Pay and reward

Pay and reward

Types of reward systems

There are different types of reward systems, some which can be linked to the performance of individual staff members and some to the performance of groups or team performance.

For instance:

  • Annual ‘across the board’ pay increases or increments, for example, where everyone gets a 3% increase.
  • Annual pay increases or increments, supplemented by a reward payment, for example, everyone gets 3% plus an individual bonus.
  • Fixed incremental scales with limited flexibility, where the pay increases for the majority of staff are set but payments can be increased for exceptional performance, or reduced for poor performance.
Where pay increases are linked to performance ratings, a series of fixed percentage points is commonly used.
  • Unsatisfactory = 0% increase
  • Satisfactory = 2% increase
  • Above average = 3.5% increase
  • Exceptional = 5% increase

Individual Reward Systems

Some organisations use an individual reward system which is more commonly known as an annual appraisal or performance related pay scheme. It determines individual performance against targets or objectives.

Individual rewards or performance related pay should be treated with caution as these are areas where unlawful pay discrimination can easily occur.

If you have an existing individual reward system, or are thinking of introducing one, the following list of questions can be used to find out whether the elements that can help ensure it is as fair and effective as possible are in place.

  • Have managers or staff involved in operating your individual reward system been trained appropriately?
  • Have staff, and staff representatives, been fully informed about how the system will operate?
  • Has sufficient time been allocated to conduct reward reviews?
  • Are objectives related to performance specific, realistic, achievable and measurable?
  • Are the assessment periods here appropriate?
  • Do staff have access to, and can they comment on, their assessment score?
  • Do you have a monitoring and review system in place?
  • Do you have an appeals system in place?

When individual performance is being assessed in relation to reward, subjectivity or personal bias must be avoided. The assessment process must be scrupulously objective, and staff must have a clear understanding of what they have to do to achieve the individual reward offered.

Objective setting

Before performance related pay can be introduced, a structured and transparent method of assessing staff performance must be set up.

Objectives or targets to be met by staff must be achievable, fair and appropriate to the type of work carried out by the staff members involved. Objectives or targets may be based on quantity or quality, or a combination of both.

Objectives should be set following discussion and agreement between individual staff members and managers, at the start of a set period of time. This is usually annually.

Staff performance, and the extent to which the objectives have been met, are assessed at the end of the set period and rated against one of the agreed overall standards of performance. An example of performance standards commonly used in individual reward systems:


  • Very good - a very high level of performance; agreed objectives consistently achieved.
  • Satisfactory - a fully satisfactory performance meeting all or nearly all objectives.
  • Less than satisfactory – insufficient objectives have been met, and the individual needs to improve skills or effort, or both.
  • Wholly unsatisfactory - the basic requirements of the job have not been met and little or no progress has been made towards agreed objectives.

The amount of the performance award is based on the performance level achieved by the individual concerned.

When assessing performance, appraisers should take into account that not all of the objectives set may have been achievable. Changes in circumstances during the appraisal period may have made it difficult for employees to complete some of the tasks planned.

Managers conducting appraisals should meet periodically throughout the appraisal period with the staff members being appraised. This allows objectives to be revised, to reflect changes which may have arisen, for example, within the operating environment of the business.

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