Reward Management and Employee Performance

This assignment examines the effectiveness of reward management systems in influencing employee performance. It delves into the mediating role of employee motivation and analyzes relevant theories such as creative destruction and behavioral agency theory. The analysis uses academic research, case studies (Isfahan Regional Electric Company), and online resources to understand the complexities of reward economics and organizational behavior.

Reward Management

Table of Contents
Reward Management ......................................................................................................................1
Critical Incident Technique Self Reflection....................................................................................9
REFERENCES..............................................................................................................................12

Illustration Index
Illustration 1: Effectiveness of reward management.......................................................................4

Reward Management
Reward management system is an important aspect of every organization as employees
are considered to be an important asset to then entity. The essay discusses importance of reward
management system and its direct impact on output created by the employees. It will focus on
reward management theories which includes, principal agent theory, human capital theory and
creative destruction theory. It further discusses about a newspaper article which is directly linked
to reward management system and its theories.
Reward management is concerned to preparation of the strategies and implementing them
in the organization so that people working there can be rewarded fairly, equally and consistently
as per the values of the entity. It the basic of the organization to create and implement effective
reward structure which can satisfy the individuals to the core and ultimately leads to achieving
the goals of the enterprise (Armstrong and Taylor, 2014). Reward includes controlling of
remuneration, compensation and other benefits that are provided to the employees. The reward
structure of any organization generally consists of payment policies, salary, administration of
payroll, total reward, minimum wages, reward of the team etc.
Financial analysing and controlling of business activities as well as remuneration of
employees are also identified under reward management. In accordance with workers values and
performances generated within business organization, strategies as well as policies of reward
management are implemented. HRM practices are developed under every modern organizational
structure to attract and motivate large number of employees.
Importance
Every corporate levels are designed with determined objectives and goals which could
attain growth as well as competitiveness among every business firms. Similarly, Tesco company
has treated their employees as an important asset in managing and performing every determined
tasks within teamwork. By framing several principles or objectives cited organisation has
developed guideline regarding approaches of managing rewards of employees (Karami,
Dolatabadi and Rajaeepour, 2013).
The main aim of reward management is to fairly treat employees regarding their designed
work. Further, such practices are adopted to motivate workers to enhance their efficacy and work
standards to achieve designed goal and objectives of business firm. Adoption of such
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management activities are beneficial in attracting large potential employees by initiating them
with appropriate benefits, incentives, growth opportunities, bonuses and many more.
Development of reward system emerges motivation, productivity, exchange of rewards,
reduction of absenteeism, enhancement of morale or loyalty and development of team work
among employees which build up friendly relations and even eradicate conflicts which are
prevailing among them. System of rewards can be determined under intrinsic vs extrinsic
rewards, performance based vs membership based rewards and lastly financial vs non financial
rewards.
One model of reward management is principal agent theory which was proposed by
Michael Jensen in the 1970s. The decisions that have been made by the agents on the behalf of
the principal. It has significant impact on the principal for whom decision have been derived by
the agent. The agents are motivated in the best possible manner so that the decision made by
them can align to the interest of principal. The main problem in the principal agent theory arises
when the objectives of the agent are not aligned to the principal. In this case, principal is the
employer and agent is the employee. The employees work on behalf of the employer and fulfil
the needs of the clients representing the company (Njanja and et.al., 2013).
The main problem arises when the reward given to the employees do not match with the
work that have been performed by them. It further gives rise to the problems in the relationship
of principal and agent. In order to cope up with these problems, principal need to utilize the
resources it carries in better manner. The employer can plan better incentive schemes that can
further help in dealing with the problems that arise in principal agent relationships. It can help in
encouraging the dedication of the employees. It further helps in employee motivation as well.
Incentives plan can include, executive share option schemes, long term incentive plans,
piecework, commission and employee share ownership plans.
Payment is an important feature of human resource management as it is the main reason
why people work in an organization. The employees may seek compensation as a return of
favour been made by the employee to the employer. It includes, monetary and non monetary
components. It is not only a contribution to the efforts been put by the individual but it plays a
major role in employee satisfaction and retention in the organization as well. There are two basic
types of schemes of payment which includes,
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 Fixed level of pays: There is no increase in the pays of the employees in the current
period in comparison to the previous period. A defined increase in pay for all the
employees is considered annually or semi annually based on the policies of the enterprise.
The scale of increase may be determined by responsibility, age or seniority. White collar
jobs consider fixed level of pays after specific duration (Ballwieser and et.al., 2012).
