Reward System Total Rewards



In the contemporary competitive business environment, organizations are increasingly paying attention to attracting, fostering, and retaining top talents in an effort to survive. As such, organizations must view compensation within a holistic way, which encompasses a total reward system that the organization can offer to render the workplace desirable. An effective reward strategy can aid the organization in its recruitment, motivation, and retention challenges as organizations endeavor to provide client-focused service with enhanced efficiency. Reward systems are considered effective provided that the core processes, principles, and practices align with each other. The paper explores an all-inclusive performance management, and total rewards system for a company. First, the paper outlines the key aspects of the system, its processes, metrics, and how they align with the organization. The paper highlights why organizational rewards should strategically identify effective work practice and improve performance for all employees. The underlying principle that guides the discussion details that organization ought to attain correspondence among its diverse operating systems if it is to be effective.

Keywords: business environment, compensation, reward system

Total Rewards and Performance Management System


The total rewards system represents a combined reward system detailing three core elements, namely: benefits, work experience, and compensation. A performance-related system avails an employee with financial rewards within the form of increments in basic pay or cash bonuses, which are connected to an appraisal of performance as per the accepted objectives (Nazir, Shah, & Zaman, 2012). As such, an organization must communicate assessment criteria to ensure that the process is consistent, reasonable, and transparent. The rationale for total rewards and performance management system derives from the fact that performance management and compensation are central to employee engagement and commitment, improvement of productivity, and attainment of the organizations short and long-term goals.

Effective reward system has been linked to the improved employee motivation and improvement of employee productivity, which contributes to organizational performance. A reward strategy should admit individual contributions by connecting intrinsic reward to the employee performance excellence (Anku-Tsede, & Kutin, 2013). The reward system should be performance-based and incorporate both cash and bonus. It is essential to integrate salary increase based on an individual performance with a bonus based on the divisional performance (Anku-Tsede, & Kutin, 2013). The adoption of a less hierarchical system can play big role in downplaying divergences within rewards (status differences), while simultaneously stimulating decision making based on expertise.

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Goals of the reward system

Attraction and retention of talented employees

Overall, the best rewards have been shown to attract and retain their employees. It arises from the fact that high rewards are connected to an increased satisfaction, which in turn yields to decreased turnover.

Motivation and Performance

The reward system should be linked to effective performance. The motivation is considered highest, where an employee perceives that the behavior will yield to distinct outcomes, that performance at the set level is possible, and the outcomes is attractive.

Skills and Knowledge

Employees are highly motivated to learn the skills, which are rewarded; as such, organizations must strategically target the learning that it desires their employees to involve themselves in.

Organizational Culture

The reward system that an organization adopts, contributes to its overall corporate culture. Indeed, a reward system can impact on the level, to which it is perceived as a human resource oriented, innovative, fair, participative, and entrepreneurial culture.

Key aspects of performance management system

The core elements of the total performance and reward system entail compensation (merit pay, base pay, promotions, and incentives), benefits (health and welfare, holidays, and pensions), personal growth (training, coaching/mentorship, employee involvement, career development, and performance management), quality of work (workload, chances for attainment, quality of work relationship, and autonomy), organizational culture (communication, organizational behaviors and values, organizational style, vision and values, involvement, recognition, and risk sharing), work-life balance (security of the income, social support, and flexibility), non-financial recognition (appreciation, acknowledgement, fairness of reward, and vouchers), and positive work environment (open communications, autonomy, trust and commitment, involvement, and personal security) (Hutcheson, 2007).

The compensation and performance management system ought to guarantee that the employees clearly comprehend what is expected of them and are also aware of the rewards for their contributions and hard work. An inclusive compensation and total rewards philosophy should align with the organizations culture, vision, and objectives. It necessitates that the organization establishes clear-cut job descriptions, which accurately mirror expectations, accountabilities, and realities of the post. The development of a total compensation system should be informed by internal equity (value of the job), external equity (job balance), performance appraisal (linkage between reward systems and performance), cost controls (retaining talented employees at a reasonable cost), and career advancement (whether the compensation program incentivize desired behavior) (Bau & Dowling, 2007).

The organization should embrace a team-based rather than conventional hierarchy system. However, the management system ought to be worker focused, in which rewards are grounded on performance and productivity. The organization reward system should be flexible and creative. It is also essential that organization clarify expectations and standards to all employees, stimulate individuality and experimentation, and align rewards with the organizational mission and values.




