CAT / FIA FBT Syllabus D. Leading And Managing Individuals And Teams - Reward Systems - Notes ^{3 / 3}

Management action is required to keep staff highly motivated in order to deliver high performance.

Achievement of high performance may be delivered through positive rewards.

It is important that in setting the reward system goal congruence is achieved (e.g. higher productivity may be at the expense of quality when using a piece rate system).

These rewards should help to:

1. Attract and retain staff.

2. Demonstrate care for employees.

3. Improve company image being seen as a company who is socially responsible.

4. To encourage desirable behaviour (motivation).

5. Provide a fair and consistent basis for motivating and rewarding employees.

6. To further company objectives through an externally based fair system.

7. To reward progression or promotion through developed pathways.

8. To recognise the various factors apart from performance such as job size, contribution, skills and competences.

9. To control salary costs.

Incentive schemes

An incentive scheme ties pay directly to performance and the reward should encourage improvements in performance. 

It can be tied to the performance of an individual or a team of employees. 

The scheme should link performance to organisational goals.

There are three main types of incentive schemes:

1. Performance related pay (PRP)

   • Piecework reward related to the pace of work or effort. The faster the employee works, the higher the output and the greater the reward.

   • Management by objectives (MBO) key results are identified for which rewards will be paid on top of salary.

   • Points system this is an extension to MBO reward systems where a range of rewards is available based on a point system derived from the scale of improvement made such as the amount of cost reduction achieved.

   • Commission paid on the performance of an individual typically paid to salaried staff in sales functions, where the commission earned is a proportion of total sales.

2. Bonus schemes

   • Bonus schemes usually a one off as oppose to PRP schemes which are usually a continual management policy

3. Profit sharing

   • Usually available to a wide group of employees (often companywide) where payments are made in the light of the overall profitability of the company.

   • Share issues may be part of the scheme.

Incentives need to encourage effort or action towards the delivery of organisational objectives.

There can be potential conflict when contrasting long and short term objectives. (e.g. sales staff offering discounts to customers to win extra orders this year to get a bonus, at the expense of next year’s sales)

• Long term incentive schemes will be those that are designed to continually motivate and deliver organisational objectives.

• Short term incentive schemes will be those that motivate in the short term but do not deliver ongoing motivation and are often achieved at the detriment of longer term objectives.