Reward strategy can be described as the most appropriate and effective instrument
capable of enabling employers to reward their employees according to their practical
contribution to the achievement of the organisation overall business strategy.
Reward strategy should be in fact developed and formulated by employers keeping
in mind and duly considering that its aim is basically that to induce individuals
to behave and perform in a way which can practically and productively support the
organisation in the attainment of competitive edge. It should thus help
employers to secure the company shareholders the best return on their
investment.
Whether
when designing and developing reward strategies employers should only consider the
business needs, it is very unlikely that the reward strategies these have formulated
may produce in practice the intended, expected objectives. To be effectual reward strategies also
need to duly consider and aim at satisfying the employee wants and expectations.
The circumstance that employers before starting to design reward strategies should
investigate and acquire an overarching knowledge and understanding of their employees
wants, can thus be considered as a significant additional fundamental
prerequisite for the development of effective reward strategies. To this extent,
it is indeed also crucially important that strategy-developers gain a clear and
thorough knowledge, comprehension and understanding of the objectives which the
overall business strategy intends to pursue. Since reward strategy is
essentially designed and executed with the aim of helping employers to achieve their
overall business strategy, thinking to plan and develop a reward strategy
independently of the organisation overall strategy would be a massive blunder
and a likely cause for an inevitable failure.
To develop an effectual and consistent reward strategy, nevertheless, having
an appropriate command and consideration of the objectives pursued by the
organization is not enough; having crystal clear ideas of the intent an organisation
aims at pursuing by means of the development of a reward strategy is indeed of
paramount importance, too.
The identification and definition of specific and clear objectives,
before the development of reward strategies, could be indeed considered
somewhat of the glaringly obvious. Notwithstanding, the findings of a CIPD investigation
(2005) revealed that many organisations develop and implement reward strategies
without having previously neither agreed clear objectives, nor defined the approaches
and tools necessary to assess and evaluate the effectiveness of the results
yielded by strategy once implemented. Yet, the CIPD research (2005) showed that
more often than not a certain degree of confusion prevails also in terms of
what, how and when the newly developed and implemented strategy should bring positive
changes.
A gap analysis, thoroughly investigating weaknesses and strengths of the
current reward practices, can to this extent definitely help. It can in fact enable
employers to gain a clear knowledge and understanding of how things are going,
compared to how things were intended or were supposed and believed to be going
(CIPD, 2005). Whether any gaps should emerge from this investigation, employers
should carry out a further analysis aiming at determining the cause of these and
prepare hence the plan of action needed to bridge the identified gaps.
Since the one-size-fits-all approach in reward strategy is by no means
likely to produce any positive effect, HR Professionals should ensure that the
reward strategy they develop and the practices deriving from these both fit the
organisation structure and the management processes and systems the organisation
operates.
In some instances, a number of different approaches to reward could be actually
required within the same organisation, namely when different employees’
profiles are available within the same business or when the firm operates by
means of several branches located in different sites. Employers should be aware
that in such circumstances universally, indiscriminately adopting the same
reward practices may potentially give raise to undesirable problems. Practices will
soon reveal to be inflexible, showing to be effective in some areas of the
business but lacking of consistency and do not making any sense in other areas.
A uniform set of reward practices could, by contrast, successfully be applied
and reveal to be effective, and likely to enable employers to attain their
intended objectives in organisations “with common activities and a single
location” (CIPD, 2005).
Reward strategy is clearly influenced both by the business strategy and
the endogenous environment. Amongst the internal factors influencing reward
strategy, acquire particular significance the appreciation and worth attached
to reward issues by the business top management (Armstrong, 2006).
Nonetheless, there are clearly many other factors coming to play and
having a relevant impact on reward strategy, which need to be therefore duly
considered by employers when formulating their strategies, namely the exogenous
environment and HR Strategy.
Amongst
the external factors likely to influence reward strategy the most the labour
market trends and features, with particular reference to the market rates, that
is to say the level of salaries which are currently paid by the other organisations
for similar job positions, are definitely the most significant. Since both
market rates and reward management practices are subject to a constant change
and evolution, businesses should put in place what it takes in order to receive
regular updates on the theories and studies concerning these, and promptly adapt
and review their reward strategy accordingly in order to these invariably fit
the current circumstances.
In the overall alignment process which should characterise all organisations’
initiatives aiming at planning, designing and developing every organizational
strategy, process and system, it should never be neglected that inasmuch as reward
strategy flows from the overall business strategy (Armstrong, 2006), reward
strategy has to align with HR Strategy. This 360° alignment has to be
considered by employers as a necessary prerequisite for effectively and
consistently fostering integrity within the organisation and providing evidence
to the entire workforce that all the organisation efforts are converging towards
a clearly, well-identified, common and shared direction and end.
Each
reward strategy has to be developed on the basis of a reward philosophy which according
to the behaviour and beliefs an organisation values the most defines how to reward
individuals within the business. Its main objective is clearly that to foster
and endorse the desired behaviour and values amongst individuals and encourage
employees to exhibit and embrace these.
