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Reward Management: Theory & Importance

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  • 0:01 What Is Reward Management?
  • 0:33 Why Is Reward…
  • 1:56 Reward Management in Practice
  • 2:51 Lesson Summary
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Lesson Transcript
Instructor: Rana Abourizk

Rana has a Masters Degree in Business Administration and is pursuing a Doctorial Degree. She has been teaching online for over a year. She has a strong business background.

Reward management is important for any business that has employees. Human resources is usually in charge of the reward management program in a company. This lesson discusses the theory and importance of reward management.

What Is Reward Management?

Chris has been working for an electronics company for over 10 years. He receives a call from a competitor that offers him a higher salary to join its company. Chris makes the move without hesitation because he needs additional money, and his current company isn't willing to match the pay or benefits of the new job. By losing Chris, the electronics company also loses many customers and his expertise. In retrospect, the company realizes that Chris might have stayed if it had used a reward management system.

Reward management is a motivational practice that businesses use to reward employees for their achievements and success. The company sets goals and establishes rules for its employees to follow to achieve those goals. It makes sure that employees are clearly aware of these goals, rules, and the rewards they will get for high performance. All employees follow the same reward system, and the system is organized and just. Using a website to track employee development enables the employee and employer to monitor progress and easily identify when goals are reached and rewards earned.

Why Is Reward Management Important?

Nowadays, people often don't remain at their jobs as long as Chris. Each time a new employee is hired, the company spends money on hiring and training that it could have spent elsewhere. Having a good reward system helps keep employees happy, loyal to the company, and eager to move up the ladder. Rewards, like public recognition and additional pay, motivate employees to work harder.

Reward management is important for the following reasons:

  • Retains employees
  • Attracts new employees
  • Avoids the cost of hiring and training new employees
  • Builds loyalty and honesty
  • Creates a healthy work environment
  • Encourages positive attitudes and behavior
  • Makes employees more likely to seek advancement
  • Strengthens the company's reputation

Reward Management in Practice

Let's look at Chris' situation again. Chris started at the bottom of the ladder with his old company. In order to advance, he had to work 60-hour weeks and build relationships with upper management. When Chris wanted to improve his skills by obtaining a degree in business, his company didn't have a reward program to help with his tuition.

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