 Reward linked to performance: Rewards can be linked to the performance may be
weekly, fortnight, monthly, quarterly, semi annually or annually. It totally depends on the
structure of rewards followed by the company. Every employee gets these rewards based
on quantity and quality of work performed by them. It acts as motivating factor for the
employees. Moreover, it helps in retention of employees for longer period of time in the
organization.
Both the above schemes of payment are measurable, shown openly to the employees, fair
to everyone in the organization and accurate as well. However, as per the views of Wiseman,
Cuevas‐Rodríguez and Gomez‐Mejia (2012), there is a considerable amount of dissatisfaction
among the employees with respect to it as they do not get satisfied by the measurable methods
used by the companies. Moreover, it acts as a demotivating factor for the employees if they do
not get satisfied with the reward they got from the employer. Hence, it is important to develop
better principal agent relationship so that employer can keep the employees satisfied. It also
keeps the objectives of the employer and the employee aligned therefore leading to better
achievement of organization's goals.
According to Pepper and Gore (2015), creative destruction is an important rewarded
management model which says that the reward structure must be changed by the organization so
that the organization can deal with the current and prevailing internal and external forces. It is
important to ascertain the effectiveness of reward management system followed by the company
so that it can directly contribute in the growth of the organization.
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It is important to tailor made the reward system as per the needs of the employees,
affordability of the employer and fulfilment of the objectives of the organization. It creates a win
situation for both the employer as well as the employee. Further, it also helps in motivating them
to work in their swing (Gillies, 2017). There is a certain process that can be followed by the
employer in order to achieve the team management goals of the company. The process flows in
the following manner:
Step 1: To set the objectives of the reward and its criteria
Tesco can decide a certain set of objectives with respect to the reward with the help of
executive interviews, seminars, analysis of human resource strategies. It will help in ascertaining
agreed goals of reward management and prioritize them based on the criteria of goals. It will also
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Illustration 1: Effectiveness of reward management
Source: Increasing the effectiveness of reward management. 2012.

help in assessing the requirements of new reward system and HR practices to make adequate
changes in the policies.
Step 2: To review the currently adopted reward policies and practices
In this step, the current and ongoing policies in relation with reward management is
reviewed in order to find out discrepancies in it. To achieve this step, Tesco can conduct internal
and external analysis with the help of employees attitude towards current reward system. Proper
understanding of the current policies will assist in highlighting the important issues in order to
solve the problems involved in it (Jepsen and Montgomery, (2012).
Step 3: Measure the effectiveness of reward
It is important to measure the effectiveness of reward which is the next important step
taken by the management of the company. This step is connected to the first one where
objectives of the reward system is linked to its effectiveness. This information will be helpful to
develop and implement new reward system.
Step 4: To evaluate the outcomes of reward
It is important to note that the outcomes of the reward system must match to its goals and
objectives. It helps in assessing that whether the set criteria are met or not (Bliss, 2014).
Step 5: To develop the directions and practices of future rewards
Preparation of the new reward policies and practices is conducted in this step. Possible
alternatives are analysed and changes are decided for better attainment of the goals. A clear
understanding of practices helps in development and better implementation of the new practices.
Step 6: To implement new and improved practices of rewards.
In this step, the new framework of reward system is implemented. Proposed reward
developments are communicated to the concerned people who have its direct impact.
Tesco company is regarded as a leading retail manufacturer firm which consists of
diversified employees from every segments. Not only this, they possess separate skills and
behaviour which could be tackled by providing balanced reward packages among efficient
individuals (Mazzucato, 2013). Company has categorized several rewards including- share
incentives, colleagues as shareholders and annual bonuses. However, bonuses are generated
relevant with profit on sales or due to performance of employees. Moreover, Tesco has provided
their employees an effective opportunity to participate under schemes which are designed for
them such as save as you earn or share incentive plan.
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Another important model for reward management is human capital theory. It shows the
characteristics and human knowledge of the employee have direct contribution towards his
productivity. There must be a rationality in the decisions that can attract the individual towards
adequate amount of rewards he receives for a particular work. Based on this perspective
investment incentives and the structure of earnings of the individuals are decided. The quality of
training an employee have received makes him fit for a particular job.
In Tesco, the amount of remuneration of the employees is decided based on the skills of
the employees. According to Mitchell (2013), human capital theory is an important aspect that is
required to considered by the employers while deciding remuneration and rewards for the
employees. The incentives and rewards of the individuals are decided based on work that was
performed by them in the previous duration. However, in contrast to this, as per the views of
Brown (2014), the main issue with this theory is that notion has been pushed quite far that the
incentive and reward of a person with high qualification will be more in comparison to the one
who is less qualified. There are three contributing factors that are directly related to the concept
of empirical wage distributions. There are as follows:
 Compensating differentials in earnings: A person is paid less as his compensation is
compared to the other based on some characteristics of the job. It includes, requirement
of fewer efforts, better and pleasant working conditions, better amenities etc.
