Following are the qualities of effective reward management:

  1. Importance: Reward should be important to person receiving them. Since, reward is significantly affected by age, marital status, knowledge level etc; of individuals it should be designed in such a way that, it should reflect the importance to employees.
  2. Visibility: Reward should be visible. Employees should know and realize what they get against their effort. This help in comparison between others as well as in enhancing the employees’ satisfaction level.
  3. Equitable distribution: Reward must be fairly distributed in comparison to the referent group (such as in comparison to other individuals in similar job, in comparison to similar job and in other organization and in comparison to the effort used and outcome received).
  4. Flexibility: An effective reward is one that has the flexibility to change with the changes in performance. It should be flexible in terms of the amount paid and the people to whom it is given in an organization.
  5. Low cost: Reward should be cost effective. Cost-benefit analysis should be considered while designing the rewards.

Determinants of Compensation

Followings are the determinants of compensation:

1. Legal consideration:

Government rules and regulation provides many guidelines to compensate employees. Companies have to comply with these rules and regulation while determining the pay level for employees.

2. Market rates:

Competitive pay system is only possible when organization match its pay with the prevailing market rate. So organization should thoroughly analyze the labour rates and its trends to determine the pay system.

3. Union Pressure:

Labour union represents the voice of employees. It plays major role in determining the salary and wages along with other non-financial Thus, organization should constructively discuss with unions for determining effective reward policy.

4. Job evaluation:

Effective job evaluation leads to effective reward policy. So organization should analyze cost and benefits relation, skills required and organizational standard on determining rewards.