Retenment System: The Components Of A Reward System

Bratton and Gold (2003) describe a reward system as “The combination of extrinsic and intrinsic rewards delivered by the employer. It also consists of the incorporated policies, processes, performs and administrative processes for executing the system within the framework of the human resources (HR) strategy and the total organizational system”.

There are basically two types of rewards. Those are as follows:
a) Extrinsic Rewards
b) Intrinsic Rewards
Extrinsic rewards are the financial intensives the employees are given for their performance. Which are:

 Bonuses
 Salary Increments
 Gifts
 Commissions
 Target Bonus
 Profit Share

Intrinsic rewards are the non-financial rewards given to employees for their performance.
Those are as

d) Supporting flexibility, by responding to changing organizational skill and performance requirements.

Components of the reward system:

There are three broad reward components can be identified within the reward system.

a) Direct or base pay: a fixed salary or wages that constitutes a standard rate for the job, as defined by market pricing and job evaluation. This amount is paid at intervals of a week or month and reflects hours or work: the amount of time spent at the workplace or on the job. It is appropriate as a basic pay component in jobs where outputs are less meaningful or measurable. It also provides a relatively consistent and predictable basic income. Pay progression may be related to age or length of service, or to performance – related criteria such as competence or skill attainment.
The key advantage of direct pay are that it is easy to implement and administer; it is generally felt to be fair and it helps to establish mutual commitment in the employment relationship

Effectiveness of Direct Pay:

• Direct payments were highly effective at RFL & ACI.
• Payments provide significant contributions to the incomes of local

ii) Performance related pay (PRP), offering additional payments for individual or team performance according to a range of possible performance criteria. iii) Organization performance pay, based on the profitability of the firm: example value added schemes, profit sharing schemes and employee shareholding.

Effectiveness of Performance:

Variable pay is the most effective methods to increase employee motivation and increase their productivity through overtime payment, payment with best performance and profit sharing as organizational growth.

c) Indirect pay or benefits: non-cash items or services. These may include deferred pay in the form of pension contributions, legal entitlements. For example, to sick pay, maternity pay, paternity leave and annual leave and so-called fringe benefits such as company cars, housing assistance, medical insurance and allowances.

Effectiveness of Indirect Pay:
Indirect pay make the employee more loyal and it’s motivate to them as well as they are getting extra facilities by the company to improve their personal life as