Selection of the rewards to be offered is critical if the reward system is to function effectively.
Although pay is a very significant reward, the reward system should be viewed as wider than pay to include such things as office location, assignments of preferred work tasks, informal recognition etc. Since it is the responsibility of any one organization to distribute rewards then this should be done in a way that would maximize returns.
Rewards should ideally be based as performance because employees will be motivated when they believe that good performance will lead to desired rewards.
Unfortunately, many formal rewards provided by organizations cannot be connected to performance because they are determined by organizational membership and seniority e.g. paid vacations, paid accommodation.
Rewards such as promotions can be related to performance but opportunities for promotion occur rarely and when available, they are sometimes filled by outsiders or on the basis or seniority.
The widespread organizational variable used to reward employees and reinforce performance is pay. Relating rewards/pay to performance requires that performance be accurately measured and this is not easily accomplished. It also requires discipline to actually relate rewards to performance. To date, there is no one successful formula for implementing a pay for performance program across the board.