5HR03 Reward for Performance and Contribution: Complete Study Guide
5HR03 Reward for Performance and Contribution is one of three pathway units in the CIPD Level 5 Associate Diploma (HR pathway). Worth 6 credits, it covers how organisations use reward to attract, retain, and motivate employees. Reward decisions directly affect employee engagement, costs, and competitive positioning.
This guide breaks down everything you need to understand about 5HR03, including the key concepts and what each assessment criterion is asking for.
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What You'll Learn in 5HR03
The unit covers three main learning outcomes:
- Understand the impact of reward approaches and packages — Reward principles, total reward, intrinsic and extrinsic motivation.
- Understand the importance of different components of reward — Pay structures, contingent pay, benefits, and recognition schemes.
- Understand how to develop insight from benchmarking data to inform reward approaches — Market data, job evaluation, and reward legislation.
Key Concepts for 5HR03
Total Reward
Total reward is the complete package of what employees receive for their work:
Transactional (Tangible)
- Base pay
- Variable/contingent pay
- Benefits
- Pension
Relational (Intangible)
- Learning and development
- Work environment
- Work-life balance
- Recognition
- Career opportunities
The total reward approach recognises that:
- Different employees value different elements
- Non-financial rewards can be as important as pay
- The complete package matters for attraction and retention
- Reward should align with organisational values and culture
Intrinsic vs Extrinsic Rewards
Extrinsic Rewards — External, tangible
- Salary and wages
- Bonuses and incentives
- Benefits and perks
- Promotions
- Status symbols
Intrinsic Rewards — Internal, psychological
- Achievement and accomplishment
- Recognition and appreciation
- Meaningful, interesting work
- Autonomy and responsibility
- Personal growth
- Purpose and contribution
Link to motivation theory:
- Herzberg: Extrinsic = hygiene factors; Intrinsic = motivators
- Self-determination theory: Autonomy, competence, relatedness
- See your Herzberg vs Maslow post
Pay Structures
Types of Pay Structure
Key Concepts
Pay range: — Minimum to maximum for a grade
Midpoint: — Target rate for fully competent performance
Compa-ratio: — Individual pay as % of midpoint
Pay progression: — How pay moves through the range
Contingent Pay
Contingent pay links reward to performance, competence, or contribution:
Performance-Related Pay (PRP)
- Based on individual performance ratings
- Requires robust performance management
- Can motivate but can also demotivate if perceived as unfair
Competency-Related Pay
- Based on demonstrated competencies
- Rewards how work is done, not just results
- Links to development
Contribution-Related Pay
- Combines performance (outputs) and competence (inputs)
- More holistic assessment
- Increasingly common
Skill-Based Pay
- Rewards acquisition of defined skills
- Common in manufacturing, technical roles
- Encourages multi-skilling
Team-Based Pay
- Rewards collective performance
- Encourages collaboration
- Can create free-rider problems
Benefits
Common Employee Benefits
- Pensions (defined benefit, defined contribution)
- Healthcare (private medical, dental, optical)
- Life assurance and income protection
- Company cars or car allowances
- Enhanced family leave
- Holiday above statutory minimum
- Flexible working arrangements
- Wellbeing programmes
- Professional subscriptions
- Season ticket loans
Flexible Benefits
Allow employees to choose from a menu:
- Recognises different needs and preferences
- Can be cost-neutral through trade-offs
- Increases perceived value
- More complex to administer
Recognition Schemes
Formal Recognition
- Employee of the month/year awards
- Long service awards
- Performance bonuses
- Public recognition events
Informal Recognition
- Manager thank-you notes
- Peer-to-peer recognition
- Spot awards
- Team celebrations
Principles of Effective Recognition
- Timely (close to the behaviour)
- Specific (about what was done)
- Sincere (genuine appreciation)
- Appropriate (matching the contribution)
- Visible (public where appropriate)
Benchmarking and Market Data
Sources of Reward Data
- Published salary surveys (XpertHR, Korn Ferry, Willis Towers Watson)
- Industry-specific surveys
- Government data (ONS earnings data)
- Recruitment agency data
- Job board salary information
Using Benchmarking Data
- Match jobs by content, not just title
- Consider total reward, not just base pay
- Account for regional variations
- Update regularly
- Use multiple sources
Job Evaluation
Purpose
- Establish relative worth of jobs
