Reward Management Systems as a Critical Component of SHRM

By John Dudovskiy

Reward ManagementIt has been stated that “reward management deals with the strategies, policies and processes required to ensure that the contribution of people to the organisation is recognised by both financial and non-financial means” (Armstrong, 2007, p.3). To put it simply rewards are used in order to thank employees, for their increased performances and more importantly, to motivate and inspire them to achieve greater results in the future, therefore, effective reward management systems are crucial to the successful implementation of SHRM.

The aims of reward management are listed by Wood (2009) as rewarding employees according to the value created by them, relating the reward practices to the individual employee needs and values, communicating specific messages to the stakeholders in general and to employees in particular through rewards, attracting highly qualified and competent workforce, and motivating employees for high-level performances.

Important components of an effective reward management system are specified by Armstrong (2007) as reward philosophy, distributive justice, procedural justice, fairness, equity, consistency, transparency, strategic alignment, conceptual and culture fit, as well as fitting for purpose. Each of these issues needs to be addressed by management in an effective manner in order to maximise the output of reward initiatives.

Rewards are usually divided into two groups: tangible and intangible. The most popular forms of tangible rewards include monetary rewards, in the forms of pay-raises and bonuses and other tangible items such as holidays, gifts, free samples of products etc. Intangible rewards, on the other hand, include verbal and written appraisals, appreciation letters, articles in the company and local press etc.

The choice between tangible and intangible rewards depends on a range of factors that include cultural background of employees, their personal values, characteristics and traits etc. However, Wood (2009) informs that according to the latest studies intangible rewards in general and the sense of accomplishment and contributing to some significant cause in particular tend to be greater motivator for people engaged in intellectually demanding positions compared to monetary rewards.

The case study of Wikipedia, an online encyclopaedia proves this point, where thousands of highly qualified professionals around the globe spend their valuable time and use their expertise in order to contribute to the website with no tangible reward. Companies need to consider this fact when devising their reward strategies, and accordingly they should rely on intangible rewards as a highly efficient and cost-effective strategy, at the same time combining it with tangible reward according to position of employees, their immediate needs, future plans etc.

Despite the above statement the effectiveness of tangible rewards should not be underestimated. Beardwell et al (2004) stress the high level of effectiveness of reward management system that involves rewarding employees with company shares, by arguing that such a system will increase the level of employee loyalty, as well as effectively motivating employees for future performances.

However, the level of practical applicability of this advice is limited in a way that only publicly listed companies can practically implement this advice and shares may not always be available for rewarding employees.

Moreover, there are range of factors that affect reward management systems within organisations. Price (2004) divides these factors into two categories: internal and external. Internal factors affecting reward management include corporate culture, technology and employees, whereas external factors are national economic environment, the level of competitive pressure within the industry, increasing forces of globalisation, demographic changes within the country etc.

Corporate reward management systems have to be devised on the basis of in-depth analysis of all above named internal and external factors. (1926 words)



  • Armstrong, M, 2007, A Handbook of Employee Reward Management and Practice, Kogan Publications
  • Mathis, RL & Jackson, JH, 2003, Human Resource Management, tenth edition, Thomson
  • Price, A, 2004, Human Resource Management in a Business Context, 2nd edition, Thomson Learning
  • Sharma, SK, 2009, Human Resource Management, Global India Publications
  • Wood, G, 2009, Human Resource Management: A Critical Approach, Taylor & Francis


Category: HRM