Importance of Performance based Reward Scheme

 

The performance management is increasingly important to be more effective in execution of business strategies to realize the strategic vision. Therefore, organizations expect all members to perform their roles at the highest stipulated professional standard and by exceeding expectations constantly.

Performance Management system should provide necessary focus and guidance to employees to attain required performance standards, identify Learning and Development gaps in an early stage and set them right immediately. It recognizes the right performance by linking performance to reward and recognition.

To attract, retain and motivate employees for higher performance, organizations can provide comprehensive performance-based reward scheme, which is competitive, consistent and transparent. Organization believes that motivate people brings exceptional results. Therefore, management endeavors to provide a competitive reward scheme which ensures internal and external equity.

Performance based rewards and incentives are given out after an achievement of specific goals. Idea behind this is to align employees with company goals and giving opportunity to earn financial and non-financial reward for their efforts.

 

Why Performance based Reward Scheme is Important for an Organization?

A performance-based reward scheme is linking individual or group performance to their pay and benefits. It recognizes employee performances and achievement to motivating and retaining them.

The benefits of a performance-based rewards scheme

1.       Motivating the staff to perform better:  Attractive reward scheme inspire employees to work hard to achieve better results.

2.   Encourage innovation and creativity: Employees will come out with new ideas and solutions to achieve desired targets.

3.       Increase the productivity: Performance based scheme encourage employees to work hard and achieve extraordinary results.

4.       Improve Employee engagement: This will boost the level of enthusiasm and dedication towards their job. They will care about their work and also performance of the organization. They are more likely to stay with the company.

5.       Attracting and Retaining Top Talents: If employees receive an attractive reward, they are more likely to stay with company as it has boost loyalty to the company.

6.       Improve the quality work: Employees work quality also increase to get more benefits.

7.   Increase commitment to job responsibility: They tend to accept challenges to perform their job in extraordinary manner!

 

Types of Performance Based Rewards

 

Organizations can introduce reward scheme based on individual and team performance. These schemes come out in various forms depending on the level of frequency and method of rewarding the performance.

Performance based rewards includes salary increments, commissions, bonuses, merit pay, profit sharing, stock options etc. Further based on company performance they can offer profit sharing bonuses, ESOPs (Employee Stock Ownership Plans), SARs (Stock Appreciation Right) and DPSPs (Deferred Profit-Sharing Plan).

In addition, they can offer non monitory schemes like recognition programmes, awards, special privileges to employees, recognize achievements of employees and invest their future by the way of providing professional and personal development.

Further, Team based performance rewards are more attractive as its rewarding the whole team to their combined efforts, creating a room for develop team-based work culture and leads to employee engagement and retention rates.

 

How to design performance-based Reward Scheme

 

When designing a performance-based reward scheme it is necessary to design and implement it strategically. This includes defining SMART objectives, which indicate the organizations mission, vision, values and culture. There should be mechanism to define, measure, appraise and manage the performance. .It is important to comminuting clearly the performance expectations to ensure all stake holders understand the performance standards, criteria and rewards.

Delivering regular feedback to support and develop performance levels and provide appropriate training and development opportunities is must. Further there should be a mechanism to recognize and reward high performances and take actions to address mediocre performances.

When designing the scheme, it has to ensure that rewards system is fair to each and every employee.

 

If summarized the process, it should ensure following points.

1.       Link rewards clearly and constantly to performances.

2.       Make sure reward schemes are setup and administered in fair manner to all.

3.       Ensure rewards given on for right persons with expected performance level.

4.       Fairness in Rewards

 

Disadvantage of Performance Based Reward Scheme

 

·       Sometimes, they are unrealistic and unfair goals set up for individuals & teams and not been rewarded equally for their efforts.

·         Personal conflicts and relation levels influence the recognizing the performances.

·         Unethical behaviors of employees to achieve given targets.

·       Employees who work in teams may undervalued due to weakness of their colleagues when achieving common objectives.

References

1.   Performance Related Pay. [Online] Available at: Performance Related Pay | Factsheets | CIPD. [Accessed on 14 December 2023].