Reward system in organizations, report submitted part requirement for obtaining the degree of Master of Science in Civil Engineering and Management at the University of Glasgow.

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This essay aims to critically define an effective reward management strategy implemented by
organisations to facilitate the achievement of required profit and goals (Greene, 1995). Initially,
this essay begins with a brief definition of reward strategy from different perspectives. Therefore,
reward types are classified in a deep explanation for each one by clarifying the benefits of
rewards in controlling employees’ attitudes and reaching the firm’s objects. Through this path,
these papers are highlighting what challenges will face the human resource department when
applying these strategies and giving examples of some corporations who have implemented
them, some have been successful, and others have failed in fulfilling their targets.
The term ’reward strategy’ is defined in many ways. Armstrong and Dawson (1996) refer to
reward strategy as the way to influence worker’s behaviour to serve the purpose of the
organisation. Similarly, Wilton (2019) defines it as the system concerning the motivation and
engagement of employees to express desired behaviours, in addition to retain workers with the
required skills to reach the firm’s aims. Lupton (1972) focuses on cost and identifies the reward
system as a method that encourages employees to be flexible at work as well as serving
organisational aims at the minimum cost. Apparently, a reward strategy is the system that
motivates and retains employees in order to reach organisational goals at the least cost as
possible.
The resource-based view approach consists obviously of the idea that the main goals of a reward
strategy are aiming towards fulfilling organizational objectives and controlling employees’
behaviours by what is called ‘’buying employee compliance’’ (Wilton, 2019, p.244). Whereas
Nisar (2003) agrees that the key business objectives relating to producing rewards arrangements
is to affect the larger market by creating a good reputation among employees and customers. An
effective reward system is a declaration of intent, which expresses what the organisation wants
to do in a long term to develop and implement reward policies and practices; that will forward
the achievements of its business objectives; and meet the requirements of stakeholders
(Armstrong and Stephens, 2005).
Due to the major impact of the reward management system on organisations in catching,
retaining and motivating employees (Barber and Bertz, 2000), managing rewards are one of the

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most significant practices of the Human Resource Management System (HRMS) (Güngör, 2011).
Therefore, bonuses and motivators schemes still one of the most under-researchable fields in
HRMS (Festing and Tekieli, 2015; Gupta and Shaw, 2015).
As a definition, according to Armstrong and Stephens (2005), reward management is the
understanding of organisational employees’ needs, how to be satisfied and how to be rewarded.
Thereafter, in a more detailed study, Armstrong and Murlis (2008) report that reward
management is the formulation of strategies that aims to reward people fairly, equitably and
consistently following their value to the organisation. Likewise, Thibaut Landry et al (2017) assure
this statement by explaining that incentives when distributed fairly, can strengthen employee’s
autonomy and motivation in seeking to enhance their performance. In a deep meaning,
employees cannot be given the same reward regardless of their value, position, and
performance, because this unfairness creates negative impacts such as envy between employees,
also triggers a bad reputation for the company in the market (Heimann et al., 2013).
Reward management strategy may be divided into several types, firstly the financial or
monetary rewards which consist to pay bonuses and variable pay (extrinsic) according to
individual or group performance which is called Performance Related Pay (PRP) (Wilton, 2019).
The principal concept of such rewards is that employees are going to work harder, which returns
for more financial profit, besides, this type is an important mechanism to recruit and retain
talents (Reilly, 2005). For instance, the success of the Japanese economy in the early 1990s has
been linked to its greater use of performance-related pay that encouraged workers to co-
operate, hence subsequently generated benefits for the whole organisation (Brown, M. and
Heywood, J.S., 2002). As well this type has been used by the Congress in two large United States
federal agencies, the Department of Homeland Security and the Department of Defence (Perry
and Engbers, 2009).
PRP system can be segmented into individual and group assessment, the individual one can
cause a decrease of co-operation among employees (Dowling and Richardson, 1997; French et
al., 2000). In the same way, Armstrong and Dawson (1996) assume the effect of this system on
the level of co-operation between workers and managers in spite of encouraging the greatest

