Various types of Rewards

Various types of Rewards

A reward is a pay provided by an employer to the employees. It is a thing given in recognition of service, effort, or achievement. It consists of packages of pay, benefits, services etc. It can be defined broadly as the material and psychological profits for performing tasks in the workplace. Broadly, rewards can be divided into following types:

Intrinsic Rewards and Extrinsic Rewards

  • Intrinsic rewards

Intrinsic rewards are the satisfaction that an individual obtains from the job itself. It means, they are the factors of esteem and self-actualization needs of the employees. The satisfaction one gets from the job itself are its intrinsic rewards. These satisfactions are self-initiated rewards, such as having pride in one’s work, having a feeling of accomplishment, or being part of a team. These satisfactions are self-initiated rewards and are fulfilled internally by the employees. These rewards consist of having a pride in work, having a feeling of accomplishment, or being a part of the team etc.

  • Extrinsic Rewards

Extrinsic rewards are the benefits provided externally. These rewards are provided in term of money and fringe benefits. Extrinsic rewards include money, promotions, and fringe benefits. Their common thread is that extrinsic rewards are external to the job and come from an outside source, mainly, management. These rewards are necessary to fulfill physiological and safety needs of the employees. Such rewards are the results of management policies and procedures of the organization.

Financial Rewards and Non-financial Rewards

  • Financial Rewards

A financial reward means those direct and indirect payments that enhance an employee’s well being. Rewards may or may not enhance the employees financial well being. If they do they can do this directly through wages, bonuses, profit sharing, and the like, or indirectly through supportive benefits such as pension plans, paid vacations, paid sick leaves and purchase discounts. Financial rewards make employee financially sound so that he/she can fulfill his/her material desire. Direct payment consists of salary, wages, commissions, incentives, bonus, allowances etc. Indirect payment includes pensions, medical insurance, paid leaves, paid sick leaves, purchases, discounts etc.

  • Non-financial Rewards

Non-financial rewards are those employee benefits that do not enhance an employee’s financial well-being. Non-financial rewards are potentially at the disposal of the organization. They do not increase the employee’s financial position, instead of making the employee’s life better off the job, non-financial rewards emphasize making life on the job more attractive. However, such rewards provide more job satisfaction. Preferred lunch hours, preferred office furnishing, parking spaces, impressive job title, desired work assignments, business cards, own secretary etc. are some of its examples.

Performance-Based Rewards and Membership Based Rewards

  • Performance-Based Rewards

Performance-based rewards are such benefits which are provided on the basis of an employee’s job performance ability. The reward depends upon the performance of an individual in the actual work floor. Performance-based rewards are exemplified by the use of commission, piecework pay plans, incentive systems, group bonuses, or other forms of merit pay plans. These rewards are exemplified by the use of commissions, piecework pay plans, incentive systems, group bonuses, or other forms of merit pay plans.

  • Membership Based Rewards

Membership based rewards are those rewards that are paid on the basis of being a member of an organization. membership based rewards include the cost of living increases, profit sharing, benefits, and salary increases attributable to labor market conditions, seniority or time in rank, credentials (such as a college degree or a graduate diploma), or future potential (the recent M.B.A. from a prestigious university). It means the basis of allocating rewards is employee’s organizational membership. Hence, the reward goes to all employees irrespective of their performance.


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