What reward strategy is and why every organisation should have one Amongst the main objectives pursued

by modern-day companies attracting, retaining and engaging staff definitely represent top-of-the-list priorities. Many organisations resort to the efficiency wage theory, i.e. to an approach based on setting salaries levels at an above-than-average percentile in their industry, in order to attract and retain talented people and use, then, pay-per-performance schemes to motivate and engage them. Actually, in any organisation no scheme, system or issue is faced and sorted out in a so simplistic way. Just try to imagine what would it happen if a marketing project team should propose to its organisations business leaders to introduce in the market a new product similar in price, features and value proposition to a product already available in stores? What would be, in such a case, the business leaders reaction? So why many organisations tend to replicate and introduce the same rewarding system used in other organisations? Would it be possibly better, and even more suitable, to have a distinctive scheme, rather than just reproduce and replicate a system used in another different reality? Why should people desire to work for, and stay with, your organisation? What makes your organisation attractive to the extent people wanting to work for it? Additionally, how much money spends your firm to pay salaries? Which percentage of revenues or operating income does it represent? Does the organisation resort to the same level of strategic and operational decisions process to deal with labour overheads as it does for other kinds of investments and/or expenditures? Moreover, it comes without saying that every time an employer spends or invests its money he is expected to maximise the return from these expenditures. The need for an organisation to have a reward strategy relates to the added value it is able to produce giving appropriate answers to all of these issues and enabling organisations to effectively sort all of them out. Nonetheless, according to the findings of the CIPD Reward Management Survey 2010, only 33% of UK organisations have a written reward strategy, whilst a further 31% is planning to formulate and adopt one. Arguably in many other European countries the percentage is even lower. All of that despite many researches and consultancy studies reveal that firms having a defined reward strategy attain better financial results than those organisations not having one. Defining reward strategy As suggested by Armstrong (2006) reward strategy is a declaration of intent defining the actions an organisation intends to take in the long run to develop and execute reward policies, procedures and practices which will enable the organisation to achieve its business goals and those of its stakeholders. As for the formulation of strategies in general, business strategy included, reward strategy aims to provide guidance, direction and a clear path for developing reward policies and practices within an organisation.

Since the reward strategy should aim to help the organisation to achieve its overall business strategy, reward strategy formulation needs to take in due consideration the organisation needs, values and shared beliefs. Nonetheless, a good and effective reward strategy also needs to duly take into consideration employees needs and the way they can be satisfied, ultimately balancing the needs of the one with the ones of the others. The reward system is also of crucial importance to foster and encourage the behaviours, ideals and principles the organisation values and is expected will be delivered by its staff. Similarly to Armstrong, Torrington et al. (2008) argue that a reward strategy is, above all, intended to align an organisations payment arrangement and wider reward system with its business objectives. This means developing systems which enhance the chances that an organisations employee will seek actively to contribute to the achievement of its employer goals. So that, if improved quality of service is the major business objective, this should be reflected in a payment system which rewards front-line staff who provides the best standards of service to customers. If the main aim of the organisation is to increase productivity, an approach rewarding efficiency would, instead, be more appropriate. But the problem is not as straightforward as it might seem, organisations are in fact obliged to compete one another for good staff as well as for customers. In the CIPD 2007 Reward Practices Survey, Charles Cotton points out that respondents report that employees are becoming just as discerning as their customers in what they want from their employer. The tighter the labour market becomes, the harder is to recruit and retain the best-qualified people, and the more pressure is placed on employers to develop rewards packages capable to suit both their staff and their own needs. Why should organisations develop and implement a reward strategy A reward strategy is, then, a means to an end, a sort of pathway linking the business and the workforce needs and, most importantly, a framework enabling the organisation to reward its employees for what they do to help the organisation achieving its objectives and overall business strategy. In other words, a reward strategy should be used by employers to induce staff to behave and perform in a way which can contribute to the achievement of the organisations competitive edge or, as suggested by Brown (2001), reward strategy is the way of thinking helping the organisation to see how generate value from the reward issues arising within the organisation. The most compelling reason to develop and implement an effective reward strategy is linked to the circumstance that for many organisations human factor overheads definitely represents the largest entry of expenses. In many cases labour cost, in fact, exceeds 60/70% of the yearly total costs faced by organisations or, nonetheless, the largest expense faced by employers. This is what, in general, happens in labour-intensive organisations and, in particular, in service provider

companies, whose activities are entirely carried out through the work delivered by people, rather than by machineries. Actually this single reason would be more than enough to draw the attention of business leaders on determining the way they manage their costs and investments and the return they are expected to get in the mid and longer term. But there are, indeed, additional good reasons to develop a reward strategy. Taking for granted that every employer always has crystal clear ideas of where he wants to go, reward strategy could turn to be extremely helpful: - to plan how to get there, - to be sure of being in the right path, throughout, and - to recognise and determine when the intended objective has been achieved.

Since organisations resort to reward to attract and retain, but also engage and motivate, staff they implicitly recognise the positive relationship existing between reward and performance. Having a clear, consistent and aligned reward strategy can definitely enact organisations to strengthen and positively influence that relationship. Last but not least, as argued by Cox and Purcell (1998), the benefit offered by reward strategies lies in the complex linkages with other HRM practices. It is, in fact, true that the most important and authoritative HRM models developed in the last decades duly keep in consideration the linkages and, more in particular, the multiplicative and synergic effect played by each practice when linked and/or being part of a wider bundle of policies and practices. Each of these reasons would singularly be worth the effort to develop and implement a reward strategy within an organisation, not to mention being considered altogether. It must be kept in mind that a reward strategy also plays a pivotal role on helping the organisation to achieve its business objectives and strategy, so that the urge to develop a reward strategy is everything but mundane. The link between business strategy and reward practices In order to ensure that reward practices are consistent and coherent with the overall business strategy and that reward practices are actually able to help the organisation to achieve its objectives, it clearly emerges that reward strategy needs to align to the overall business strategy and be inspired on the values and beliefs on which the business strategy is founded. As we have seen, the relationships between business strategy and reward practices could be intended in the form of a pathway which starting from, and aligning to, the overall business strategy, and to the HRM policies and practices, ends up in the reward programmes, based on the reward strategies previously determined. The CIPD (2005) provides a clear and extremely useful graphic representation of this pathway,

This representation gives evidence of the key stages which need to be defined, starting from the business strategy, in order to consistently and coherently formulate an effective reward strategy, progressing from: the organisation strategy, mission and goals the cultural and people requirements to deliver these goals the HR strategy and principles the reward goals the specific reward policies and practices.

Longo, R., (2010), What reward strategy is and why every organisation should have one, HR Professionals, [online].