRM system. What is the core reason behind it? Due to the fact that it works. When people feel esteemed, they:

  • Get a pleasureful feeling of accomplishment, which results in higher job satisfaction and productivity.
  • More likely to improve job performance and organizational results.
  • Enhances employee experienceand inspires loyalty.

Altogether, having a reward and recognition program is beneficial for the workforce and the company.

Let’s have a look at the three different types of rewards and what each of them carries.

Three major types of Rewards

Intrinsic versus extrinsic rewards:

The fulfillment one gets from the job itself is its intrinsic reward in hrm. These satisfactions are dedicated rewards, such as having pride in one’s work, feeling of achievement, or being part of a creative team. The methodology of flex time, job enrichment, shorter workweeks, and job rotation can offer internal rewards by providing energizing and challenging jobs that allow the employee a greater sense of liberation.

On the other hand, external types of rewards usually include promotions,  money, and other fringe benefits. Their common feature is that extrinsic rewards are visible to the job and come from an outermost source, mainly includes the management.

Thus, if an employee undergoes feelings of achievement or personal growth from a job, we label such rewards are termed as intrinsic one. 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 one.

Meanwhile, we have stressed the role of external rewards in motivation; we should point out that may closely link intrinsic and extrinsic rewards.

Financial versus Non-financial rewards:

Rewards may or may not enhance the employees’ financial well-being. If they do, they can also do this directly through wages, salaries, bonuses, profit-sharing, or indirectly through supportive benevolence such as pension plans, paid vacations, paid sick leaves, and purchase discounts.

Non-financial rewards are potentially the sole responsibility of the organization. They do not improve the employee’s financial position; instead of making the employee’s life better off the job, non-financial rewards emphasize making life more eye-catching.

There is a well-renowned saying that “one man’s food is another man’s poison” this usually applies to all subjects of rewards, but specifically to the area of non-financial rewards system. What one worker views as something I have always desired for, another finds superfluous. Therefore, providing the right non-financial reward in hrm for each person must be taken care of, yet where selection has been done diligently, the perks to the organization should be worthy.

Some workers are very status and ego-conscious. A lucrative ambiance along with an attractive office, a carpeted or wooden floor, a large executive corporate desk, or a private lavatory may be just the office furnishing that stimulates an employee towered top impressive job title, their business cards, their secretary, or well-located parking space with their name painted underneath the “Reserved” sign.

Performance-based versus association based rewards:

The rewards that a company allocates can be said to be relying on either performance-based criteria or membership. Meanwhile, the managers in most of the firms will constantly quarrel that their reward system pays off on the basis of performance; you should recognize that this is almost invariably not the case. Few organizations reward employees based on productivity output. However, without a valid question, the dominant basis for reward in hrm allocations in the organization is membership.

Performance-based rewards are exemplified by the commission, piecework pay plans, incentive systems, group bonuses, or other forms of merit pay plans. On the other hand, membership-based rewards include the price of living increases, profit sharing, perks, and salary boost that is referable to the labor market, rank, credentials, or future potential. For instance, company-paid membership in a country club or company-owned luxury vehicles by executives may be given for membership or on the basis of performance output. If it is convenient to mention that all middle and upper-level executives, then they are membership base. However, suppose they are made available selectively to certain managers based on their performance rather than their entitlement, which implies they can also be taken away. In that case, we should treat them as performance-based rewards for those who might deem them attractive.

practical purposes

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 is implied. You may ponder on why the need to differentiate between two groups?

We have separated the membership-based rewards into two groups to elaborate on what is often disconcert 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. In practice, performance is only a smaller determinant of rewards. This is a fact despite academic theories holding that high motivation depends on performance base 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.