Chapter Notes: Reward Management

Hey everyone! Let's dive into one of the most important topics in Human Resources Management: Reward Management. Ever wondered why some jobs pay a fixed salary, while others offer bonuses and commissions? Or why companies provide things like medical insurance and extra holidays? That's what this chapter is all about!

Understanding how businesses reward their staff is super important. It helps companies attract the best people, motivate them to work hard, and keep them from leaving. For you, it’s great knowledge for your future career. Let's get started!


1. Types of Rewards: More Than Just Money!

When we think of "rewards" from a job, we usually think of our salary. But companies use a mix of different rewards to keep employees happy and productive. We can split them into two main groups: monetary rewards and non-monetary rewards.

Monetary Rewards (The Money Stuff)

As the name suggests, these are rewards that have a direct financial value. They are the tangible, cash-based rewards you receive for your work.

Characteristics of Monetary Rewards:
  • Tangible: You can physically receive and spend them (e.g., money in your bank account).
  • Directly Financial: Their value is measured in dollars and cents.
  • Extrinsic Motivation: They are an external motivator – the reward comes from an outside source (the company) rather than an internal feeling of satisfaction.
Advantages of Monetary Rewards:
  • Powerful Motivator: Money is a strong reason for many people to work harder, especially if their pay is linked to performance. (Example: A salesperson might try harder to sell more products to earn a bigger commission.)
  • Meets Basic Needs: It helps employees pay for essentials like housing, food, and transport, which is a fundamental need.
  • Easy to Compare: It's simple for employees to compare job offers from different companies based on salary and bonuses.
  • Fairness and Transparency: A well-structured pay system can feel fair, as everyone doing the same job can earn a similar amount.

Non-Monetary Rewards (The 'Feel-Good' Stuff)

These rewards don't involve direct cash payments. Instead, they focus on making the employee feel valued, recognised, and satisfied with their job and work environment. Think of them as the perks that make a job enjoyable.

Analogy: If monetary rewards are the 'fuel' that makes the car run, non-monetary rewards are the 'nice features' like comfortable seats, a great sound system, and GPS that make the journey pleasant.

Characteristics of Non-Monetary Rewards:
  • Intangible: You can't touch or spend them, but you can feel their positive effects (e.g., job satisfaction, recognition).
  • Psychological Value: They focus on an employee's emotional and psychological well-being.
  • Intrinsic Motivation: They often tap into internal motivators, like the feeling of achievement or being respected.
Advantages of Non-Monetary Rewards:
  • Increases Job Satisfaction: Feeling appreciated and having a good work-life balance can make employees love their job, not just their paycheck.
  • Builds Loyalty: Employees who feel valued are more likely to stay with the company long-term. (Example: Flexible working hours might be very valuable to a working parent, making them very loyal to their employer.)
  • Improves Team Spirit: Recognition and praise can create a positive and supportive work culture.
  • Often Low-Cost: Many non-monetary rewards, like a simple "thank you" from a manager or a certificate of achievement, cost the company very little but can have a big impact.
Quick Review: Monetary vs. Non-Monetary

Monetary: Money in your pocket. (Examples: Salary, bonus, commission, overtime pay)

Non-Monetary: Things that make you happy at work. (Examples: Praise and recognition, flexible work hours, a better job title, training opportunities, a nice office)

Key Takeaway

A good reward system uses a mix of both monetary and non-monetary rewards. Relying only on money can be expensive and may not build long-term loyalty. Relying only on non-monetary rewards might not be enough for employees to meet their basic financial needs. The best approach is a balanced one!


2. Forms of Compensation: How You Get Paid

Compensation is the total package of monetary rewards an employer gives to an employee. There are two main ways companies structure this payment: based on time or based on performance.

Time-Based Pay

This is the most common form of pay. You get paid for the amount of time you work, regardless of how much you produce during that time.

  • Hourly Pay: You are paid a set amount for each hour you work. This is common in part-time jobs, retail, and food service. (Example: Working at a café for $60 per hour.)
  • Daily Pay: Paid a fixed amount for a day's work.
  • Monthly Salary: You are paid a fixed amount each month. This is common for professional and office-based jobs. (Example: An accountant earning a salary of $25,000 per month.)
When is it used?

Time-based pay is best when it's difficult to measure an employee's output, or when the focus is on quality and careful work rather than speed.