- Create defensible pay structures
- Support equal pay compliance
Analytical Methods
- Points-factor schemes
- Score jobs against defined factors
- Provide objective, defensible ranking
- Required for equal pay defence
Non-Analytical Methods
- Job ranking
- Job classification
- Paired comparisons
- Simpler but less defensible
Reward Legislation
Equal Pay
- Equal pay for equal work, work rated as equivalent, work of equal value
- Material factor defence
- Gender pay gap reporting requirements
National Minimum Wage / National Living Wage
- Statutory minimum rates by age
- Requirements for compliance
- Penalties for non-compliance
Other Requirements
- Itemised pay statements
- Working Time Regulations (holiday pay calculations)
- Auto-enrolment pensions
- Tax and National Insurance
Assessment Criteria Breakdown
Learning Outcome 1: Impact of Reward
AC 1.1: Explain the principles of reward and its importance to organisational culture and performance management
This asks you to:
- Cover total reward approach
- Explain intrinsic and extrinsic rewards
- Discuss fairness, consistency, transparency
- Link reward to culture and values
- Connect to performance management
AC 1.2: Assess the contribution of extrinsic and intrinsic rewards to improving employee contribution and sustained organisational performance
This asks you to:
- Distinguish extrinsic and intrinsic
- Discuss how each affects motivation
- Link to motivation theory (Herzberg, expectancy)
- Assess which matters more and when
- Consider sustained performance, not just short-term
Learning Outcome 2: Components of Reward
AC 2.1: Explain differences between types of grade and pay structures
This asks you to:
- Cover formal structures (multi-graded, broad-graded, broad-banded, job families)
- Cover informal approaches (spot rates)
- Explain advantages and disadvantages
- Discuss when each is appropriate
AC 2.2: Explain how contingent rewards can impact individual, team and organisational performance
This asks you to:
- Cover different types of contingent pay
- Discuss impact at individual, team, and organisational levels
- Consider positive and negative effects
- Link to motivation and engagement
AC 2.3: Explain the merits of different types of benefits offered by organisations
This asks you to:
- Cover range of benefit types
- Explain merits of each
- Discuss flexible benefits
- Consider employee preferences and organisational costs
AC 2.4: Explain the merits of different types of recognition schemes offered by organisations
This asks you to:
- Cover formal and informal recognition
- Explain what makes recognition effective
- Discuss cash vs non-cash recognition
- Consider cultural fit
Learning Outcome 3: Benchmarking and Legislation
AC 3.1: Assess the business context of the reward environment
This asks you to:
- Cover economic and market factors
- Discuss sector and industry context
- Consider labour market conditions
- Link to organisational strategy
AC 3.2: Evaluate the most appropriate ways in which benchmarking data can be gathered and measured to develop insight
This asks you to:
- Cover sources of reward data
- Discuss how to use surveys and benchmarks
- Evaluate reliability and limitations
- Explain how to develop insight from data
AC 3.3: Explain approaches to job evaluation
This asks you to:
- Cover analytical and non-analytical methods
- Explain points-factor approach
- Discuss use in equal pay defence
- Consider advantages and limitations
AC 3.4: Explain the legislative requirements that impact reward practice
This asks you to:
- Cover equal pay legislation
- Explain minimum wage requirements
- Discuss pay reporting requirements
- Cover other relevant legislation
Common Mistakes to Avoid
- Focusing only on pay — Total reward is much broader; include benefits, development, environment.
- Ignoring motivation theory — Link reward to Herzberg, expectancy theory, equity theory.
- Generic benefits lists — Discuss merits and when different benefits are appropriate, not just what exists.
- Weak legislation coverage — AC 3.4 requires accurate legal knowledge; reference current requirements.
- Missing the business context — Reward doesn't exist in isolation; link to strategy, culture, and market.
Useful CIPD Resources
Reward: An Introduction Factsheet: — Core concepts
Strategic Reward and Total Reward Factsheet: — Strategic perspective
Pay Structures and Pay Progression Factsheet: — Technical detail
Employee Benefits Factsheet: — Benefits overview
Job Evaluation and Market Pricing Factsheet: — Benchmarking guidance
How People Study Pro Helps with 5HR03
People Study Pro provides structured guidance for every 5HR03 assessment criterion, plus links to relevant content like our equity theory vs expectancy theory and motivation theory explainers.