Advantages and Disadvantages of Financial Reward Management

What is Financial Reward Management?

Financial reward management refers to how employees are rewarded according to their value to their organization and is one of the most important parts of people management.

The term "financial reward" is generally understood to mean any financial means of reward that the employer gives to the employee in exchange for their individual efforts and contribution, skills and work done. Pay is such a fundamental concept in an employment contract that it does not take much time to think about what it means, and in most cases it is relatively straightforward.

However, salary levels are an important aspect of the employer-employee relationship. The level and distribution of rewards can have a significant impact on the performance within an organization and on the overall morale and productivity of the workforce. Therefore, it is important that organizations design reward schemes that meet their needs, that offer value for money, but at the same time fairly reward employees for the work they do.

Compensation plans form the basis of the organization's financial reward system. Traditional base or fixed compensation systems refer to the periodic payment of a certain amount of salary or wages to an individual in exchange for work performed. The salary level does not change during the year, and the salary does not depend on reaching the minimum level of labor productivity.

Advantages of Financial Reward management

Following are the benefits that come from financial reward system for employees -

• Increased productivity

  Employers can motivate their staff to do a better job of providing them incentives. A rise in output follows due to this development. Achieving high productivity is one of the main goals of every enterprise. The increase in high productivity ensures a decrease in the cost of production, an increase in production and efficient use of available resources.

  The concept of productivity is gaining popularity among producers, employees and consumers. It is successfully used in government, private and other types of business.

• Higher profit margins

  The profit margin should be high because a higher margin means more is available for investment, savings and/or indirect costs. A high gross profit margin indicates that the company is making more profit from sales and therefore converting raw materials into revenue more efficiently. Inevitably, a company’s profits upward thrust as output is going up. There are techniques for this to occur.

  As a result, the corporation saves cash on every unit sold, and as a result, the promoting charge stays low, leading to greater sales.

• No downtime to worry about

  When employees lack sufficient incentives, they're much more likely to idle away their time in a company. Workers end up greater time-aware while given suitable incentives. They begin considering how a whole lot of cash is being spent each second.

• No issue with supervision

  Workers become more conscientious about their responsibilities when offered appropriate incentives. Hence, no requirement for close surveillance.

• Efficient workers can earn better

  Employees showing outstanding performances might earn higher salaries through performance bonuses, increased commissions, etc.

• Identifying ineffective employees

  If some employees are only earning the minimum pay in spite of the praise device for personnel, this indicates they may be bored with their jobs. If a worker retains, the corporation needs to determine whether or not or now no longer to offer extra training.

• Employee turnover may decline

  Employees won't feel dissatisfied if suitable incentives are given to them. These personnel are much more likely to live with the employer seeing that they're devoted to their jobs. As a result, the group of workers' turnover might be at a minimum.

• Reduced number of grievances and complaints

  As long as the company gives appropriate incentives to the employees, they won’t have much to complain about. Hence, complaints and concerns get decreased.

Disadvantages of Financial Reward Management

Some of the disadvantages of financial management are as follows -

• Standard of the work may compromise

  Workers’ emphasise on quantity over quality may result in poor output. Hence, a perfect quality control system is required

• Relationships between co-workers may jeopardize

  Incentives will only help the most productive employees. It could lead to bitterness among the co-workers of a company.

• Higher chances of machine wear and tear in future

  Employees which might be centered on maximizing output can be much less careful with the technology. As a result, machinery will now no longer be broken down.

• Workers’ health may harm

  At times, employees may go beyond to earn more money by stretching long hours in office, etc., thereby impacting their health.

• Increase in the number of accidents

  There is continually a propensity to enhance output, even on the price of protection requirements, which can result in a rise in workplace accidents.

• Increase in the number of administrative tasks

  Any reward system for employees’ right control necessitates a vast quantity of paperwork. For this reason, correct facts and books should be kept.

Conclusion

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