REWARD MANAGEMENT

Contents
1 2 3 4 5 6 7 8 9 10 Reward management defined Aims of reward management Reward management processes and activities Reward strategy defined The components of total reward Total reward framework Why have a reward strategy? A structure for reward strategy Reward gap analysis Reward philosophy defined

REWARD MANAGEMENT DEFINED

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization. It deals with the design, implementation and maintenance of reward processes and practices that are geared to the improvement of organizational, team and individual performance.

AIMS OF REWARD MANAGEMENT

Create total reward processes that are based on beliefs about what the organization values and wants to provide rewards for. Reward people for the value they create. Align reward practices with both business goals and employee values. Reward the right things to convey the right message about what is important in terms of behaviours and outcomes. Facilitate the attraction and retention of the skilled and competent people the organization needs, thus winning the war for talent. Help in the process of motivating people and gaining their commitment and engagement. Support the development of a performance culture. Develop a positive employment relationship and psychological contract.

REWARD MANAGEMENT PROCESSES AND ACTIVITIES

Non-financial rewards

Employee benefits Market rate analysis Business/ HR strategy Reward strategy

Grade and pay structure policy

Grade and pay structure

Total remuneration

Total reward

Improved performance

Job evaluation
Performance management

Contingent pay

Learning & development

REWARD STRATEGY DEFINED

Reward strategy is a declaration of intent, which expresses what the organization wants to do in the longer term to develop and implement reward policies, practices and processes that will further the achievement of its business goals and meet the needs of its stakeholders.

THE COMPONENTS OF TOTAL REWARD

Base pay Transactional rewards Contingent pay Employee benefits Learning and development Relational rewards The work experience
Non-financial rewards Total remuneration

Total reward

Recognition, achievement, growth

Pay and Benefits are termed as Transactional Rewards, because they have the character of a financial transaction. Learning and Development and Work Environment are termed Relational Rewards, because they are designed to bind staff more closely to the organization.

TOTAL REWARD FRAMEWORK

TRANSACTIONAL (TANGIBLE)

Compensation Base Salary Variable Pay Job Evaluation Performance Management Paid Time Off
Development and Learning

Benefits

Health Care Retirement Savings Other Insurance

Work Environment

Training Career Development Learning Experiences Succession Planning

Work/Life Balance Leadership Performance Support Organizational Climate

Adapted from Duncan Brown and Michael Armstrong (1999) Paying for Contribution

RELATIONAL (INTANGIBLE)

The top two quadrants, compensation and benefits, cover the areas that we traditionally think of as rewards the employer provides. These are sometimes referred to as transactional rewards because they include the tangible results of the agreement between the employee and employer. In this agreement, or transaction, the employee agrees to provide time, labor and skills in return for salary and benefits. Therefore, these rewards are readily viewed in terms of having a monetary value, such as the employee's base salary or Performance management. Transactional rewards play an important part in an employee's decision about where to work and whether to stay with an organization.

The bottom two quadrants, development and learning and the work environment, cover areas that are increasingly recognized as critical contributors to employee satisfaction. They are sometimes referred to as relational rewards because they tend to represent the relationship (vs. the transaction) between the employee and employer. They are important additional rewards that can significantly enhance an employee's desire to remain with an organization. These rewards: can emphasize the importance of the employee to the organization; can influence the employee's sense of loyalty;

 are rarely seen in terms of their cash value, but can have an equally important impact when an employee is trying to decide whether to accept other employment or remain with an agency. represent those program areas where agencies have the greatest amount of flexibility to design programs specific to the needs of their employees. To many employees, a supportive and engaging work environment is at least as important as health care benefits and pay. For example, dependent care support, flexible work schedules, opportunities to telecommute, flexible leave programs, meaningful employee involvement, and well-trained supervisors providing quality leadership may make all the difference in the world when a person with a hard-to-find skill is considering your job offer or when an employee with valuable institutional experience is considering a competitor's offer.

WHY HAVE A REWARD STRATEGY?

The first question to ask is: what motivates people to work? Why spend time and talent in the service of an organization, even if its your own organization when selfemployed? Because there is some reward to do so. At face value, people work because they gain an income to spend on their individual, family and community needs. Some needs are the essentials of life, 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- fulfillment.

 Two other theories of motivation are important to consider. One is goal theory as developed by Latham and Locke which states that both performance and motivation are higher if mutually agreed, challenging and monitored goals are set and feedback given on achievements. The second is Equity Theory which suggests that people are more motivated when they are treated equitably and demotivated if they receive or perceive inequitable treatment. This connects to the felt-fair concept that pay systems are fair if they are felt to be fair . 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 factors are also, and can be more, important.

These can be brought together under three sections: Equity the perception of being treated fairly both in comparison to others and in terms of the effort and skills brought to the role Self- fulfillment that people are recognized for what they do and encouraged to reach their potential through effective learning and development processes and given feedback on their performance Organization culture roles are clear and organizational and personal values are in alignment so that employees engage and enjoy work (as much as is possible)

Another way to consider the necessary components of rewarding people is to view them as individuals, within their team, in the organization and generally in the workplace: Recognition being appreciated, not taken for granted, having a voice Work/life balance accepting and encouraging that there is a world beyond the workplace Organizational culture being able to engage and fit with the organization in terms of its values and how things are done Employee development being enabled to develop personal skills and understanding for current and potential future work Environment having a good place to work in terms of physical layout, equipment, health and safety and security

A STRUCTURE FOR REWARD STRATEGY

A statement of intentions (Business Strategy) A rationale (Developing HR & Reward strategy) A plan (Steps to develop the above strategies) A definition of guiding principles.

DEVELOPING REWARD STRATEGY

Analyse business strategy Develop HR strategy Analyse present arrangements Develop reward strategy
Guiding principles

Assess needs of stakeholders

Consult and involve senior management and line managers

Define, justify and agree intentions:

total reward job evaluation grade/pay structure contribution pay

Consult, involve and communicate with employees

flexibility

REWARD PHILOSOPHY DEFINED

The set of beliefs that underpin the reward strategy of the organization and govern the reward policies that determine how reward policies operate.