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effort on the part of the worker. A notable example is given about the negative impact that
appeared on employees’ behaviour and commitment after implementing the individual PRP in
Chinese organisations (Du and Choi, 2010).
Concerning the group PRP, it is argued by Aiello (2015) that group working is helpful in
collaborating and sharing knowledge between the workforce, that is to say that employees will
definitely learn from others who have a high level of knowledge and experience. What is more is
the creation of competition between groups of employees, otherwise it is explained that some
members of the team may lean on others to make the effort and rising the team performance
(McNabb and Whitfield, 2007). In this situation, rewards will absolutely be distributed inequitably
and the feeling of being unfairly rewarded plays a critical role in forming employees’ behaviour
and outlook (Shields, 2015).
Despite all the benefits presented by the PRP system, researchers have mentioned significant
problems in controlling it. Reilly (2005, p.28) explains that this kind of rewards discourages risk-
taking and decreases the creativity of employees, in other words, people go to play safe to assure
receiving rewards ‘‘do this and you will get that’’ makes people focus on the ‘’that’’ rather than
the ‘‘this’’. While regarding the firm’s perspective, this system could be a huge problem when
firms face economic difficulties and conditions (Hay Group, 2010), when it becomes unable to
pay some bonuses the employees used to take. For that reason, organisation must be dynamic
not static therefore a good reward system is one which is flexible, adaptable to different situation
and can be taken of changes in market rate (Armstrong and Dawson, 1996).
Having assessed the evidence, one can come to the conclusion that financial incentives have an
important impact in shaping employees’ performance and behaviours, even some challenges are
presented in attaining the ideal form and implementing the comfortable system to the
organisation and workers.
Another type of PRP by Wilton (2019) focusing on the organisation performance called
‘organisation-wide pay scheme’, it’s a form of PRP including profit-sharing and gain-sharing,
consists of paying bonuses for workers when organisation achieves more than its target. This
scheme, as Leadbeater (1997), augments the loyalty to the firm so workers become more

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committed what leads to fewer employees’ turnover and absenteeism. This statement was
agreed by Greene (2014), but he added that this process also drives to promote the organisation
long-term perspectives. Conversely, if these rewards are tied to short-term goals, organisation
will face a problem that workers may not consecrate energy and time to the longer-term ones
(Wilton, 2019). On the other hand, Reilly (2005) define this process as a share in success, and says
that this process affects negatively the quality of products or services by giving a brief example
concerning Royal Mail, who tended to set an extra between 800 and 1000 £ if the profits exceed
400 million £ at the end of 2005, despite the target has been reached, the quality of service has
been missed.
The second type of reward is defined as psychological (intrinsic) which covers non-financial or
non-monetary rewards such as feeling valued by the organisation; receiving praises; job
satisfaction; promotion and professional development (Wilton, 2019). Similarly, Armstrong
(2007) sees that reward management is not only about paying for employees, it is equivalently
concerned with non-financial rewards such as recognition, learning, opportunities growth and
increased job responsibilities. Thus, workers might get a sense of fulfilment by doing something
they consider worthwhile (Armstrong and Dawson, 1996).
Moreover, in his important analysis, Herzberg (1959) gave an assumption that the best way to
benefit from the optional effort is through non-financial rewards when employees are motivated
intrinsically. In contrast, Giles et al (2014) do not coincide with this announcement and declare
that no need for intrinsic motivation when financial incentives are present because the former
directly appears when the latter is existing. Totally the opposite of Decharms (1968), Brief and
Aldag (1977), and Eisenberger et al (199) who argue that the high amount of financial bonuses
reduces significantly the level of intrinsic motivation. On the other hand, Shields (2015) ignores
the financial effect and supposes that intrinsic motivations increase automatically from the
content of the job when it includes challenges and interests. Perhaps Giles et al (2014) failed to
consider the long-term impact of psychological motivation because the public sector workers in
the United States of America have shown a greater emphasis on intrinsic incentives versus
extrinsic rewards (French and Emerson, 2015).

