AC 5.1 Key components (financial and non-financial) that are required to achieve an effective total reward system

CIPD (2022) recognises a reward system as a critical tool for attracting, retaining, and engaging employees. The publication further adds that a wide range of options is available to reward people and recognise their contribution. Still, on the same, an effective reward system meets the needs of its employees and the company’s purpose and culture clearly and responsibly. Specifically, the term “reward” generally covers all the financial and non-financial provisions made by employees. Financial rewards can be defined as monetary incentives that a particular employee receives mostly because of good performance. It is also vital to note that these rewards mostly align with particular organisational goals.

 In that regard, employees who help the organisation achieve its goals are rewarded. Any form of financial reward is defined as extrinsic. Normally, extrinsic rewards entail tangible rewards such as pay raises and paid work breaks. Now shifting our attention to non-financial rewards entails any form of reward that is not part of an employee’s pay. All non-financial rewards are non-intrinsic or non-tangible. Some of the most renowned non-financial rewards include career development opportunities, verbal appreciation, and workplace recognition (Sammer 2011). Unlike in the olden days, when pay was the only benefit that helped attract and retain people, modern-day employees are seeking more than that (CIPD 2022). For example, employees are increasingly seeking organisations that offer training and career development at the start of their careers.