REWARD STRATEGY
The case for real reward strategies
While the evidence on the capacity of reward strategy to fulfil its promise is, at best, patchy, Duncan Brown of management consultants Towers Perrin reckons that in today’ s globally competitive environment employers have little option but to set a strategic course.
The need to use reward to positively reinforce the achievement of business goals is now widely accepted by many practitioners. But achieving a good fit between business strategies and reward strategies is not always straightforward. A strategy can promise much, but deliver little. There are many examples of failure and, indeed, growing cynicism among workers and managers dissatisfied with some of these dazzling reward creations.
So why don’ t we just go back into our compensation and benefits bunker, issuing retrospective tax and NIC calculations, emerging only periodically to hose down any disputes that flare up? asks Brown, who is a principal consultant in the London office of Towers Perrin.
Because the ‘ doing nothing’ , ‘ it’ s too difficult’ option is becoming far more dangerous than intervening, he writes in a new report published by the Chartered Institute of Personnel and Development.
Enduring nature of UK reward management
Casting his expert eye over the current reward landscape, what is striking, says Brown, is the relatively durable nature of UK management’ s approach to compensation and benefits.
His recent large-scale research project for Towers Perrin suggests that the typical employee has a job evaluation-driven pay grade, a comprehensive and pretty fixed package of benefits, and a small piece of performance pay, most commonly in the form of the nineteenth-century innovation, the profit-sharing scheme.
Brown also lays bare the myth surrounding much of what has been called the new pay debate. Despite the bold predictions made by some consultants about the spread of practices such as gainsharing, the take up amongst UK organisations remains low. Indeed, it is his contention that many of these supposed innovations have a long history .
Many of themes emerging in the CIPD report, entitled The Future of Reward — increasing pay differentiation and variability, greater individual choice and flexibility, more attention to the total ‘ deal’ and crafting an employer brand — are, in Brown’ s words, already evident and have a long pedigree.
Evolution rather than revolution
Rather than embarking on wave after wave of radical new reward programmes, Brown reckons that organisations are favouring quite a lot of fine-tuning. They are rejecting radical change in favour of tinkering and an evolutionary approach.
In short, organisations are following a number of courses, says Brown. They are:
borrowing ideas from the past and present
integrating new approaches such as team and competency pay into existing performance pay approaches
extending the membership of share option schemes
moving towards broader pay bands and flexible benefits often in a sequence of changes, at a pace to match the rate of people’ s buy-in and the development of the management capability to actually deliver.
Shortcomings in reward strategy
Few practitioners would now disagree with the proposition that it is essential for any individual organisation to have a strategic perspective on pay. But it is a formidable challenge to develop pay programmes that support and reinforce the business objectives of the organisation and the kind of culture, climate and behaviour that are needed for the organisation to be effective. No wonder, says Brown, two-thirds of companies admit to problems in implementing their reward strategies.
Why, then, are these strategies not always a resounding success? More often the failings are in the process of implementation and operation, most notably in line management training and staff communications, says Brown.
Involvement and understanding
For Brown, employers would do well to apply one effective technique: involve employees in the implementation process. There is a wealth of research demonstrating that involvement and understanding correlates more highly with the success of reward changes than any other design or environmental variable, he says.
The solution is not to put our heads in the sand and not take reward initiatives, but to adopt a much more inclusive, adaptable and evolutionary approach to making them.
A final word
In our increasingly competitive, knowledge, information and service-based, and human-resource-constrained economy, where pay costs can frequently represent three-quarters of operating expenditure, those companies that do not invest in this resource in the best way to reinforce their strategy and motivate their staff will be rapidly overtaken by competitors who do. — Duncan Brown.
Want to know more?
Title: Reward futures, visions and strategies . . . who needs them? , by Duncan Brown, The Future of Reward, published by the Chartered Institute of Personnel and Development.
This 50-page report brings together the viewpoints of six authors on how reward is developing and on what reward and work will look like in the future — for both organisations and employees.
The aim of this Executive Briefing is to use future scenarios as a method of exploring:
why reward is managed the way it is now
how it could be managed better
what influences reward management.
Availability: The catalogue of all CIPD titles can be viewed on the Institute’ s web site at www.cipd.co.uk/publications.