5HR03 – Reward for Performance and Contribution

Introduction

The discussion below focuses on employee reward management system and process. It highlights the importance of rewards to workforce and organisational performance, types of pay and grade structures, and different benefits provided by companies.

AC 1.1 – Explain the principles of reward and its importance to organisational culture and performance management.

Reward management is an organisational system that involves designing and implementing strategies to motivate and recognize workers for the value they offer to the firm (Bolatito et al., 2024). A sufficient reward management system comprises both financial and non-financial rewards such as salaries, bonuses, learning and development, and employee recognition. The core principles of reward management system are linking rewards to objectives (strategic alignment), transparency, fairness and consistency which play a significant role in achieving business goals, and combining intrinsic and extrinsic rewards.

Transparency, fairness and consistency are key in maintaining trust within an organisation. Transparency refers to the practice of openly sharing the reward management process and information with the workforce (Liu et al., 2023). Fairness ensures that rewards are distributed equally, while consistency in rewarding reduces perception of bias. The ethical principles allow employees understand how decisions are made. Some examples of the practices include fair reward distribution, a constant reward system, and openness about processes.

Linking rewards to objectives, which is also described as strategic alignment ensures that workforce compensation, recognition or benefits are in tandem with achievements of an organisation. An example may include giving commission to employees that meet or exceed the required sales’ target (Marin, R. 2021). The key idea is to ensure that workers’ efforts contribute effectively to the business goal. This practice is essential as it drives performance, promotes strategic alignment and supports talent retention.

Importance to Organisational Culture and Performance Management.

Rewards influence organisational culture since they as tools to shape employee behaviour and overall working environment. They mainly communicate what organisations value and expect from its employees. An example is in strategic motivation where workers must exceed targets in order to receive a reward, such a bonuses. One crucial element of reward system is when a company chooses to reward behaviours, such as collaboration, innovation, or ethical conduct (Makambe et al., 2020). This nurtures a culture that prioritises how work is conducted. Transparency, fairness and consistency further reinforce effective values by ensuring that the criteria for rewards are unbiased. However, some employees may lack authenticity in their actions, which is described performing behaviours solely for rewards.

Rewards have an impact on performance management since they motivate employees to meet and exceed expectations.  An example is giving bonuses to employees that meet their targets. Workers remain focused when they see a clear connection between their efforts and the recognition they receive (Mutiria et al., 2022). Transparency, fairness, and consistency in reward criteria ensure that employees feel their efforts are recognized without bias or discrimination. However, this set of measures can create high-performing environment where employees are more concerned with personal gain than organisational success.

Reward management is a building block towards the success of an organisation in shaping both culture and performance. It helps boost productivity and creates a healthy working environment. However, companies should be mindful of potential drawbacks that may arise causing a setback in the long term performance. An example is when some employees consider the reward process as unfair.

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AC 1.2 – Assess the contribution of extrinsic and intrinsic rewards to improving employee contribution and sustained organisational performance.

Extrinsic and intrinsic rewards are crucial in promoting work performance. The two concepts enhance motivation and a sense of belonging among the employees to the workforce. This is achieved when organisations go beyond basic pay and benefits to consider additional forms of rewards, such as workforce recognition.

Intrinsic Rewards

Intrinsic rewards are internally-driven, such as personal satisfaction or a sense of purpose, and come from within rather than from external factors (Fishbach et al., 2022). They are highly personal, often connected to feelings and fulfilment in one’s work. Examples of intrinsic rewards include achievement, recognition and personal growth.

Intrinsic rewards promote employee contribution by fulfilling inner needs, such as purpose and a sense of achievement. When workers feel valued for their tasks and given an opportunity to grow, they become more engaged and committed to their roles (Manzoor et al., 2021). Intrinsic motivation encourages creativity and long-term dedication. They also contribute to sustained performance by creating a resilient and self-driven workforce.

