The previous articles have discussed how reward systems must be put in place that would ensure that the internal skills and attributes of the employees are aligned with the external reward systems. This article discusses how reward processes have to be developed in organizations.

Involvement of Line Managers and HR

To develop effective reward systems, the line managers and the HR managers must act in tandem. What this means is that the development of the reward systems must not be left to the HR department or the line managers alone. This is because the HR managers would be able to take a theoretical stance whereas the line managers would be able to apply theory to practice and design reward systems that match the conditions of alignment and orientation. In particular, in the services sector there is a need for the direct managers of the employees to be involved in the process of development of reward systems as they would have the clear idea of what the work entails which the HR function alone cannot visualize.

Organizational Policies and Reward Systems

Broadly, speaking, organizational policies related to how employees are rewarded have a greater bearing on the development of the reward systems when compared with the inputs that the HR function and the Line Managers provide.

In other words, the overall edifice of the reward systems stands on the foundation built by the organizational policies and the specifics are left to the HR function and the Line Managers.

Of course, it goes without saying that whereas the basic components have to in tune with organizational policies, the variable pay and the components that are specific to individual bands of employees are at the discretion of the division or the group that the employees belong.

Further, the yearly bonus and the pay hikes are again dependent on the organizational policies, which are broadly related to industry standards and the growth of the company in the previous year.

Reward Systems must be Market Oriented

The other aspect related to the development of reward systems is that they must be based on the prevailing market conditions and the demand and supply dynamics that the industry has with respect to demand for skills and availability of employees. Again, this is especially important in the services sector where competition for highly skilled employees is intense and hence the reward systems must reflect the market trends rather than what the organization thinks is a fair reward system.

Closing Thoughts

Finally, the non-financial component of the reward systems is an aspect that is organization specific since each organization has its own way of incorporating reward and recognition systems that are non monetary in nature. For instance, it is common for multinational companies to have liberal non-financial reward systems in the form of special events and celebrations in resorts, annual day awards that bring glory to the employees etc. Indeed, this is something that the manufacturing sector pioneered where the trend was to have non-financial rewards that were grand when compared to the base salary and financial incentives.