â€¢ Reward system consists of the rewards strategy, rewarding procedures and the proper tools of the systems. The main goals of rewards system must be a consequence of the main strategy of the firm and must support the achievement of firmâ€™s strategic goals. In small firms rewards systems are simplified.
â€¢ The main goals of the rewards:
- To attract employees â€“ by competitive pay and attractive benefits
- To keep best and talented employees in a firm (to build their loyalty through the development opportunities)
- To motivate employees (to take new challenges, to achieve their goals and to improve their performance)
- To develop employeesâ€™ skills that are important for the future firmâ€™s development.
â€¢ The internal structure of compensation usually consists of direct and indirect compensation. Base pay and variable pay are the most common forms of direct compensation. Indirect compensation consists of employee benefits that are also simplified and limited in a small business.
â€¢ When designing a reward system, employers may consider a broader perspective regarding total rewards. It is divided on two main areas: transaction rewards (transactional - tangible rewards) and non-financial rewards (relational - non-financial / intrinsic rewards).
â€¢ Evaluation of the effectiveness of rewards is supposed to be provided systematically to ensure that the rewards help to achieve business goals. Employee satisfaction with reward system â€“ is one of the most important measure of effective rewards.
â€¢ The growing use of work teams in firms has implications for rewards. When distributing the team rewards there are two main ways:
- Same-size reward for each team member
- Different-size reward for each team member (which can vary depending on: contribution to the team results, current pay, years of experience, skill levels.