Over the years, managers are increasingly realizing that they have to establish a balance between employees’ contribution to the organization and the organization’s contribution to the employees. Developing this balance is one of the main reasons to reward employees. Organizations that follow a strategic approach to creating this balance focus on the three main components of a reward system, which includes, compensation, benefits and recognition. A key focus of recognition is to make employees feel appreciated and valued. Research has proven that employees who get recognized tend to have higher self-esteem, more confidence, more willingness to take on new challenges and more eagerness to be innovative.

Reward system is an important ingredient in managing innovation in a company. It is essential for the firm’s success to reward innovators for their contributions, to reward people who collaborate as well as individual performers. Rewards can be given in many different forms. Profit sharing programs that result from gains achieved through innovation are an outstanding means of rewarding individuals for improving the company’s standing but the down side is that all employees generally get an equal reward proportion that does not recognize their individual contributions. More specific options are merit rating and bonuses based on performance evaluations because they take into account individual innovation and collaboration. Reward practice deals with many different recognition programs both intrinsic and extrinsic than can be used. Many firms that achieve high levels of innovation relate short and long term bonus awards to rate of innovation achieved (Harden et al, 2008).

Reward system is an important tool that management can use to channel employee motivation in desired ways thereby improving the performance of the organization. In other words, reward systems seek to attract people to join the organization to keep them coming to work, and motivate them to operate at peak performance. The reward system consists of all organization components – including people, processes, rules and decision making activities involved in the allocation of compensation and benefits to employees in exchange for their contribution to the organization. As a result, compensation programs are in steady transition.  Organizations are experimenting with different types of structures.  Research   suggests  that  reward  systems  can  influence  a  company’s  success  in  many  ways  (Bernardin, 2007:253). The  way,  amount  of  pay,  and  the way it  is  packaged  or delivered  to  employees can motivate,  energize,  and  direct  behavior. Reward  is a psychological  force that  determine  the  direction  of  a  person’s  behavior  in  an  organization,  a  person’s  effort,  and  a  person’s  level  of  persistence  in the face of obstacles (Gennard   and  Judge, 2005:13).

The concept of reward in organizations needs to be clearly understood by managers who would have to communicate components of who, what and when to reward to their employees for improved performance.

Reward systems are often used as a management tool for achieving desirable objectives. One of the most common purposes is to motivate employees to perform better (Pepitone and Bruce, 1998). This can be achieved through monetary and non-monetary rewards. Monetary rewards can be either short-term incentives in form of bonus based on one year’s performance or long-term incentives based on performances over a time period greater than one year and are often received in form of options or shares. A third type of reward is salary increase. The non-monetary part includes rewards such as development possibilities, promotion and extra vacation days (Donaldson, 1997). Some people may want promotion and the extra responsibility it attracts while others may want extra vacation days.

Unfortunately, in Nigeria, particularly in the public organization, the current financial crisis being experienced has made reward system, to only focus on bonuses and variable remuneration.