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After assessing the evidence, one can conclude that the better performance of employees
cannot be reached without some psychological motivations even if financial motivators are
appropriated.
Wilton (2019) defines the third type of rewards as benefits and perks which are non-financial
elements namely healthcare, subsidized meals or membership of fitness and might include the
flexibility in work and the enhancement of sickness and maternity/paternity leave. Additional
examples are given by Marino and Zábojník (2008) such as personal computers; mobile phones;
workplace amenities; good location and view. Researchers have not treated this type in detail
like the CIPD (2006b) who differentiates between benefits and perks in a way that the former is
offered to all employees while the latter is given to a detached group or individual. Generally,
many analysts agree about the elements of these rewards but Genovese (2017), unlike Wilton
(2019), still consider them as an indirect type of financial rewards since organisation must pay
money to get access for some perks like healthcare, gym membership and employee’s discount.
This type of rewards like others, contributes to recruiting, attracting, motivating employees and
assuring the work-life balance of the workforce (Wilton, 2019). Nevertheless, workers may not
simply accept gifts if they believe these are a substitute for a financial increase (Reilly, 2005).
Furthermore, they might be worthless according to what Armstrong and Dawson (1996) explain.
For instance, when you are working in a car company and it gives you a Ford Mondeo for your
private use, maybe you do not like car or you are a single person who loves sports car, you would
hardly return from your holiday after selling the car and spending the money on your enjoyable
activities (Armstrong and Dawson, 1996). This means when putting a value on these indirect
financial payments, they should depend on what they mean to the employees.
Evidently, it is concluded that such a scheme fails because it is built on what the firm thinks
valuable not the recipient, this is strongly supported by Reilly (2005).
Recent researches have also revealed to a certain degree two opposite roles of perks. On the
one side, Yermack (2006) found that when organisations announce CEOs’ personal use of
company planes, the stock market values of the firms go down by 1.1% and that firms allowing
the personal use of company planes underperform the market by 4.0% annually. Therefore,

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according to Yermack (2006), perk consumptions appear to indicate managerial excesses that are
harmful to shareholders. On the other side, Rajan and Wulf (2006) suppose that perks should be
offered only where they enhance managerial productivity. To give an example, company planes
are more likely to be offered to top executives whose companies are headquartered far away
from large airports and in counties with small populations, Chauffeur-driven cars are more likely
to be offered to executives working in headquarters located in either large counties or counties
with longer commute time, thereby perks are offered to enhance productivity and should
increase firm value (Chen, Li and Liang, 2009).
A combination of all recent types can bring the fourth one ‘total reward’ which includes all
aspects of reward namely financial, non-financial rewards, also benefits and perks, where
account is taken of every way which people can be rewarded and be satisfied through their work
(Armstrong, 2007; Azasu, 2009). An example of total reward strategy could be found at the Nike
European Headquarters in Amsterdam, when they offer 5 types of benefits: competitive salary
with pensions and commuting allowance; wellness benefits represented in the flexible work
schedule to promote work-life balance; onsite sports and fitness facilities; the access for a
continuous learning which allows employees to grow into new roles and responsibilities; and
relocation support to improve global mindset and skills for long-term sustainability (Wilton, 2019,
p.266-267).
Perhaps the name ‘total reward’ has itself a sense of satisfaction, because it drives to think of
all possible ways to cater to employees' needs seeking to serve the firm's goals. However, this
strategy definitely will not affect all labours in the same way due to the difference of thinking
between them and the way they will be valued by (Alhmoud and Rjoub, 2019). It is necessary
here to clarify that some employees might be more affected by financial rewards, maybe non-
financial and others prefer to be rewarded by perks and perquisites.
The major challenge of total rewards strategies, according to Marchington and Wilkinson’s
(2005), is that these strategies have more myth than reality. Similar to Kessler (2007) who
explains that these strategies do not reflect the main aim they are created for. On the other part,

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Brown (2014) assures that smart strategies which are rooted in an organisation’s values may be
more effective if they rely on facts and accurately determine the benefits.
In other words, an effective total reward is a strategy based on evidence, with accuracy in
estimating what results will be reflected, otherwise, it will fail in attaining the requested
outcome.
To offer an overall conclusion, one can say that reward strategy even if it is hard to be managed,
but the reward itself is a right for the employees and an obligation for the employers (Wilton,
2019). Nonetheless, this strategy, as mentioned before, must be accurate in results expectation
because in some cases, rewards might influence negatively the workforce what leads to
unexpected consequences, plus that companies must understand the thinking nature of their
employees in order to offer them the best reward which matches with what they prefer.
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