Human Resource Management – Reward Management

External competitiveness versus internal equity

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A policy needs to be formulated on the extent to which rewards are market-driven rather than equitable or fair enough to retain the manpower. This policy will be influenced by the culture of the organization and the pressures on the business to obtain and keep high-quality staff. Any organizations that have to attract and retain staff who are much in demand and where market rates are therefore high may, to a degree, have to sacrifice their ideals of internal equity to the realism of the marketplace. They will provide ‘market pay’ and be ‘market-driven’.

The organization must possess highly skilled and qualified employees in order to face the competition in the market. In order to attract and retain skilled and qualified employees in the organization, the employer provides rewards and incentives to their employees so as to fulfill their fundamental and self-esteem needs. This need fulfillment of employees by the employer makes the employees stay in the organization for a longer period of time. The retention of talented and highly skilled employees within the organization makes it competitive in the market. Sometimes, in order to remain competitive in the external environment of the business, the business needs to sacrifice its internal equity by providing high rewards to a highly skilled and qualified professional so as to retain them with the organization. The rewards in the organization must be more market-driven rather than being equitable just to retain the workforce. The organization may need to pay more to highly skilled and knowledgeable employees in order to attract them to the organization. The level of pay depends on the forces of the market and organization needs to provide that by sacrificing its internal equity so as to ensure competitiveness in the market. Reward management system plays a crucial role in maintaining external competitiveness.

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