 Imperfections in labour market: There can be difference in the payments of two
workers having same human capital due to difference in their productivity and jobs. One
worker may e involved on higher productivity job and other may be involved in lower
productivity job (Silvetti and et.al., 2014).
 Discrimination based on taste: Employee may be paid lower wages in comparison to
the other due to gender of the worker or race due to their preconceived opinions about a
particular person. It reduces their motivation level of employee ending in job switch and
dissatisfaction.
Human capital plays an important role in conducting the activities of the organization. It
is important to deliver adequate amount of reward to them so that optimum utilization of human
resources can be made. A company valuing its employees are able to effectively attain the
organizational objectives.
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According to Armstrong, Brown and Reilly (2011), every managers under organizational
encourage reward system with an objective of attracting more skilled employees, motivating
existing employees, enhancement of their recognition, maintaining their respect and loyalty
among firm. Further, he indicated that reward management of Tesco has generated numerous
reward principles including- simple rewards which can be easily understandable among workers
without any complexity or obstacles. Similarly, he conveyed that competitive, fair and
sustainable reward principles are encouraged for designing effective business strategy which
could reflect every changes that are required to be adopted under business firms. Brown and
Hewitt (2014) identified that financial or non financial reward would enhance competitiveness
among employees and would likewise enhance their work efficiency and accuracy. Thereby, he
showcased that consistent as well as equitable reward policy would encourage trust and loyalty
among legal bodies which could maintain flexibility under business undertakings. Adoption of
such management activities are beneficial in attracting large potential employees by initiating
them with appropriate benefits, incentives, growth opportunities, bonuses and many more.
System of rewards can be determined under intrinsic vs extrinsic rewards, performance based vs
membership based rewards and lastly financial vs non financial rewards.
Perhaps Aime, Meyer and Humphrey (2010) outlined that Alderfer's ERG theory
described that needs and wants of human beings are never ending. Therefore, it is necessary for
every business organization to satisfy needs and want of its workers to encourage motivational
practices among them. Author stated that every employees possess three basic requirements that
is relatedness, growth and existence. Such actions fulfil individuals safety, physiological,
belonging and self actualization needs. He further mentioned that cited theory is different from
Maslow's hierarchy theories. Oluleye (2011) depicted that hierarchy theory determines that
individual must achieve one need at prescribed time before enhancing desire for other one.
In accordance with Karami, Dolatabadi, and Rajaeepour (2013), ERG model of reward
management under Tesco company showcase the relationship among frustration-regression,
satisfaction-progression, satisfaction -strengthening. From these relationships, theorists
highlights that it helps in assessing the motivation level of the employee with the current reward
system followed by the enterprise.
Opinion based reviews were collected by people management where satisfaction level of
employees were judged. With the increase in the flux in job market, the expectations of the
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employees from their jobs are quite high. No employee working with the company is satisfied
with the payment and incentives they receive from their employer (Opinion: Pay v benefits –
which is more important?, 2017). They always want to be paid more and thinks that they deserve
more than the other co working employees. The pay of an individual reflects the kind of work he
is performing in the organization. Hence, the person gets attracted towards the employers whose
payment administration is attractive and can lead an individual to grow more in his field. It
becomes a struggle for the employer to attract right kind of talent with the less basic pay offered
to the employees. Moreover, the employee retention ratio of that enterprise is also low in that
case.
It is important for any organization to opt for human capital theory where right amount of
payment is required to be made to them so that they get attracted towards the job and ultimately
the rate of employee retention also becomes high. As per the views of people in the article, the
job quickly loose the charm if right kind of facilities and payment is not provided to the
employees. It is important for the employer to tailor made the incentives policies as per the need
and preferences of the employees (Silvetti and et.al., 2014). It makes the individuals to stay
connected with the same entity and serve its objectives. Flexible benefits adoption in certain
circumstance becomes need to retain the right kind of talent in the organization.
For some employees, personal touch in the employment plays an important role. For
instance, greetings of birthday wishes acknowledging them in good performance, performance
linked incentives etc. ensures the employees that they are valued. Considering the concept of
creative destruction in reward management models; it is important to make changes in the
current structure in order to seek opportunity in the current and prevailing environment. Making
adequate changes in the reward management system of the company can make it an effective
measure to attain the objectives of the organization.
