Developing a Reward Strategy for Your Organization

Reward is an important part of managing organization and the management of employees. It can be defined as an organization is ready to pay for to accomplish its strategic objectives. Therefore the review of reward system starts from understanding of organizational strategy and HR strategy supports this. Strategic reward objectives should be aligned with business objectives in the same way as other key business areas such as finance, marketing, administrating and IT.

Developing a Reward Strategy

In the broad way, there are two ways of reward such as tangible and intangible. The definition of these two rewards are in a way ambiguous as it could vary according to the viewers’ standpoints, but most of rewards can be classified as the tangible, which includes competitive salary, promotion, good benefits, incentive, better working environment, recognition awards and all other fringe benefits for higher performance. Whereas, intangible rewards is none monetary reward for high performance, not always requiring recognition of others in the workplace. Examples are when a sales manager gives the sales person recognition by a “pat on the back, send an appreciation e-mail and usage of bulletin board” to show appreciation for job well done.

In order to implement the reward system the most appropriate way, performance appraisal, evaluation, accomplishment rating should be done the most fair and objective way, but it is sometimes easier said than done. Due to the unfair or unreasonable evaluation, employees get depressed over the total reward system of the organization. In addition, the subjective appraisal is often taking place because of the managers’ personal preference or subjective views on some employees in particular. However, to get this done the way it should, managers should have the most fair and objective views with regard to the evaluation of employees. By doing so, organization can reach to the final goal pertaining to the HR strategy such as retaining the indispensible, key employees or high performers, motivating average performers work harder and redundancy management for underachievers, who do not fit the organization, by which company can have the sustainable competitive advantage.

Reward Strategy

Reward strategy is the key step in the design of a reward system to keep high quality staff and motivate average level staff to work harder. And it is to set up the mechanisms help in recruitment, retention, engagement and development of employees so that they perform and deliver at their highest potential and therefore make the organization successful. Such a competitive business environment of these days, it is very important to have the decent reward strategy initiatives by the maximum utilization of the organization’s financial and non-financial resources as the competitors are looking for the opportunities to scout the high quality employees all the times. The competitors’ better reward strategy initiative can be good reason for high quality employees to leave for the competitors.

People work because they gain an income to spend on their individual, family and community needs. Some people needs are the essentials of lives, what humans needs to survive physiologically. Maslow defined the hierarchy of needs with fundamental physiological needs at the base and rising through safety, social needs and culminating in the need for self-fulfilment. Herzberg distinguished between firstly hygiene extrinsic factors such as pay and organization policy and procedures that will cause dissatisfaction in the workplace if absent or insufficient. Satisfiers, which are intrinsic responsibility and potential for growth which will positively motivate people. Since Maslow and Herzberg were published over 50 years ago, other like expectancy theory identifies two factors of value and probability. People value reward in terms of how well it satisfies their needs of security, social esteem, fulfilment and autonomy. Inevitably people value different elements differently, which suggests reward must include a mix. Expectancy is the probability that reward depends on effort like the more effort, the higher the reward. For that effort to be helpful to the organization, individual needs to have the appropriate ability and the correct perception of their role. This emphasizes the need for clear role definitions and understanding, effective development interventions and a link between performance and reward.

Strategic human resource management is different from traditional human resource management in its focus on organizational outcomes, its integration of the various functional areas of human resource management, and its concern with more macro perspective on the topic. The field has progressed significantly, however, inadequate definitions and spare theoretical development continue to plague it. Extensive research and studies on reward strategy has shown that people are complicated and motivation is a complex process. What is clear is that while financial reward is important , for most people other factor are also, and can be more important. These can be brought together under three sections:

  1. Equity – the perception of being treated fairly both in comparison to others and in terms of the effort and skills brought to the role
  2. Self-fulfilment – that people are recognized for what they do and encouraged to reach their potential through effective learning land development processes and given feedback on their performance
  3. Organization culture – roles are clear and organizational and personal values are alignment so that employees engage and enjoy work

Total reward strategy addresses this complexity in bringing together financial aspect of reward of basic pay, any bonuses and additional financial benefits with the non-financial benefit at the personal and organizational level. This is a helpful concept, especially because it acknowledges the limits of purely financial reward and identifies other areas that can be addressed, in particular when salary budgets are limited for economic reason. Reward is more than pay and benefits. Therefore a reward strategy must consider many aspects of the workplace in order to both attract and keep high quality people doing the right things in the right way so that they flourish and the organization is successful.

