Reward Management: What You Need To Know

Reward Management: What You Need To Know
Last Updated: October 30, 2022

Reward Management: The definition of reward management

Rewards management is a field in human resources that focuses on developing and delivering employee rewards and incentives. In today's world, various rewards are available to employees, including salaries, bonuses, and long-term incentives. A good rewards strategy is a key component of a company's human capital strategy.


Reward management can be viewed as identifying, measuring, and rewarding the behaviours and outcomes that will help an organization achieve its strategic goals. It is a way of ensuring that employees are motivated, engaged, and have a sense of purpose. It is about ensuring that people are rewarded for the right behaviours and outcomes and that they are given a clear understanding of what is expected of them to be as effective as possible. Effective reward management is becoming increasingly important in today's complex and challenging business environment.


Others consider reward management a motivational practice that businesses use to reward employees for their achievements and success. The organization sets goals and establishes rules for its employees to follow to achieve those goals. It ensures that employees know these goals, rules, and the rewards they will get for high performance.


Reward management is also the act of developing and executing policies and procedures that reward employees fairly and consistently across the firm. Employees are compensated based on the value they provide to the company.


Related: Total rewards: Everything you need to know

Types of Rewards


Reward management and Extrinsic Rewards

Extrinsic rewards are bestowed on an individual by a third party. These are rewards given physically to the employee and have a monetary value, such as a bonus or paid holiday. They can be held in one's hand, such as money or presents. They are often straightforward to comprehend and evaluate, both of which make it simple to employ them as a form of incentive. They are frequently used to motivate people to engage in particular actions or accomplish particular objectives.


Reward management and Intrinsic Rewards

Intrinsic rewards are the rewards we receive from doing something we like. They are the most immediate and enjoyable kind of reward and are often the ones we seek most when we are making decisions. Intrinsic rewards come from the experience of doing something—for example, the feeling of accomplishment from completing a hard workout. Intrinsic rewards can be anything enjoyable and worth keeping doing. They can be as simple as complex as learning a new skill.


These awards are encompassed by things such as awards, praise, and public recognition, which give a sense of achievement but don't have a monetary value. They give employees a sense of achievement, but they are not materialistic.


Intrinsic rewards make employees satisfied and have pride in their work. They also give them a sense of belonging to a team and a feeling of accomplishment. Tactics that can provide intrinsic rewards are flexible working hours, job enrichment, and job rotation. They allow workers to be motivated to carry out their duties and experience job satisfaction.


Reward management and financial Rewards

These rewards are given to employees to enhance their financial well-being. They are tangible, and they fulfill the employee's financial needs. Examples of financial rewards are pay, allowances, profit sharing, awards, and allowances.


Reward management and non-financial rewards

These rewards emphasize how much the company values its staff. They are incentives created to motivate employees to stay on the job. Non-monetary rewards are intangible, and they fulfill the psychological needs of employees. They include expressions of thanks and appreciation from coworkers and employers.


 Reward management  and performance-based Rewards

These reward employees based on their performance. This reward system implies incentives in terms of commission on sales, bonus on high production, the share of profit as well as recognition. It means employees who are high performers would get higher incentives and vice versa.


Reward management and group-based rewards

These are reward management strategies to provide a reward to employees based on team performance. Employees who complete duties in groups are rewarded on a group basis. According to research, most organizations promote group work because when individuals work in groups, they benefit from each other's support and aid in finding solutions to problems and reaching goals. A group is typically compensated with both monetary and non-monetary rewards.


Related: How to Design a Performance Management Policy


Development of a Reward Management Process

The involvement of department managers-This means that the creation of reward systems cannot be placed solely on the Human Resource Department. There is a need for the direct managers of the employees to be included in the process of developing incentive systems because they would have a good understanding of what the work entails, which the HR department alone cannot complete.