The article ponders on different views that people own with respect to pay and benefits.
Employer need to provide the benefits as per the prevailing circumstances in the market and
preference of the employees as well. A flexible reward structure helps in making it possible.
Moreover, taking care of the best possible benefit packages is the another important factor of
employee retention. Hence, in order to retain or attract right kind of talent towards the
organization, it is important for every entity to keep its compensation system attractive so that it
can reduce employee turnover ratio.
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From the above essay, it can be concluded that it is important for every organization to
opt for effective reward management system. Further, there are various theories that are taken
into consideration by the employers in order to retain and attract right kind of talent in the entity.
As per principal agent theory of reward management; the employee who is an agent takes
decisions of the business who is the principal. In return, right amount of payment is required to
be paid by the employer to its employees so retain them for longer period. Further, from human
capital theory, it can be inferred that it is important for the employer to need to make payment to
the employees based on the productivity and competency. Discrimination made based on gender,
race and other practices reduces the motivation level of the individual. Hence, the important
aspect of every organization is to keep its employees motivated and satisfies so that goals of the
entity can be achieved effectively and efficiently.
Critical Incident Technique Self Reflection
The module was based on reward management systems and its theories. It helped me
develop my knowledge regarding different reward systems that influence the employees to stay
in the organization and work in full zest. It helped me develop better understanding about reward
structures and compensation techniques followed by the different organization. Tailor made
incentive plans is the another thing that I came across which helped me to know that similar
strategies are not adopted by the entity and hence it is created as per the preferences of the
employees. It helped me to understand the reward system that is followed by Tesco on its
employees. They are considered as an important asset by the management of Tesco and hence,
effective incentive plan is developed by the Human resource management team of the company.
There are two types of rewards that are extended to the people which are monetary and non
monetary. It made my concepts regarding these two types of incentives quite clear and I am able
to differentiate between the two very clearly from now on. However, as per my views, incentives
techniques adopted by Tesco can be improved and can be placed in better way.
There are different models of reward management which includes, principal agent theory,
human capital theory and creative destruction theory. Based on the principal agent theory, I was
able to learn that there is a vital relationship between the principal who is employer and the agent
who is an employee. It is important for the organization to fulfil the needs of the agent so that
they can happily work in the organization. Further, as per the findings of this model I was able to
learn that various incentive plans are introduced by the employer to keep the employees of the
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organization satisfied. It helps in maintaining the employees for longer period of time. Some
entities also tend to provide incentive based on the performance which is also an important
aspect of reward management of the company. It helped me to understand various aspects of
employee retention that are considered by the enterprise.
Another important model considered is human capital theory, where it helped me to
understand that employees are considered to be an important aspect of any organization. It is
important to provide them salaries and wages as per their performance. People tend to get
different salaries at the same position due to difference in their productivity and contribution
towards the profits of the organization. Hence, it is justified that I can also get different salary on
the same position in comparison to the other employees (David, Fritz and Shamma, 2012). It
helped me to understand that the discriminative factor adopted by the entity is due to some
specific reason. I was not aware of this and used to think that discrimination is performed only
because of gender and race on the work place. Now I understood that there are various important
factors that are considered by the employer while designing the compensation plan of an
individual. People with different qualification also tend to get differentiated salary at the work
place. It is due to the skills they carry and the amount of knowledge they have due to extensive
training.
This module proves to be really helpful for me as it introduced me towards different
compensation and incentives techniques followed by the organization. Some award their
employees based on their contribution to the profits. However, some get influenced towards the
presence of mind a person carries while taking important decisions in the enterprise. The
formulation and implementation of strategies are purely based on the profits an organization
earns. If it is earning higher profits then it tends to give higher incentives to its employees and
vice versa. I had misconception that some entities do not tend to extend incentives just because
they do not want to do so. This module helped me to develop my research skills as well as I went
to read different nooks, journals, research articles and published material. I also learned to
critically analyse the articles of different authors as well which helped me to develop my
knowledge in better manner. Hence, this assignment prove to be beneficial to enhance my
knowledge skills. I was also able to understand the employee retention policy and incentive
technique followed by Tesco at its workplace as it is considered to be one of the largest company
in retail sector functioning in UK. Handling the thousands of employee in such a large company
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and keeping them satisfied is the important aspect that is attained by Human resource
management team of the company. It was a bit difficult for e to find a newspaper article that is
directly linked to reward management theories.