Implementation of Total Rewards System

The implementation of total rewards system features four steps, namely: assessment, design, execution, and evaluation. The assessment stage necessitates that the organization gathers data to appraise efficacy of the companys total rewards system. During the assessment phase, the organization should be informed by reward strategies and employee attitudes towards the strategies. The assessment should be informed by benchmark surveys derived from successful organizations. A survey is based on employees perceptions towards compensation system on aspects, such as pay increases, rewards structures, base-pay levels, and benefits (Jiang, Xiao, Qi, & Xiao, 2009). The data should inform of the design phase, in which the organization highlights and analyzes possible rewards strategies. The execution phase encompasses putting the total reward system into operation, while the last phase entails appraisal of efficacy of the strategies already in place.

Compensation entails three core elements: pay rise, pay level (salary or base wage), and incentives (monetary bonuses). The pay level should be informed by job analysis, job description, and job specification (skills, knowledge, and abilities). The rewards system should align with three core elements, namely: strategic drivers of the organization including organizational capabilities, operating governance and labor market requirements (Corcoran, 2006). The reward system should also align with the rewards philosophy and goals, which encompass base pay, fringe benefits, variable compensation, and compensation governance (Adler, 2011). Lastly, the reward system ought to align with compensation-delivery mechanisms detailing base salary, market pricing, job evaluation, performance management, and administration.

The value of a job hinges on the employers competitive strategy and derives from salary surveys and job evaluations, which necessitate correlation of pay rise with the performance ratings based on group, organizational, and individual performance (San, Theen, & Heng, 2012). Individual incentives feature cash bonus or stock payment for the performance based on the employee job performance (Bisbe & Malagueno, 2012). Synergies can be derived from the total rewards design by integrating various strategies in order to improve employee performance.



Work environment

Learning and development

Metrics inform managers and employees of what is significant and provide business leaders with a dashboard critical to steering of the business growth. The reward metrics should ground on the business outcomes based on core aspects, such as communication and return on investment (Schuster, & Kesler, 2012). The key performance indicators encompass metrics, such as labor cost revenue percentage, labor cost expense/revenue percentage. Other metrics include total bonus and incentives cost, total benefit cost, and total employee compensation cost.

The implementation of a total rewards plan requires that the management tackles wide array of questions on the forms of rewards to pursue, how to fund the reward system, and how the system will be designed (Schuster, & Kesler, 2012). One of the difficulties associated with rewards systems derives the perception that most of the practices are flawed, despite the principle being ideal. Line managers are often accused of operating rewards systems inconsistently, unjustly, and inequitably, devoid of transparency (Uri, Meier, Rey-Biel, 2011). A misalignment of metrics and pay may render individual performance targets to compete with the objectives of the strategy and yield to confusion of the roles and accountabilities (Mujtaba & Shuaib, 2010).





Direct compensation:

Base salary

Merit pay, incentives, bonuses, promotion pay increase, inflation adjustments

Equity based rewards: group incentives

Incentive pay schemes

Supplementary salary











Cost effective

Highly productive employees

Improved employee satisfaction and engagement

Increased commitment


Traditional benefits, including health plans, life insurance, disability income, retirement plans, executive benefits, paid time off





Fostering equity and fairness

Improving employee satisfaction

Family oriented and work family balance

Culture and environment including aspects such as HR strategy, customer expectation, industry benchmarks




Non-financial rewards: work experience

Career growth, training, coaching, and mentoring

Work-life initiatives, such as wellness programs

Performance management job appraisals, recognition, goal settings, awards



Increased rate of retention

Reduction of cost of recruitment


A reward strategy illuminates what an organization seeks to do within the long-term to establish and implement reward practices, policies, and processes that foster the attainment of organizations objectives. Hence, the implementation of a total reward system cannot be overemphasized with regard to gaining employee commitment, performance, and efficiency. One of the strategies that successful organizations can utilize to survive in contemporary competitive and global workplace encompass capability to draw qualified applicants, retain top talents, and sustain a highly inspired workforce. Total reward system seeks to attract key talents, retain high achievers, and improve the organizations financial performance. The rewards system should be informed by core values of the organization, processes that inform decision making and communication practices. The organization should consider the entire range of reward strategies entailing benefits, compensation, personal and professional development, as well as work environment.

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