Intrinsic rewards encourage sustainable organisational performance by fostering a long-term commitment among the workforce. Through employee recognition and empowerment, workers deeply value their tasks and maintain a high performance over time. Their morale and loyalty is boosted, which results to an organisational success (Aljumah et al., 2021). These rewards also promote culture of continuous learning, where employees strive to keep up with the organisational needs.

Extrinsic Rewards

Extrinsic rewards are external incentives employees receive as encouragement for completing a task or meeting a goal (Shaheen et al., 2021). They include tangible benefits such as salary increment, bonuses, promotions and awards. These rewards play a crucial role in pushing employees towards excellence. However, there is a risk of undermining long-term motivation if over-relied upon.

Extrinsic rewards are essential in promoting employee contribution in an organisation by shaping their behaviour. These tangible recognitions encourage workers to align their actions with the institution’s goal (Ryan et al., 2021). They also help employees feel motivated, valued and appreciated. By rewarding behaviours and outcomes that contribute to the company success, employers can guide workforce towards a desired result.

Extrinsic rewards also play a vital role in sustaining organisational performance. When properly aligned with performance metrics, extrinsic rewards encourage consistency and high productivity. For instance, a company that offers bonuses for employees that exceed the set targets is likely to see workers perform harder, hence increasing the companies productivity. Additionally, extrinsic rewards help to clearly communicate an institution’s expectation, ensuring everyone is working towards individual and team goal (Venketsamy et al., 2021). This fosters a result-driven culture that promotes the success of the company.

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AC 2.1 – Explain differences between types of grade and pay structures.

A pay structure is a framework that outlines how employees are compensated within a company. It provides a systematic approach to setting salaries, ensuring consistency, fairness and alignment with business objectives (Wang & Lin, 2024). Two core structures that can be implemented in a company are the narrow-graded pay structure and broadband pay structure. Each of these approaches plays a key role in determining how employees are classified and rewarded based on their roles, responsibilities and performance.

Narrow-Graded Structure

A narrow graded structure consists of job grades into which jobs of broadly equivalent value are placed (Amin, 2019). There may be ten or more grades and long established structures. These structures are commonly found in the public sector or closely regulated industries. Grades are assigned based on job evaluation points or defined profiles. Mid-point management and ratios help analyse pay fairness by comparing actual salaries to policy rates. This grade structure encourages steady career progression and enhances clarity in job expectations. However, due to narrow range within each grade, employees tend to reach the top quickly. Additionally, the small differences between grades can lead to grade drift, where roles are unjustifiably upgraded.

Advantages of narrow-graded structure include clear progression steps, precise job matching and strong control over pay. Its disadvantages are that it may encourage grade drift can be too rigid, and contains an administrative burden.

Broad-Graded Structure

Broad-graded structure has six to nine grades (Smith, 2018). They may include reference points or market anchors, which indicate the rate of pay for fully competent performers. This structure contains a wider salary band within a grade. This approach helps mitigate grade drift by providing more room for salary growth within each grade. These structures offer greater flexibility, allowing employees to progress further within a given pay band without the need for immediate promotion. However, it can be harder to manage how employees move up in pay. This implies that organisations use tools such as pay points or dividing grades into smaller zones to guide progression.

Advantages of broad –graded structures include flexibility, reduction of grade drift and alignment with market rates. Disadvantages are that it is harder to control progression, poses a risk of pay inequity and there is a potential loss of transparency.

Differences between Narrow-Graded and Broad-Graded Structures

Narrow-graded and broad-graded structures differ significantly in various aspects. A Narrow –graded structure consists of ten or more grades while a broad-grade structure contains six to nine grade, making them broader in scope (Morris & Anne, 2025). Additionally, the structure and design of the grades are tightly defined in the narrow-grade structure, aiming at a precise evaluation, while the broad-graded structure uses wider bands allowing more flexibility within grades. Another difference is that progression in broad-graded structure is harder to control and is managed through mechanisms like thresholds, while narrow structures are adaptive and administrative, making them suitable for dynamic work places.

AC 2.2 – Explain how contingent rewards can impact individual, team and organisational performance.

AC 2.3 – Explain the merits of different types of benefits offered by organisations.

