REWARD STRATEGY
Reward strategy not working, but solutions emerging
These days, everyone is talking about reward strategy, but a recent report from Duncan Brown and Stephen Perkins concludes: “The secret about reward strategy emerging from beneath the slick conference presentations, glossy articles and consultant brochures is this: it’s not working.”
In fact, the study, published in the WorldatWork Journal, says that organisations are experiencing major problems in fulfilling their reward-policy intentions, with too much resource directed at design rather than delivery.
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Nevertheless, the authors say that there are signs that a new emphasis on implementation and workability is emerging. This “new realism” can be identified by four common characteristics and while these new approaches “may lack the boardroom appeal of the grand master plan and associated glitz, they appear to be much more likely in practice to deliver on the increasingly intertwined goals of high levels of business performance and employee engagement.”
A new realism in reward strategy
The four characteristics observed in this new realism are:
1. Setting clearer and simpler reward directions and managing them in a more realistic, evolutionary way rather than creating detailed master plans that are cumbersome and difficult to change.
2. Greater attention to implementation with more focus on the skills of line managers and communication with employees.
3. The reassertion of the needs and engagement of employees back at the heart of reward work.
4. Balance – in terms of reward-scheme designs, much greater diversity is now evident as employers tailor and blend the appropriate practices to suit their business, their context, their goals, character and culture.
Research methodology
To reach these conclusions, the research used three sources of evidence:
The CIPD’s annual Reward Management Survey 2007, covering 535 organisations in the UK.
Detailed case studies carried out in 20 UK organisations published in a recent book entitled, Strategic Reward: Making it happen, by Michael Armstrong and Duncan Brown.
A survey by Stephen Perkins of international reward practices among 63 multinational organisations, including companies with headquarters in the UK, continental Europe and North America, followed up by qualitative interviews in 16 of them, including BG, BT, Cadbury Schweppes, Shell and Unilever.
Using the findings from these three sources, the authors describe some of the most commonly experienced difficulties which have led many to embark on the new realism approach.
To begin with, the report says, everyone seems to agree that a strategic approach to reward is vital in an increasingly knowledge- and service-based economy, but in practice, as the CIPD’s Reward Management Survey showed, this is not happening.
Moreover, even when a reward strategy was in place, Perkins’ research showed that factors such as inflation, external labour markets, competitors and trade unions had a greater influence on actual practice than internal strategic drivers such as total shareholder returns or customer satisfaction levels.
A new type of reward strategy
Such problems have meant that, according to Brown and Perkins, companies are moving away from the goal of an idealised reward strategy model to a more “dynamic, flexible and emergent phenomenon”. They add: “Crafted reward pragmatism rather than radical new designs seem to rule.”
In simple terms, HR and reward directors need new answers because of a widespread problem often mentioned: “Formulation is easy, but implementation is hard.”
Organisations are therefore paying much greater attention to setting a clearer and simpler reward direction, rather than creating detailed master plans, and then delivering and managing consequent reward changes through a more realistic, evolutionary approach. This does not mean that companies should not have a strategic policy written down. In fact, the authors quote e-reward’s Michael Armstrong who believes written strategies: “Can still be helpful as a basis for communications, but should be regarded as a piece of paper that can be modified when needs change – as they will – not treated as tablets of stone.”
In short, the report says that strategy is about making choices, but companies must also take account of the context and emerging developments to help translate those choices into actions, rather than remaining as idealised wish lists.
Want to know more?
Title: "Reward Strategy: The reality of making it happen”, WorldatWork Journal, Second quarter 2007, Volume 16, No. 2.
Availability: Contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email: worldatworkjournal@worldatwork.org.
WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it "provides practitioners with knowledge leadership to effectively implement total rewards – compensation, benefits, work-life, performance and recognition, development and career opportunities – by connecting employee engagement to business performance”. WorldatWork is a not-for-profit association with a membership of more than 30,000 human resource professionals, consultants, educators and others, in 30 countries.
For further details about WorldatWork visit www.worldatwork.org.