Reward Management

Abstract

Companies invest enormous financial resources in reward systems and practices to attract, retain, and motivate employees and thereby ensure and improve individual, team, and organizational effectiveness. Organizational rewards comprise financial and nonfinancial rewards, such as appreciation, job security, and promotion. Financial rewards, also called tangible rewards, include direct forms (such as fixed and variable pay and share ownership) as well as indirect and/or deferred forms (such as benefits and perquisites). Fixed or base pay refers to the amount of money one receives in return for fulfilling one’s job requirements, the job’s grade, or the skill or competence level required to perform the tasks. Variable pay (such as cash bonuses and commissions as forms of short-term incentives, or stocks or stock options as forms of long-term incentives) depends, for example, on individual, team, and/or company performance or outcomes, and is based on quantitative and/or qualitative criteria. Benefits (such as pension plans or health programs) and perquisites (such as onsite fitness centers, medical care or health facilities, and company cars), among other forms, are indirect financial rewards (Milkovich, Newman, & Gerhart, 2016). Both qualitative reviews (Gerhart & Fang, 2014; Shaw & Gupta, 2015) and meta-analytic studies (Cerasoli, Nicklin, & Ford, 2014; Garbers & Konradt, 2014; Jenkins, Mitra, Gupta, & Shaw, 1998) have shown that extrinsic rewards (such as financial incentives) can improve employee motivation and performance and shape employee health (Giles, Robalino, McColl, Sniehotta, & Adams, 2014) and safety behavior (Mattson, Torbiorn, & Hellgren, 2014). However, empirical evidence regarding under which conditions particular rewards are most effective or lead to unintended consequences is still scarce. In short, compensation and incentive systems remain one of the most under-researched areas in personnel psychology and human resource management (Gupta & Shaw, 2015). This state of affairs poses risks. Reward management approaches may waste both money and effort, and may be ineffective in attracting, retaining, and motivating target personnel, if not grounded in a base of evidence. Added to this, in the face of the recent financial crisis and of serious cases of employee and company unethical behavior, company’s financial incentives, especially bonus and pay-for-performance (pfp) systems, have been widely criticized for their detrimental effects on individuals, companies, and society (Larcker, Ormazabal, Tayan, & Taylor, 2014). These examples of the dark sides of incentives highlight the importance of reward management research, not only from a human resources management (HRM) but also from a societal perspective. They also illustrate the need to understand the underlying mediating and moderating mechanisms linking reward systems and practices to individual, team, and organizational behavior and outcomes. This special issue contributes to the research on reward management by focusing on the contextual effects of financial rewards on employee motivation, behavior, and performance, and by analyzing the mediating mechanisms of different types of financial and nonfinancial rewards. The four studies included in this special issue address different issues of reward management research and take different theoretical perspectives. The first two studies analyze the interaction effects of financial incentives and individual factors, such as employee perceptions of distributive justice, and then how individual competitiveness moderates the effects of pay-for-performance (pfp) on employee motivation, behavior, and performance. These studies show which and how intended or unintended consequences of pfp occur. The other two studies differentiate the effects of tangible and intangible rewards on employee turnover and risk taking; they disentangle underlying mediating and moderating mechanisms by comparing the effects of benefits and perquisites, and of esteem, security, and promotion as nonfinancial rewards. In the following passages, we present a short overview of these four papers before we discuss their contribution and their implications for further research.