Effective Reward System in HRM

Effective Reward System in HRM

Rewards motivate employees and make positive towards the organization. But, if it not effective, it may affect adversely to the employees and organization. Ineffective reward system reduces the performance of employees and the hampers in the productivity of an organization. Following qualities are to be considered in making the reward system more effective.

  1. Performance-based

The reward must be based on the performance. A better performer must receive a better reward than the average and poor performer. The performance-based reward system will motivate the employees to perform better.

  1. Transparent and predictive

Reward system must be managed. Employees must be familiar with the reward system and the reward must be distributed transparently. Reward system must be predictive. Employees should be able to calculate and predict their reward in an advance. Employees become enthusiastic and motivated if they are aware of the type, size, and quality of reward. Transparent reward system also fulfills the self-esteem and recognition need of the employees.

  1. Cost Effective

The reward must have the quality of balancing the cost-benefit ratio. The reward received by the employee should not exceed the benefit received by the organization. Over costing reward causes the organization in the loss position and the existence of the organization may be challenging. The concept of making employees happy through the expensive reward is wrong.

  1. Need basing

The reward system must match the need or requirement of the employees. If reward system doesn’t meet the need of employees, it will not motivate the employees to perform better in the future. This will only create an economic burden on the organization. For example, if an employee has a physiological need, an economic benefit may be an appropriate reward for him/her. Similarly, if an employee has self-esteem need, providing recognition and appreciation may be an appropriate reward to her/him.

  1. Unbiased

The reward must be unbiased and fair. Employees identical to their job performance should be rewarded equally. The biased reward system will create conflict in the organization. For this, regular job performance must be evaluated and based upon it, the reward system must be enacted.

  1. Competitive:

Reward system must be competitive with other organization’s provision. The reward must be revised timely. Reward management must be enough to earn the living standard. It should be able to accommodate the change in lifestyle. In the absence of competitiveness, employees may leave the organization and join the other organization. The good reward system will attract and retain the competent employees.


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