Whether a reward philosophy is, for instance, aiming at enhancing
productivity and endorsing high performance and substantial contribution to a
firm efficiency at large, this will be very likely based on the tenet that
individuals are rewarded according to their actual contribution to their
employer success and to the return on investment they are able to generate.
Armstrong (2006) suggests that a reward philosophy should be strategic
in that is should strive to address “longer-term issues relating to how people
should be valued for what they do and what they achieve.” Since the link
between business strategy, reward strategy and reward philosophy is very tight,
nonetheless, this has not to be intended in the sense that reward philosophy
and strategy are static in the long-run. Being sensibly influenced and affected
by the external environment business strategy is very likely to be subject to a
frequent, and in some cases even continual, process of change, which is very
likely to produce in turn remarkable effects on reward strategy and philosophy.
Employers should be aware of and consider this aspect in addition to the other
factors influencing reward strategy and philosophy.
In
order to favour and facilitate the practical translation of reward strategy and
philosophy into policies and practices, it is particularly important that
organisations also identifies a set of guiding principles, which define the
approach and guidelines to reward that an organisation has decided to adopt
(Armstrong, 2006).
Guiding principles can be considered as somewhat of a ring existing between
a reward philosophy and the policies and practices emanating from it. These are
intended to facilitate the shift from theory to practice, but being based on the
organisational values and beliefs, guiding principles also have to foster these
values and beliefs and ensure that these are reflected in the way individuals
are rewarded within the organisation.
Essentially expressing a company reward philosophy, guiding principles enable
employers to consistently translate into actions, that is, into policies and
practices what has more rhetorically been stated into reward strategy and
philosophy.
This might appear to be the most tedious part of reward management, but
whether organisations should miss properly and carefully carrying out these
stages, these should be prepared to face the consequences of an inevitable
miserable failure, ultimately preventing them to achieve the intended
objectives. Employers can by no means hence afford to pay lip service to these
activities.
Although this process might be perceived as being essentially
theoretical, it actually has strong practical implications; as usual, it is a
matter of formulation versus execution.
Strategies and philosophies could also have been developed and
formulated in an incredibly good way and guiding principles could also have
been devised consistently fostering the organisation shared values and beliefs,
but what matters in the end is not only how these principles have been
formulated and put in writing (which could obviously help to ensure that
everybody is singing from the same hymn sheet), but also how these will be
translated into policies and ultimately into actions.
Individuals will look at strategies and policies with circumspection as long
as they will not see a practical consistent implementation of those principles:
“Is the reality that is important, not the rhetoric” (Armstrong, 2006).
Employers need hence to definitely talk the talk and walk the walk, but this
may not reveal to be sufficient; it does not matter what employers think they
have been able to deliver, but rather how what they have delivered is perceived
by their employees.
As for strategy in general it is hence of paramount importance that all
the individuals within an organisation, line managers more than others, have
clear ideas and a thorough understanding of the company reward strategy
intended direction and of the objectives its implementation is aiming at
achieving. Whether employers should not meet this prerequisite, it is very
unlikely that these may ever successfully implement their intended strategies
and policies.
The
ultimate aim of reward management, strategy and philosophy and of the values,
beliefs and guiding principles these are intended to foster is to put in place
and operate a consistent, fair and transparent reward system which needs to be
seen and perceived as such by the whole workforce. Whether something in
practice should not properly work or whether individuals should perceive a
difference between what is written and what is said and done in practice,
whether employers would therefore talk the talk, but should not walk the walk,
the consequences would be even worse than those which would arise in the case
of not having introduced any reward management practice at all.
In the end, reward management as all the activities and initiatives
planned and implemented by employers, very often in the form of a bundle, is intended
to directly or indirectly motivate, engage and retain employees. This has indeed
revealed to be in practice the most challenging feet employers need to become
acquainted to deal with presently and in the distant future as well.
Individuals, from their side, are much more likely to be positively influenced
by transparency, openness, consistency, integrity and the intrinsic benefits they
derive from their work, rather than only by extrinsic rewards, which should be
intended just to support and consolidate the overall individual perception of
their job and of their employer.
Organizations should take good care of reward management practices and
do their utmost to avert that in a bid to pursue specific objectives they would
instead put practically in place something preventing them to attain their
intended objectives or even jeopardise the outcome of the efforts they are making
by means of other initiatives in order to motivate and engage staff. This is
why the rhetoric of reward management, and of the strategy behind it, is of
paramount importance. Before translating strategy into action organisations
need to do everything they can to avoid inconsistencies and lack of integrity; this
definitely is something flowing first and foremost from specific, well-articulated
and well-thought-out choices aiming at prompting individuals to behave and
perform as the business is expected these to. After having done all of that, the
rhetoric of strategy, philosophy and practice needs to be translated into
consistent and effective actions, which is clearly far from being a
straightforward task.
Longo, R., (2011), The importance of reward strategy rhetoric before its translation into action, HR Professionals, [online].
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