Reward Strategies: Key Considerations
Having the right reward strategy will help you attract, motivate and retain the right people for your organisation. To help develop the right strategy it is important to challenge your organisation by asking some very simple questions. From our experience of working with clients in this area, the three most important questions to consider are:
What does your organisation want to reward?
How much does your organisation want to pay?
How will your organisation reward its people?
The main considerations for each question are set out below.
This is the most important question in your pay philosophy and therefore worthy of top management time. In our experience the answer to this question is not necessarily as obvious as it might appear. These are some examples of the factors our clients consider:
Just turning up
Loyalty (keep turning up)
Qualifications (what types, on what basis)
Experience and track record (at recruitment, in service)
Success (individual, collective, at what)
Performance (results only, results and contribution, how as well as what)
These last two are particularly important as they need to be defined early and they need to be managed with some robust process and by appropriately skilled managers. They also need to be sufficiently levered to contribute to business success whilst motivating and paying for individual and/or collective performance.
In some long-established organisations, patronage has traditionally played a large part in the reward equation, but is hard to accept by (non-patronised) staff and is open to abuse and blind spots, which at extreme levels could find the organisation on the wrong side of the law.
This question is really about where you wish to position your business in the employment marketplace and how competitive you wish to be and can afford to be. It is also about the structure and components in your reward package as part of your overall employee value proposition.
Clearly, your decisions on this will always be informed by the nature and strategic direction of your business as well as the current market conditions in all relevant pay marketplaces. Most organisations support this process with some form of benchmarking, from informal monitoring of local pay rates and conditions to participation in formal pay surveys run by specialist providers. It is common for organisations to take slightly different market positions on pay in certain sectors, depending on which skills and capabilities are most critical to business success and where recruitment of the right resources is particularly difficult for some reason.
There is also the question of how you wish to position different elements of reward in terms of attraction and motivation. For example, you might decide the ideal place to be is with a low but sufficiently attractive base to attract the skills you need with the promise of higher total cash as a reward for success. You would therefore need to determine your market position in both of these areas.
Many organisations now like to adopt wide (80-120) pay bands, which can be a very useful tool for managing reward. In this instance you need to consider:
If this will have steps within the band or a continuum of pay
At which point on the continuum will you fix your “market rate” policy
How people will progress through the bands – will this be time related, or based on some performance progression within the firm, or a hybrid
A lot of organisations find they have inflationary pressures of salary bands often perceived as pressure from the market or valuable individuals who have reached to top of a band. One area that needs to be thought through as well as salary bands and their width is how many grades are appropriate?
Most organisations feel there is a “right answer” to these questions, but they are all decisions in the hands of the business affected by a complex set of drivers.
This is a deceptively simple question with many answers and the answers may differ for different groups within a single organisation e.g. managerial vs non-management:
Grades or not (and the ‘evaluation’ approach needed to populate them)
Many or Few (wide salary bands suggest fewer grades)
Cash v Non Cash (benefits)
Does one size fit all?
Reward now or deferred
Movement through base salary band or bonus
Guaranteed or variable
Permanent (and therefore pensionable) or one time only.
Ownership or quasi ownership
This is the area where consideration of benefits should be given and this has the complexity of valuation. Just because a benefit costs a lot to an organisation, it is not always perceived as having that level of importance to individual employees. That is one of the reasons successive governments have found it necessary to legislate about workplace pensions.
In our experience, reward management has the potential to become a small cottage industry in its own right. The more complex and diverse the associated models, frameworks and procedures, the more bureaucratic and costly managing them becomes. A key part of the debate about reward will therefore be about how to achieve the right balance between complexity & simplicity and affordability & effectiveness.