Organizational policies and reward systems- Organizational policies in line with how employees are compensated play a vital role in developing a reward management system. Rewards such as yearly bonuses are usually dependent on the organizational policies, so the rewards systems are usually built on the foundation of organizational policies.


Elements of an effective Reward Management Systems


The best reward systems recognize both significant and minor accomplishments. It's essential to acknowledge and celebrate each tiny achievement to promote a steady, continuous improvement. Understanding the relationship between huge successes and the small wins necessary to accomplish them is essential.


Equity and reward management

A fair system of rewards also works well. The equity with which team members are compensated and rewarded for their work is one of the most important aspects of a reward management system.



When compared to prizes that are given weekly, monthly, quarterly, or annual, timely rewards are frequently more successful. Praise's likelihood of having a positive effect declines over time while its likelihood of having a negative effect rises in its absence. Additionally, it's simpler to overlook giving it altogether. When someone receives praise quickly after making a significant contribution, a direct link is made between the act and the praise.



Employees should be praised for their excellent job. When rewards and recognition are tailored to the contribution, they have a greater chance of having an impact.


Culture Alignment

The ideals that make up your organizational culture are complemented and reinforced by a great reward system. Although all of the above-described components can be included in any culture, it's essential to consider how they will function in the various business environments.



When decisions are made regarding the distribution of rewards, they do not vary arbitrarily, without justification, between different people. This is referred to as a consistent approach to reward management. They don't erroneously depart from what is considered fair and equitable.



There is transparency when all of the organization's employees have a thorough awareness of how the reward systems work and how they impact them.


Related: Benefits of the Monetary and Non-Monetary Incentives


Why is Reward Management important?

Attracting and Retaining top talents- To attract and keep the best employees in any sector, you must give them what they deserve. Reward management is one of the finest strategies for luring and keeping top personnel. Employees will leave the organization if they don't feel appreciated.


Improve company culture-A great strategy for enhancing corporate cultures is reward management. The organization builds a good reputation in the marketplace through effective reward management. Every firm wants to be well-known in the industry, and reward management will be helpful.


Motivation and Productivity-The best strategies to motivate employees are through reward management. A better reward system raises competition inside the company, encouraging workers to put in more effort and boost production. Ultimately this has a favorable effect on the productivity of the entire organization.


Loyalty-Organizations can ensure that their employees are more devoted to the company by using effective reward management. An effective reward management system can enhance how the employees advertise their company to the outside world. Indeed, the organization will receive better returns as a result of this.


Creates a healthy environment: People spend a lot of time at work, which affects their health. People will feel less stressed in a balanced environment that emphasizes rewarding good work and not just penalizing them for underperformance.


Evaluating the effectiveness of a Reward system

Organizations need to measure their reward program's effectiveness to tell if it is fair or effective. The organization will be able to determine the impact of its reward system on employees as well as the return on investment.


Examples of ways of measuring the effectiveness of a reward system are:

Employee Opinion Surveys

Use workers' opinion surveys to recognize how workers and managers think about equality in the employee reward program. In these surveys, the organization would need to find out if employees understood the program's purpose and if the employees liked the rewards on offer.


Evaluate turnover and employee engagement.

The assumption is that an effective reward system should positively impact these operational results. For this fact, the organization would need to calculate the turnover and see how the turnover rate has been affected.


Compute the return on investment

The organization calculates the reward program's cost and compares it to its measurable results, such as an increase in productivity, customer satisfaction, and a decrease in operating costs.


External Reward Practices

This involves gathering information through market surveys to see how employees in other organizations are being rewarded. This will help the organization to evaluate whether their current reward system is fair or not compared to employees with the same skills.


In conclusion, as much as financial rewards are a useful motivational tool, employees value rewards other than money, such as professional development and a good work environment. In addition, the organization should reward employees fairly and transparently to avoid the demotivation of other employees.

Logical Zivurawa
This article was written by Logical a Consultant at Industrial Psychology Consultants (Pvt) Ltd

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