Let us now consider briefly the basics of reward management. What is a reward a reward may be anything tangible or intangible that an organisation provides to its employees either intentionally or unintentionally in exchange for the employees potential or actual work contribution and to which employees as individuals attach a positive value as a satisfier of certain self-defined needs. On this definition rewards can be seen as including not only financial rewards i.e. pay remuneration or compensation but also rewards of a beneficial non-financial nature. Such a broad definition means that the options for configuring a reward management system are extremely wide. Such a definition also accords with what is referred to in the practitioner literature e.g. fuehrer 1994; kao kantor 2004: zingheim schuster 2000b asatotal reward approach.
What types of reward fall within the scope of a total reward approach as figure 1.3 indicates rewards can be divided into two broad categories: intrinsic and extrinsic. intrinsic rewards arise from the content of the job itself including the interest and challenge that it provides the task variety and autonomy the degree of feedback and the meaning and significance attributed to it. It follows that one of the most important determinants of the level of intrinsic rewards in any organisation is the way in which its jobs are designed. e extrinsic rewards arise from the factors associated with but physically external to the job that the employee does; that is from the job context. As we shall see in chapter 3 some theorists argue that intrinsic factors are the most powerful motivators of work effort. Extrinsic rewards are of three main types: financial rewards developmental rewards and social rewards. Developmental rewards cover those rewards associated with personal learning development and career growth such as skills training and performance and leadership coaching. Social rewards are those rewards and indirect or non-cash benefits associated with the organisational climate performance support quality of supervision workgroup affinity and opportunities for enhanced work–life balance such as flexible work time arrangements staff sabbaticals fitness and wellness programs and the like considered further in chapter 13 financial rewards or pay remuneration or compensation to use the preferred north american term are of three main types: base pay the relatively fixed component of total remuneration performance-related pay which by definition varies with measured performance and direct benefits such as employer contributions to superannuation or pensions health care childcare and the like.
We shall return to these categories of cash remuneration in a moment. A key step in framing a total reward approach is to determine the respective roles of financial and non-financial rewards. This in turn may require an audit of the organisation to identify what non-financial rewards it provides and to ascertain whether these alone may be sufficient to promote desired behaviour. In some situations non-financial rewards may be able to play a role equal to if not greater than that of monetary rewards. This is very likely to be the case in voluntary not-for-profit organisations such as welfare bodies where workers may expect to receive little or no pay at all. Here the intrinsic rewards that flow from the work itself may be all that is expected. Indeed paying people in such a situation may even prove counterproductive it may extinguish intrinsic motivation. on the other hand voluntary bodies may also need to hire employees for some tasks in which case careful consideration would need to be given not only to the reward mix offered but also to differences in expectations and attitudes between paid and unpaid workers.
In other organisations the need to strike an effective balance between financial and non-financial rewards will be ever-present. Firms that offer high job security that enjoy a high level of prestige and public esteem or that provide opportunities for in-house training and development might not have to offer as high a level of financial reward as do competitor firms that offer much less on the non-financial side. At the other end of the spectrum a firm experiencing high labour turnover and low productivity because employees find their jobs boring and repetitive may opt to increase financial rewards substantially in order to meet staffing and performance requirements. Alternatively it may choose to emphasise intrinsic rewards through job enrichment to make the work more interesting. In formulating an optimal approach to total reward management then each organisation will need to consider various combinations of intrinsic and extrinsic rewards.