The design and management of reward systems present the general manager with one of the most difficult HRM tasks. This HRM policy area contains the greatest contradictions between the promise of theory and the reality of implementation. Consequently, organizations sometimes go through cycles of innovation and hope as reward systems are developed, followed by disillusionment as these reward systems fail to deliver.
Rewards and employee satisfaction
Gaining an employee’s satisfaction with the rewards given is not a simple matter. Rather, it is a function of several factors that organizations must learn to manage:
1. The individual’s satisfaction with rewards is, in part, related to what is expected and how much is received. Feelings of satisfaction or dissatisfaction arise when individuals compare their input - job skills, education, effort, and performance - to output - the mix of extrinsic and intrinsic rewards they receive.
2. Employee satisfaction is also affected by comparisons with other people in similar jobs and organizations. In effect, employees compare their own input/output ratio with that of others. People vary considerably in how they weigh various inputs in that comparison. They tend to weigh their strong points more heavily, such as certain skills or a recent incident of effective performance. Individuals also tend to overrate their own performance compared with the rating they receive from their supervisors. The problem of unrealistic self-rating exists partly because supervisors in most organizations do not communicate a candid evaluation of their subordinates’ performance to them. Such candid communication to subordinates, unless done skillfully, seriously risks damaging their self-esteem. The bigger dilemma, however, is that failure by managers to communicate a candid appraisal of performance makes it difficult for employees to develop a realistic view of their own performance, thus increasing the possibility of dissatisfaction with the pay they are receiving.
3. Employees often misperceive the rewards of others; their misperception can cause the employees to become dissatisfied. Evidence shows that individuals tend to overestimate the pay of fellow workers doing similar jobs and to underestimate their performance (a defense of self-esteem-building mechanism). Misperceptions of the performance and rewards of others also occur because organizations do not generally make available accurate information about the salary or performance of others.
4. Finally, overall satisfaction results from a mix of rewards rather than from any single reward. The evidence suggests that intrinsic rewards and extrinsic rewards are both important and that they cannot be directly substituted for each other. Employees who are paid well for repetitious, boring work will be dissatisfied with the lack of intrinsic rewards, just as employees paid poorly for interesting, challenging work may be dissatisfied with extrinsic rewards.
Rewards and motivation
From the organization’s point of view, rewards are intended to motivate certain behaviors. But under what conditions will rewards actually motivate employees? To be useful, rewards must be seen as timely and tied to effective performance.
One theory suggests that the following conditions are necessary for employee motivation.
1. Employees must believe effective performance (or certain specified behavior) will lead to certain rewards. For example, attaining certain results will lead to a bonus or approval from others.
2. Employees must feel that the rewards offered are attractive. Some employees may desire promotions because they seek power, but others may want a fringe benefit, such as a pension, because they are older and want retirement security.
3. Employees must believe a certain level of individual effort will lead to achieving the corporation’s standards of performance.
As indicated, motivation to exert effort is triggered by the prospect of desired rewards: money, recognition, promotion, and so forth. If effort leads to performance and performance leads to desired rewards, the employee is satisfied and motivated to perform again.
As mentioned above, rewards fall into two categories: extrinsic and intrinsic. Extrinsic rewards come from the organization as money, perquisites, or promotions or from supervisors and coworkers as recognition. Intrinsic rewards accrue from performing the task itself, and may include the satisfaction of accomplishment or a sense of influence. The process of work and the individual’s response to it provide the intrinsic rewards. But the organization seeking to increase intrinsic rewards must provide a work environment that allows these satisfactions to occur; therefore, more organizations are redesigning work and delegating responsibility to enhance employee involvement.