Advantages & Disadvantages of Time-Based Pay

For the Employee:

  • Advantage: Stable and predictable income. You know exactly how much you'll earn.
  • Disadvantage: No direct financial reward for working harder or being more productive than your colleagues.

For the Employer:

  • Advantage: Simple to calculate and manage payroll.
  • Disadvantage: It doesn't directly encourage higher productivity. High-performing and low-performing employees get paid the same.

Performance-Based Pay

With this method, your pay is directly linked to your performance or the results you achieve. The more you produce or the better you perform, the more you earn.

Analogy: Time-based pay is like buying a movie ticket – you pay a fixed price to be there for a set time. Performance-based pay is like playing an arcade game – the better you play, the more tickets (money) you win.

Forms of Performance-Based Pay:
  • Piece Rate: Paid for each unit you produce. (Example: A factory worker getting paid $5 for every t-shirt they sew.)
  • Commission: Paid a percentage of the sales you make. Common for salespeople. (Example: A property agent earning 1% commission on a $5 million flat they sell.)
  • Bonus: An extra, one-time payment for achieving a specific goal. (Example: An entire team getting a bonus for finishing a project ahead of schedule.)
  • Profit Sharing: Employees receive a share of the company's profits. This encourages everyone to work towards the company's success.
When is it used?

Performance-based pay is effective when an employee's output is easy to measure and when the company wants to directly motivate productivity and results.

Advantages & Disadvantages of Performance-Based Pay

For the Employee:

  • Advantage: Opportunity to earn more by working harder. High performers are rewarded directly.
  • Disadvantage: Income can be unstable and unpredictable. A bad sales month could mean very low pay. It can also create a stressful, high-pressure environment.

For the Employer:

  • Advantage: Directly motivates productivity and links labour costs to output. The company pays more only when it produces or sells more.
  • Disadvantage: May lead to employees focusing only on quantity, not quality. It can also create unhealthy competition between staff.
Key Takeaway

The choice between time-based and performance-based pay depends on the type of job and the company's goals. Time-based pay offers security, while performance-based pay offers a direct incentive to be productive. Many companies use a hybrid system – a fixed monthly salary (time-based) plus a potential year-end bonus (performance-based).


3. Fringe Benefits: The Extras on Top

Salary is just one part of the total reward package. Most companies also offer fringe benefits (or just 'benefits'). These are indirect, non-cash forms of compensation that add to an employee's financial security and well-being.

Watch Out! Common Mistake

Don't confuse benefits with non-monetary rewards! While both are 'non-cash', benefits typically have a clear financial value for the employee (e.g., medical insurance saves you money on doctor visits), whereas non-monetary rewards are more about psychological value (e.g., praise).

Purposes of Providing Benefits

Why do companies spend extra money on benefits? It's not just to be nice! There are clear business reasons.

  1. To Attract and Retain Talent: In a competitive job market, a good benefits package can be the deciding factor for a candidate choosing between two similar job offers. Good benefits also make current employees less likely to leave.
  2. To Increase Employee Motivation and Morale: When employees feel that their company cares about their health and well-being, they are often happier, more motivated, and more loyal.
  3. To Enhance Financial Security: Benefits like medical insurance and retirement plans (like the MPF) provide a safety net for employees, reducing their financial worries and allowing them to focus better on their work.
  4. To Comply with the Law: Some benefits are required by law! These are called statutory benefits. In Hong Kong, examples include contributions to the Mandatory Provident Fund (MPF), paid statutory holidays, and employees' compensation insurance.
Examples of Common Benefits:
  • Paid Leave: Annual leave, sick leave, maternity/paternity leave.
  • Insurance: Medical and dental insurance, life insurance.
  • Retirement Plans: Mandatory Provident Fund (MPF) contributions from the employer.
  • Employee Discounts: Getting to buy the company's products or services at a lower price.
  • Housing Allowance: Extra money to help with rent.
  • Meal Subsidies or Free Meals: Vouchers for lunch or a company canteen.
Did You Know?

Some of the benefits we take for granted today, like a 5-day work week or paid holidays, were fought for by workers over many decades. They weren't always standard practice!

Key Takeaway

Benefits are a crucial part of the total reward package. They serve important purposes for both the employer (attracting/retaining staff) and the employee (providing security and well-being). They show that a company is invested in its employees beyond just their daily tasks.