According to Armstrong, when developing reward strategies, three key questions need to be answered:
How will the strategy fit the business strategy and support the achievement of business goals?
How can the impact of reward strategies be maximised by integrating reward
processes with other human resource processes so that they are mutually supportive?
How can we be certain that the reward strategy will enhance the organisation's strategic capability?
John Bratton, in Japanisation at work; managerial studies for the 1990s, quotes a simple example, which highlights the role of reward management in supporting organisational goals. At Flowpack Engineering, the company substituted the individual performance related pay system for a straightforward payment by time arrangement, to encourage co-operation and to tap the synergy from team working. The Human Resource Director described the cultural change on the factory floor like this:
"As soon as people realised that there was no personal, peculiar advantage in hiding bits of knowledge, being flexible, hogging the good jobs, and all that …. it was like suddenly turning the key."
Reward strategies deal with issues concerning:
Pay structures
Job evaluation
Keeping pace with market rates
Pay for individual performance, competence or skill
Team pay
Relating bonuses to organisational performance
In practice, reward strategies come in all shapes and sizes, as there is no single reward package which offers a 'best practice' approach. Legislation requires reward systems to be 'fair' and non discriminatory, although the concept of 'equal pay for equal work' can be difficult to work in practice. There is also a requirement under legislation for basic components (up to the statutory minimum) for elements such as maternity pay; sick pay; access to pension schemes, paid holidays and for payments to at least equal the national minimum wage. A decision may well be necessary in many organisations as to whether to exceed the statutory minimum or not.
Generally reward systems include some or all of the following:
Type of reward Type of effort
Individual rewards Basic wage
Overtime Time: Maintaining work attendance Piece rate
Commissions Bonuses
Energy: Performing tasks
Merit Competence: completing tasks without error Paid leave
Benefits
Team rewards Team bonuses
Gainsharing Co-operation: Co-operation with co-workers
Profit sharing Organisational
rewards Share ownership Gainsharing
Co-operation: Co-operation with co-workers
Source: Bratton and Gold, Human Resource Management: Theory and Practice
Practical Reward Strategy
In Strategic ‘Human Resource Management: A guide to Action’, Armstrong quotes several examples of different approaches towards reward management. Some of these are reproduced below:
Glaxo Wellcome
At Glaxo Wellcome the key features of the new reward strategy developed in 1995 were expressed as:
Competitive market rates to attract, develop, motivate and retain quality staff
Levels of reward that vary, depending on the contribution of the individual, team and operating company to overall business success
Designed to maximise the potential contribution of all employees (a strong emphasis on continuous development)
Cost-effective employee choice in determining component parts of their own benefits package.
BOC Gases (UK)
The business strategy at BOC was to increase profitability. The reward strategy was to develop a new incentive pay plan based upon both the achievement of individual profit targets and wider business targets.
Halifax plc
The aims of the reward strategy are:
Change the emphasis from measuring the job and its accountabilities to recognising the person and the contribution they make to the business
Reflect the way the organisation is changing by encouraging staff to be more responsive and flexible to customers' needs
Improve reward for excellent performance by freeing up salary ranges.
Finally, we must not lose sight of the fact that employers are interested in the absolute cost of payment and its bearing on the profitability or cost effectiveness of their organisation. The importance of this varies with the type of organisation and the relative cost of employees. In a heavily mechanised environment such as petrol refining, employment costs are modest. In teaching or health care, both of which are very labour intensive, the costs are substantial. The indirect costs of employing people can also be substantial.
D. HOW EFFECTIVE ARE FINANCIAL AND NON
FINANCIAL REWARDS?
Herzberg suggested that money is not a motivator but a hygiene factor; you do not notice it when it is present but you become dissatisfied when there is not enough of it. Hence, reasonable pay alone is not a motivator and once people are used to their existing level of reward they become dissatisfied with it and want more. Herzberg suggested that high performance comes by providing motivators such as personal development and intrinsic motivation. These are rarely linked to financial reward.
Financial reward is clearly a significant cost to an organisation and for most organisations it is their largest cost. However, as well as cost, employee reward provides a major
opportunity to improve performance. Many forces are at work: economic, legal, social etc and the reward mix is always changing.