Developing a Reward Strategy

The reward management system needs to support the business strategy. As such there are a number of different approaches, but they all break down into a small number of common overall methods. One of the key determinants in deciding which approach will work best is the extent to which the business wants integration between its reward system and the other HR systems and policies it utilized. Arguably, the opportunities to leverage real competitive advantage comes from integrating the reward management, performance management, career management and personal development systems into a cohesive whole, rather than seeing each as a separate and disjointed system in isolation. The key step in redesigning the reward management system is to determine the reward strategy and the level of integration with other HR systems. This provides an overall framework for the reward system and must be closely linked to the business strategy.

To develop a reward strategy, there are three underlying premises. Firstly, in order to meet its strategy, the business must exhibit certain characteristics. It needs to behave in certain ways, for example treating its employees in an open and honest fashion or creating co-operative relationships with its customers and suppliers. Secondly, organizations are made up of people, and as such it is how the people behave that will determine how the organization behaves. Thirdly, the integrated approach to people management starts off with individual behavior expectations and examines how these will be measured (performance management), developed (personal development) and rewarded (rewarded and career management).

There are a few factors to be included in a reward strategy. With regard to underlying structure, there are number of ways in which a grading structure could be developed according to your business needs, which include single structure, career families and job families, which provide a common grade framework that supports a drive for consistency. Common threads are the policies, systems and procedures that operate across the business. For example, since pay rules, benefit allocation rules such as cars, pensions and private medical insurance and procedures such as holiday or absence notification and promotion. They are there to make everyone’s life easier because there are clear rules and every one sticks to them. Included in this area would normally be decisions about flexible benefit schemes, choice of carriers for insured benefits, and so on.

When it comes to base pay structure, there are three decisions that need to be made such as market alignment, number and shape of the salary scales and access to and use of market data, which recognize the market value of rules and nay role-specific needs. Variable pay takes three main forms. Firstly, annual schemes which are normally bonus arrangements where there is some link to underlying business performance. Secondly, commission type arrangements where the main link is to individual performance. Thirdly, long-term schemes that might be cash or shares based and are typically used for the more senior employees, although all-employee profit related schemes sometimes fall into this category.

Recognition schemes are either non-cash or low-value cash equivalent schemes that recognize behavior that reinforces the organization’s values. They tend to be “award” based with some form of nomination process, either from other employees or line managers. When it comes to non-financial reward, from an individual’s perspective the total reward of working for a particular organization is made up of four elements such as cash, benefits, personal development and growth and environment (culture and physical working conditions). Finally integration is about creating a common theme throughout the people management processes. For example, it may be about ensuring performance management and performance-pay processes are consistent, using common factors for measuring job size and determining employee development needs, creating a common language which is used consistently throughout all people management processes, developing structures that manage more than one people management process at a time-for example the career families approach discussed above attempts to integrate job grading and career tracks.

Aligning Reward Strategy with HR Strategy 

It is never too much to point out the importance of HR strategy for the successful organization. Effective HR management is maximum utilization of capacity of work force within organization by appropriate allocating of employees and effective motivation for the all different types of employees. In order to do so, analysis of each employee’s nature, competence, stress endurance level and trait should be prepared. It is important to know each employee’s character and motivation factor based on data base obtaining the daily working behavior of employees as well as their accomplishment from the macro perspective. This kind of accurate, thorough and fair data base can be applied to the company’s redundancy management. Company can help employees to look for other jobs, which fit them better, by which company can have better productivity with same input resource, which company can have the sustainable competitive advantage over the competitors.

The HR strategy is directly connected with the reward strategy as we have been through so far, employees’ motivation is heavily rely on the total reward strategy of organization, which should be designed not only by HR department but senior managers who are directly involved in the whole organizational strategy, by which the total HR strategy can be implemented, supported and reviewed consistently. Regardless of eastern, western, ancient time or modern time, the importance of HR strategy is always appreciated. This is because, even if any given organization has the best infrastructure in many ways, they are manipulated by human and this cannot be replaced any other system that are available so far. Therefore the right people for the right place based on the total reward strategy development map is more important than any other factors or than ever to maintain the long lasting successful organization.