Achieving the Aims in General | Reward Management

The overall approach to achieving reward aims is based on a philosophy and takes into account factors related to distributive and procedural justice, fairness, equity, consistency and transparency. It is also concerned with achieving strategic alignment and cultural/contextual fit, developing a high-performance culture and segmentation.

Reward Philosophy

Reward management is based on a well-articulated philosophy — a set of beliefs and guiding principles that are consistent with the values of the organization and help to enact them. The philosophy recognizes that if HRM is about investing in human capital from which a reasonable return is required, then it is proper to reward people differentially according to their contribution (ie the return on investment they generate).

The philosophy of reward management also recognizes that it must be strategic in the sense that it addresses longer-term issues relating to how people should be valued for what they do and what they achieve. Reward strategies and the processes that are required to implement them have to flow from the business strategy.

Reward management adopts a ‘total rewards’ approach that emphasizes the importance of considering all aspects of reward as a coherent whole that is linked to other HR initiatives designed to win the engagement of employees and further their development. This requires the integration of reward strategies with other HRM strategies, including talent management and human resource development. Reward management is an integral part of an HRM approach to managing people.

Distributive Justice

Distributive justice refers to how rewards are provided to people. They will feel that they have been treated justly if they believe that the rewardshave been distributed in accordance with the value of their contribution, that they receive what was promised to them and that they get what they need.

Procedural Justice

Procedural justice refers to the ways in which managerial decisions are made and reward policies are put into practice. The five factors that affect perceptions of procedural justice are:

• The viewpoint of employees is given proper consideration.
• Personal bias towards employees is suppressed.
• The criteria for decisions are applied consistently to all employees.
• Employees are provided with early feedback about the outcome of decisions.
• Employees are provided with adequate explanations of why decisions have been made.

Fairness

A fair reward system is one that operates in accordance with the principles of distributive and procedural justice. It also conforms to the ‘felt-fair’ principle. This states that pay systems will be fair if they are felt to be fair. The assumptions underpinning the theory are that:

• There is an unrecognized standard of fair payment for any level of work.
• Unconscious knowledge of the standard is shared among the population at work.
• Pay must match the level of work and the capacity of the individual to do it.
• People should not receive less pay than they deserve by comparison with their fellow workers.

This felt-fair principle has passed into the common language of those involved in reward management. It is sometimes used as the final arbiter of how a job should be graded (the so-called ‘felt-fair’ test), possibly overriding the conclusions reached by an analytical job evaluation exercise. Such tests are in danger of simply reproducing existing prejudices about relative job values.

Equity

Equity is achieved when people are rewarded appropriately in relation to others within the organization. Equitable reward processes ensure that relativities between jobs are measured as objectively as possible and that equal pay is provided for work of equal value.

Consistency

A consistent approach to reward management means that decisions on pay do not vary arbitrarily — without due cause — between different people or at different times. They do not deviate irrationally from what would generally be regarded as fair and equitable.

Transparency

Transparency exists when people understand how reward processes function and how they are affected by them. The reasons for pay decisions are explained at the time they are made. Employees have a voice in the development of reward policies and practices.

Strategic Alignment

The strategic alignment of reward practices ensures that reward initiatives are planned by reference to the requirements of the business strategy and are designed to support the achievement of business goals.

Contextual and Culture Fit

The design of reward processes should be governed by the context (the characteristics of the organization, its business strategy and the type of employees) and the organization's culture (its values and behavioural norms). The design will be affected by the political and social factors present in the organization.

Account should be taken of good practice elsewhere, but this should not be regarded as best practice (ie universally applicable).

Performance and Reward

Reward strategies, policies and practices focus on performance and contribute to the achievement of a high-performance culture. This is one in which people are aware of the need to perform well and behave accordingly in order to meet or exceed expectations. Employees will be engaged with their jobs and the organization and be prepared to exercise productive discretionary effort in getting their work done. Such a culture embraces a number of interrelated processes that together make an impact on the performance of the organization through its people in such areas as productivity, quality, levels of customer service, growth, profits and, ultimately, in profit-making firms, the delivery of increased shareholder value. In our more heavily service and knowledge-based economy, employees have become the most important determinant of organizational success. 

Segmentation

Different segments of the workforce, and individuals at different stages in their career, will be motivated by different combinations of rewards. A total rewards package should be tailored to meet these different needs. Organizations may consider segmenting their package for different types of jobs, or to reflect the different types and levels of contribution people make, or to respond to different needs. For example, it is usually appropriate to have different reward packages for sales and customer services staff because the nature of the sales or service role is different from that of, say, administration.