Another important model of reward management system is creative destruction. It
ponders on need to change the policies and procedures so as it can match with the current market
practices. I was able to understand that it is important for every organization to make changes in
its policies and procedure with time so as to remain competitive in the business environment. I
was able to find out that this is the most important theory to be adopted by any entity in order to
attract and retain right kind of talent a t the workplace. It means that the enterprise need to make
changes in the current reward management system after researching about internal and external
environment of the workplace. It helps in maintaining the employees and keeping them happy.
Otherwise, it gets very difficult for the organization to retain its people. It helped me to
understand that change plays a vital role in the smooth functioning of the organization (Nakahara
and Hikosaka, 2012). New and improved practices not only benefits the employees but it helps in
effective and efficient attainment of objectives in the long run as well.
Hence, it can be concluded that the assignment proved to be really fruitful for me in
terms of enhancement of knowledge, collecting research article to compare and contrast and
deriving the conclusion of any particular topic. It helped me develop my knowledge regarding
reward management and study about various concept that are involved in the topic.
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REFERENCES
Books and Journals
Aime, F., Meyer, C. & Humphrey, S. (2010). Legitimacy of Team Rewards: Analyzing
legitimacy as a condition for the effectiveness of team incentive designs. Journal of
Business Research. 63(1). 1-7
Armstrong, A., Brown, D. & Reilly, P. (2011). Increasing the Effectiveness of Reward
Management: an Evidence-Based Approach. Employee Relations. 33(2). 106-120
Armstrong, M., & Taylor, S. (2014). Armstrong's handbook of human resource management
practice. Kogan Page Publishers.
Ballwieser, W. & et.al. (2012). Agency theory, information, and incentives. Springer Science &
Business Media.
Bliss, C. J. (2014). Capital theory and the distribution of income (Vol. 4). Elsevier.
Brown, D. (2014). The Future of Reward Management: From Total Reward Strategies to Smart
Rewards. Compensation & Benefits Review. 46(3). 147-151.
Brown, D. & Hewitt, P. A. (2014). The Future of Reward Management: from Total Reward
Strategies to Smart Rewards. Compensation & Benefits Review. 46(3). 147-151
David, S. V., Fritz, J. B., & Shamma, S. A. (2012). Task reward structure shapes rapid receptive
field plasticity in auditory cortex. Proceedings of the National Academy of
Sciences. 109(6). 2144-2149.
Gillies, D. (2017). Human Capital Theory in Education. Encyclopedia of educational philosophy
and theory, 1-5.
Jepsen, C., & Montgomery, M. (2012). Back to school: An application of human capital theory
for mature workers. Economics of Education Review.31(1). 168-178.
Karami, A., Dolatabadi, H. R., & Rajaeepour, S. (2013). Analyzing the effectiveness of reward
management system on employee performance through the mediating role of employee
motivation case study: Isfahan Regional Electric Company. International Journal of
Academic Research in Business and Social Sciences. 3(9). 327.
Mazzucato, M. (2013). Financing innovation: creative destruction vs. destructive
creation. Industrial and Corporate Change. 22(4). 851-867.
Mitchell, C. J. (2013). Creative destruction or creative enhancement? Understanding the
transformation of rural spaces. Journal of rural studies.32. 375-387.
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Nakahara, H., & Hikosaka, O. (2012). Learning to represent reward structure: A key to adapting
to complex environments. Neuroscience research. 74(3). 177-183.
Njanja, L. W. & et.al. (2013). Effect of reward on employee performance: A case of Kenya
Power and Lighting Company Ltd., Nakuru, Kenya. International Journal of Business and
Management.8(21). 41.
Oluleye, F. A. (2011) Reward Economics and Organisation: The issue of effectiveness. Journal
of Business Management. 5(4). 1115-1123
Pepper, A., & Gore, J. (2015). Behavioral agency theory: New foundations for theorizing about
executive compensation. Journal of management. 41(4). 1045-1068.
Silvetti, M., & et.al. (2014). From conflict management to reward-based decision making: actors
and critics in primate medial frontal cortex. Neuroscience & Biobehavioral Reviews. 46.
44-57.
Wiseman, R. M., Cuevas‐Rodríguez, G., & Gomez‐Mejia, L. R. (2012). Towards a social theory
of agency. Journal of Management Studies. 49(1). 202-222.
Online
Increasing the effectiveness of reward management (2012). [Pdf]. Available through:
<http://www.employment-studies.co.uk/system/files/resources/files/hrp6.pdf>. [Accessed
on 21st September 2017].
Opinion: Pay v benefits – which is more important? (2017). [Online]. Available through
<http://www2.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2017/09/11/opinion-
pay-v-benefits-which-is-more-important.aspx>. [Accessed on 21st September 2017].
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