Characteristics of Reward Management

Reward management is fundamentally about people. It is stakeholder orientated, integrated, strategic and evidence based.

Reward Management and People

Reward management is concerned with people — especially the employees who are rewarded for their efforts, skills and contribution but also the directors, managers and reward specialists who plan, manage and administrate rewards. This is in accordance that:

organizations are the people in them:… people make the place. His point was that: Attraction to an organization, selection by it, and attrition from it yield particular kinds of persons in an organization. These people determine organizational behaviour… Positive job attitudes for workers in an organization can be expected when the natural inclinations of the persons there are allowed to be reflected in their behaviours by the kinds of processes and structures that have evolved there.

A Stakeholder Approach

The purpose of human resource management (HRM) is to meet the needs of all the stakeholders in the business — employees, customers, suppliers and the public at large as well as management and shareholders. Reward management shares that purpose. In doing so, it can make a significant contribution to meeting the varied needs of stakeholders successfully. It is accordingly concerned with improving business performance, shaping the behaviour of employees and developing a climate of trust. And reward management can best do this if it is evidence-based.

But there is also an ethical dimension. Reward management policies in association with HR policies can help to create a working environment that provides for the just, fair and ethical treatment of employees. These are policies about treating people properly and avoiding the creation of unacceptable reward practices that reflect badly on the organization. The bonus schemes for top management operated in the banks and elsewhere in the financial services sector are good examples of where reward policy and practice went wrong. They were against the interests of every stakeholder except the recipients of the huge sums of money involved.

Integrated Reward Management

Integrated reward management is an approach to reward management that provides for reward policies and practices to be treated as a coherent whole in which the parts contribute in conjunction with one another to ensure that the contribution people make to achieving organizational, departmental and team goals is recognized and rewarded. It consists of a related set of activities that impinge and impact on all aspects of the business and the HRM practices within it. In an integrated approach ‘each individual element of reward supports the other to reinforce organizational objectives.’

Integration takes three forms:

• Strategic integration: the vertical integration of reward strategy with business strategy.
• HRM integration: the horizontal integration of reward strategies with other HR strategies, especially those concerned with high performance, engagement, talent management and learning and development.
• Reward integration: the internal integration of reward to ensure that its various aspects cohere and that a total reward philosophy is adopted that means a full range of mutually supporting financial and non-financial rewards is used.

The integrated approach adopted by Aegon UK is:

• Reward: market driven, with overall performance dictating rate of progress of salaries within broad bands rather then existing grades.
• Recruitment: competency based, with multi-assessment processes as the basic approach.
• Performance management: not linked to pay, concentrated on personal development, objective setting and competency development.
• Training and development: targeted on key competencies and emphasizing self-development.

Strategic Reward Management

Strategic reward can be described as an attitude of mind — to be convinced of the virtue of systematically deciding what must be done and to believe in the need to plan ahead and make the plans happen. Strategic reward ‘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. Its aim is to create reward processes which are based on beliefs about what the organization values and wants to achieve. It does this by aligning reward practices with both business goals and employee values.’ Strategic reward focuses on methods of achieving vertical, horizontal and internal integration.

Evidence-Based Reward Management

Evidence-based reward management is the management of reward systems on the basis of fact rather than opinion, on understanding rather than assumptions, on grounded theory rather than dogma. This is in line with the views of the logical positivists  that it is necessary to seek ‘analytical truths’ and that the fundamental question to ask when examining beliefs is: ‘How do you know what you think you know?’ It is also in accord that beliefs can only be expressed in statements that ‘face the tribunal of experience’.

Use is made in evidence-based reward management of the extensive research conducted over the last 50 years into how reward systems work in organizations and what can be done to improve them. It subjects the theories derived from this research to critical evaluation on their relevance and application in the context of particular organizations. Someone once said that ‘theory without practice is sterile, practice without theory is futile.’ But it should be remembered that, there is nothing as practical as a good theory: that is, one substantiated by rigorous research within organizations that tells you how it is and not how you think it is.

Importantly, evidence-based reward management also makes use of the information obtained from the detailed evaluation of the effectiveness and impact of existing reward practices and from systematic benchmarking. It is concerned with establishing what constitutes good practice, although it does not assume that good practice is necessarily ‘best practice’. What works well elsewhere will not necessarily work as well within the organization. In general, best fit is more important than best practice.