Definition

Valuable insights can come from unexpected sources. For example, in Alice’s Adventures in Wonderland, by Lewis Carroll, Alice asks the Cheshire cat which way she ought to go. But when asked where she wants to get to Alice says that she doesn’t care much. In which case, says the cat, ‘Then it doesn’t matter which way you go.’

The point for us is pretty obvious. We need to have a sense of direction to enable us to develop reward strategies that are relevant, meaningful and will help the organization. A sense of direction also helps us filter the opportunities that we come across which are likely to support or hinder our progress.

Armstrong & Murlis (2004) note the importance of direction as an element in a reward strategy: ‘Reward strategy determines the direction in which reward management innovations and developments should go to support the business strategy, how they should be integrated, the priority that should be given to initiatives and the pace at which they should be implemented’.

Duncan Brown (2001) says that, ‘…reward strategy is ultimately a way of thinking that you can apply to any reward issue arising in your organization, to see how you can create value from it.’

Three other unattributed definitions of reward strategy I have come across are:

• ‘The incorporation of business issues into decisions on reward policies’.
• ‘An integrating approach, linking company strategy, employee behaviours and outcomes’.
• ‘A means of ensuring that reward systems actively help businesses to go where they need to’.

The short hand definition of reward strategy that I use is: Reward strategy is an approach to reward based on a set of coherent principles in support of the organization’s aims.

A fundamental element of reward strategy reflected in all of these definitions is to support the organization. That is not to say that reward strategy should be only reactive. But the approach taken needs to reflect the culture and aims of the organization. In some cases it can help to drive change. Certainly as part of the HR strategy getting reward ‘right’ can help deliver solutions that help drive strategy. But you do need to understand the aims and values of the business. A survey of business leaders concluded ‘…HR must develop a deep understanding of the business – in the same way, and using the same ‘language’, as other managers. The measures it proposes must be tied to business outcomes: the impact on customer service, the reduction in costs, the support of a specific new growth area, the increase in staff loyalty and so on.’ (KPMG, 2012 A)

Armstrong and Murlis (2004) say that reward strategy,
‘…clarifies 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. It is a declaration of intent, which establishes priorities for developing and acting on reward plans that can be aligned to business and HR strategies and to the needs of people in the organization.’

Based on the examples in this part of the book, you can define what reward strategy means for your own organization. But whatever definition you decide on, it is important to see reward strategy squarely in the context of the organization’s business strategy and HR strategy.

Prevalence

It is perhaps surprising that few organizations have a reward strategy. This reflects my experience of the lack of a strategic approach to reward. According to the CIPD 2010 Reward Management survey (the last year they collected this data), only 35% of participant organizations had a written reward strategy. As you can see from Table 1.1 this had not increased very much over the previous couple of years despite participants’ stated intentions.

Table 1.1

Best fit

There is a paradox in that product development, marketing and sales are greeted with plaudits when coming up with a new product, process or approach to market. It is the new that can beat the competitors in this fast changing world. But when HR come up with a new idea it can often be greeted with the question, ‘what do our competitors do?’ This reaction, of course, does not acknowledge the uniqueness of the particular organization’s culture.

Whilst we must reward people to ensure that we can compete effectively in the appropriate employment markets, the way we do so should reflect our particular organization. It is the culture and values that defines the brand and reward should reflect these, not blindly follow the market. So I strongly advocate an approach of ‘best fit’ not ‘best practice’. Not ‘me tooism’ but, ‘what will work for us?’ Whilst there will be some issues on legal compliance which need to be followed, in general ‘best practice’ is an invalid concept.

Certainly look at what others are doing, but develop the reward strategy that is right for you, not some other larger organization down the road with a different history and culture.

A recent survey of WorldatWork members (Workspan, 2012) found that whilst two-thirds of respondents agreed or strongly agreed that, ‘Our compensation function is focused on creating unique/tailored compensation solutions for our business’, 42% said that there needed to be a greater focus on this for the future.

You should also guard against following the latest fad that seems to be doing the rounds. But rather, evaluate its fit for your organization based on evidence. This can be particularly sensitive when it is the chief executive who makes the suggestion as something he has come across that he thinks you should have in your organization.

Other terms

Reward strategy may be the overall approach you take, but there are other related terms that we should touch on. I do not think we need to agonise over which term means exactly what, rather use the terms in the way that works best for your organization. But I give here my suggestions on how the following terms may be used:

Reward Philosophy – (also Reward Principles) the description of the beliefs of reward and how it should operate within the organization. It may be linked to the organization’s values. It is overarching and is used to broadly frame the reward strategy. In chapter five I discuss how you can develop this and give some examples.

Reward Framework – the broad overview of the related and possibly interlinked elements of reward. May be diagrammatic to illustrate how the pieces of reward fit together.

Reward Policy – the detailed policies on specific elements of reward which give the flexibility, discretion and limits. Typically, this will cover the main ‘rules’ about reward and may be part of the terms and conditions of employment.

Reward Procedure – the detailed procedure and processes that explain what exactly has to be done by different people to enable an element of reward to change or be introduced, typically giving work flow of forms, authorisation levels etc. For example, annual pay review process or absence procedure.

An extract from Reward Management 2nd edition 2018