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Benefits and Reward System in HRM

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There is a positive correlation between the effective reward system and the performance of the employees. Along with having a conducive work culture and the freedom to take key decisions while working on a project, the compensation and reward strategy also play an active role to keep the motivation of employees high. Therefore the HRM has to devise a workable and effective reward system by taking in to account the expectations of the employees. There is one more aspect of designing the pay system including the benefits and rewards is that it should be in congruence with the business policies and working practices. Rewards and recognition are the method of positive reinforcement where the employees’ desirable behaviours and its outcome are recognized and regarded so that they repeat it in the future also.

The behaviours and the motivational cues of every individual are different and therefore designing a reward system which can be used with maximum effectiveness is a challenge for the Human Resource managers. There are many elements which have to included while devising the benefit and reward policies such as the percentage of variable pay which should be given to the employees on high performances, the requirement of the skills and capabilities, the leadership acumen and the ability to work in teams. The HRM is seen as the main department which has an active role in defining and achieving the business strategies, and it is explained in “HRM And Its Role In Business Strategy”.


  • The Performance-based pay system

In this technique, the incentives are paid to the employees when they perform according to the expectations of his/her role in the organization. But this technique has many limitations also as there start an internal cold war among the employees if someone gets the incentives. This can deteriorate the team spirit, and it can ultimately lead to dissatisfaction among the employees who do not get the performance-based pay.

  • Competency-based pay system

The competency-based pay or popularly known as CBP is the new technique which is being adopted by many organizations. In the process of CBP, the primary emphasis is given to the knowledge and the skill set of the employees. This can be considered an extension of the performance-based pay system only where it gets a new direction by adding the elements of capabilities and competencies in it. The drawback of this method is that it is very complicated to judge the actual skills of the individuals which are favourable to the firm. Moreover, if the HRM will pay emphasis on the individual goals, then they can lose track of achieving the strategic targets of the organization.

  • Team-based Pay system

High-performance teams are building blocks of any successful organization and therefore it is highly crucial for individuals to work interdependently in tightly knit groups. Many companies keep their teams on priority, and they reward the employees who showcase their ability to work in different teams or may in the same team efficiently.

  • Flexible benefits and rewards

Every individual has different criteria for feeling secure and happy, and the HR professionals have to know about it and design the reward system according to that. Therefore the companies these days are considering to include the flexible pay in the CTC of the employees, and they can avail this money to get the different benefit as per their requirement. The elements which are included in the flexible pay system are life cover, healthcare vouchers, pensions, bonuses, sponsored holidays, flexible benefits, and profit sharing etc.

  • Recognition system

The recognition is the method of reinforcing the new behaviours in the individuals and teams. This is the symbolic way of praising the initiatives and performance of people so that they feel happy and want to repeat that behaviour. The companies also adopt recognition system of rewarding for modifying the conventional reward systems.

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