REWARD SCHEMES FOR EMPLOYEES AND MANAGEMENTA major part of performance management involves managing employees and managers, as their performance will have a major effect on the performance of the organisation as a whole. This article looks at how reward schemes can be used to influence the behaviour of employeesMEANING OF REWARD SCHEMESA broad definition of reward schemes is provided by Bratton:Reward system refers to all the monetary, non-monetary and psychological payments that an organisation provides for its employees in exchange for the work they perform.Rewards schemes may include extrinsic and intrinsic rewards. Extrinsic rewards are items such as financial payments and working conditions that the employee receives as part of the job. Intrinsic rewards relate to satisfaction that is derived from actually performing the job such as personal fulfilment, and a sense of contributing something to society. Many people who work for charities, for example, work for much lower salaries than they might achieve if they worked for commercial organisations. In doing so, they are exchanging extrinsic rewards for the intrinsic reward of doing something that they believe is good for society.OBJECTIVES OF A REWARD SCHEMEWhat do organisations hope to achieve from a reward scheme? The following are among the most important objectives:1. To support the goals of the organisation by aligning the goals of employees with these.2. To ensure that the organisation is able to recruit and retain sufficient number of employees with the right skills.3. To motivate employees.4. To align the risk preferences of managers and employees with those of the organisation.5. To comply with legal regulations.6. To be ethical.7. To be affordable and easy to administer.ALIGNING THE GOALS OF THE ORGANISATION AND EMPLOYEESThe reward scheme should support the organisations goals. At the strategic level, the reward scheme must be consistent with the strategy of the organisation. If a strategy of differentiation is chosen, for example, staff may receive more generous benefits, and these may be linked to achieving certain skills or achieving pre determined targets. In an organisation that has a strategy of cost leadership, a simple reward scheme offering fairly low wages may be appropriate as less skilled staff are required, new staff are easy to recruit and need little training, so there is less incentive to offer generous rewards. The US supermarket group Walmart competes on low cost. It recruits employees with low skills, and pays low wages. It discourages staff from working overtime, as it wishes to avoid paying overtime rates.TO RECRUIT AND RETAIN SUFFICIENT EMPLOYEES WITH THE RIGHT SKILLSIf rewards offered are not competitive, it will be difficult to recruit staff since potential employees can obtain better rewards from competitors. Existing staff may also be tempted to leave the organisation if they are aware that their reward system is uncompetitive.High staff turnover can lead to higher costs of recruitment and training of new staff. Losing existing employees may also mean that some of the organisations accumulated knowledge is lost forever. For many knowledge-based organisations, the human capital may be one of the most valuable assets they have. High technology companies such as Microsoft are companies that trade on knowledge, so offer competitive remuneration to key staff.TO MOTIVATE EMPLOYEESMotivation of employees is clearly an important factor in the overall performance of an organisation. Organisations would like their employees to work harder, and be flexible. The link between reward schemes and motivation is a complex issue that is hotly debated in both accounting and human resource-related literature.A well-known theory relating to motivation is Maslows hierarchy of needs. Maslow stated that peoples wants and needs follow a hierarchy. Once the needs of one level of the hierarchy are met, the individual will then focus on achieving the needs of the next level in the hierarchy. The lower levels of the hierarchy are physiological, relating to the need to survive (eg eating and being housed); once these have been met, humans then desire safety, followed by love, followed by esteem, and finally at the top of the hierarchy, self actualisation, or self fulfilment.Applying Maslows hierarchy of needs to reward schemes suggests that very junior staff, earning very low wages will be motivated by receiving higher monetary rewards, as this will enable them to meet their physiological needs. As employees become progressively more highly paid, however, monetary rewards become relatively less important as other needs in the hierarchy, such as job security, ability to achieve ones potential, and feeling of being needed become more important.Herzberg argued that increasing rewards only motivates employees temporarily. Once they become de-motivate