AC 2.4 – Explain the merits of different types of recognition schemes offered by organisations.

AC 3.1 – Assess the business context of the reward environment.

AC 3.2 – Evaluate the most appropriate ways in which benchmarking data can be gathered and measured to develop insight.

AC 3.3 – Explain approaches to job evaluation.

AC 3.4 – Explain the legislative requirements that impact reward practice

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References

Bolatito, A. O. S., & Mohamoud, Y. A. (2024). Reward management and employee performance: A review of job satisfaction in Somalia. TWIST, 19(1), 128-137. https://doi.org/10.5281/zenodo.10049652#76

Liu, Y., Heinberg, M., Huang, X., & Eisingerich, A. B. (2023). Building a competitive advantage based on transparency: when and why does transparency matter for corporate social responsibility? Business horizons, 66(4), 517-527. https://doi.org/10.1016/j.bushor.2022.10.004

Makambe, U., & Charles, V. (2020). Organisational culture and employee motivation in a selected telecommunications firm in Botswana: the moderating effect of the reward system. East African Journal of Business and Economics, 2(1), 95-109. https://doi.org/10.37284/eajbe.2.1.254

MUTIRIA, E. N., NGUGI, K., & SENAJI, T. (2022). Influence of reward system on performance of commercial state corporations in Kenya. Reviewed Journal International of Business Management [ISSN 2663-127X], 3(1), 101-109.  https://doi.org/10.61426/business.v3i1.42

Manzoor, F., Wei, L., & Asif, M. (2021). Intrinsic rewards and employee's performance with the mediating mechanism of employee's motivation. Frontiers in psychology, 12, 563070. https://doi.org/10.3389/fpsyg.2021.563070

Shaheen, K., Waheed, A., & Hashmi, W. H. (2020). Extrinsic rewards and creative performance syndrome: The mediating mechanism and interacting effects. Thinking Skills and Creativity, 38, 100713. https://doi.org/10.1016/j.tsc.2020.100713

Aljumah, A. (2023). The impact of extrinsic and intrinsic motivation on job satisfaction: The mediating role of transactional leadership. Cogent Business & Management, 10(3), 2270813. https://doi.org/10.1080/23311975.2023.2270813

Venketsamy, A., & Lew, C. (2024). Intrinsic and extrinsic reward synergies for innovative work behavior among South African knowledge workers. Personnel Review, 53(1), 1-17. https://doi.org/10.1108/PR-02-2021-0108

Ryan, R. M., & Deci, E. L. (2020). Intrinsic and extrinsic motivation from a self-determination theory perspective: Definitions, theory, practices, and future directions. Contemporary educational psychology, 61, 101860. https://doi.org/10.1016/j.cedpsych.2020.101860

Fishbach, A., & Woolley, K. (2022). The structure of intrinsic motivation. Annual Review of Organizational Psychology and Organizational Behavior, 9(1), 339-363. https://doi.org/10.1146/annurev-orgpsych-012420-091122

Marin, R. (2021). Rewards management in organizations: A retrospective on what organizations have set out and achieved in order to identify future actions. Journal of Organizational Management Studies, 642473.

Wang, S., & Lin, Z. (2024). Pay structure and firm technological innovation: comparative research based on three pay gaps. Humanities and Social Sciences Communications, 11(1), 1-21.

Amin, I. (2019). An international perspective of job grading in the Egyptian administrative system. Review of Economics and Political Science, 8(6), 540-557. https://doi.org/10.1108/REPS-05-2019-0071

Smith, D. S. (2018). Measuring Implementation Success of Pay Structures and the Role of Human Resources in Pay in Higher Education. University of Nevada, Las Vegas.  http://dx.doi.org/10.34917/14139915

Morris, A., & Morrishttps://www.davidsonmorris.com/author/anne/, A. (2025, January 22). Types of pay structure: Essential Guide. DavidsonMorris. https://www.davidsonmorris.com/pay-structure/#:~:text=Narrow%2Dgraded%20pay%20structures%20consist,sector%20or%20closely%20regulated%20industries.