There are different types of
reward adopted by organizations. However, in this work, we have discussed the different types of
rewards under the following sub-headings.
§
Basic Pay
§
Pay for performance
§
Pay for knowledge
§
Gain sharing
§
Individual incentive
§
Group incentive
§
Company wide incentive (Profit sharing)
§
Employee’s stock ownership plan
§
Scanlon plan (Martocchio, 1998).
Basic pay:
Basic pay is the amount of pay
that the employees receive at the end of the month
or week. It is the fixed salary
or wage of the employee that constitutes the rate for
the job. It may vary according to
the grade of the job or for manual workers,
according to the level of skill
required.
Armstrong (2006:627) states
that basic pay:
Will be influenced by internal relativities.The
internal relativities may be measured
be some
form of job evaluation. Externalrelativities are assessed by tracking with
trade
unions or by reaching individual agreement.
Basic pay may be expressed as
hourly rate, weekly rate, monthly or annual rate. For manual laborers, it may
be called ‘time rate’ system or daily pay system of payment, as the amount paid
is based on the number of hours worked. The base rate may be adjusted to
reflect increases in the cost of living or market rates by the organization,
unilaterally or by agreement with a trade union.
Martocchio (1998) in his view
revealed that companies typically set basic pay amounts for jobs according to
the level of skill, effort, or responsibility required to perform the jobs and
the severity of the conditions.
However, in Nigeria, may be due
to the hash economic conditions, many organizations set their employees base
pay without considering either of the factors mentioned above, believing that
if the worker does not want to work, there are many others that are willing to
work even at that lower rate they have fixed.
According to Torrington, Hall and
Taylor (2005), the basic pay is the prevalent minimum wage in an Economy.
According to them, in most cases it is the standard rate also, not having any
additions to it. In other cases, it is a basis on which earnings are built by
the additions of one or more of the other elements in payment.
According to New Earning Survey, as many as 60 percent of employees
receive no additional payments at all beyond their basic pay (Grabham,2003).
Base pay usually form part of the
employment teams, and commitment-building programme is creating a renaissance for
financial incentive of pay for performance plans. Rewarding employees according
to their performance has been the cornerstone of reward policy and practice in
many organizations that are anxious to break-even. Companies have quickly moved
away from simply assuming that employees with greater seniority perform better
than employees with lower seniority. Rather, supervisors actively judge the
level of employee performance, and they award higher pay raise to the better
performers. This practice is known as merit pay, which represents the most
common pay-for-performance method used in companies today(Heneman,1992).
What matters most in an
organization is not just how long one has been in such organization, but what
contribution has he made toward the organization’s growth. Pay for performance
is therefore one of the most direct linkage between reward and performance.
According to Grobler, Warnich,
Carrel, Elbert and Hatfield (2007:
363),
Employers today are increasingly considered Switching
from a time-based pay system to a Performance-based pay system. The purposeOf
an incentive or performance-based system is to relate employee’s pay directly to their performance.
To ensure that system is
effective and motivates desired behaviour, it is essential to consider
carefully the rewards strategies utilized and ensure that rewards are linked to
or based on performance. To be effective, any performance measurement system
must be tied to some sort of reward. Rewarding performance should be an ongoing
managerial activity, not just an annual pay-linked ritual.
Many authors, such as Abosh
(1998), Campbell and Chia (1998), Stiffer (2000), Brody (2001) and Delves(1999)
all in their different investigations/researches revealed that the US Company
IBM was able to increase labour productivity in typewriter manufacturing by
nearly 200% over a 10 year period. The reasons cited for the rare fit was the
use of two polices such as:
1.
Pay for productivity; and
2.
promotion for productivity;
In general term, performance
based systems or variable pay can be divided into three categories: individual
based incentive systems, which provide a pay incentive to each worker based on
their own level of productivity; team based incentive system; and organization
wide incentive system, which base their rewards on total organizational
performance. These different reward systems would be analyzed later in course
of this review.
When employees feel that their
reward is commensurate with their performance or effort, they would be moved to
perform even better, but unsatisfactory reward brings about withholding or reducing their effort
from effective performance.
According to Robbins and Judge
(2007:248):
Reward should be contingent on performance… Employees
must perceive a clear linkage regard-less of how closely rewards are actually
correlated to performance criteria, if individuals perceive this relationship
to be low, the results will be low performance, a decrease in job satisfaction,
and anincrease in turn-over and absenteeism.
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