The Development Of Reward Management

The development of the concept of reward management and the reward system as described above has taken place over a number of years. An analysis of the overall developments is given in Figure 1.

Adapted from: Michael Armstrong and Duncan Brown (2006) Strategic Reward, Kogan Page, London

Figure 1: Overall developments in reward management

The contributions of the more influential commentators (mainly US) to these developments are summarized below.

Strategic Pay (Lawler)

Lawler emphasized that when developing reward policies it is necessary to think and act strategically about reward. Reward policies should take account of the organization's goals, values and culture and of the challenges of a more competitive global economy. New pay helps to develop the individual and organizational behaviour that a company needs if its business goals are to be met. Pay policies and practices must flow from the overall strategy and they can help to emphasize important objectives such as customer satisfaction and retention and product or service quality.

The New Pay (Schuster and Zingheim)

Lawler's concept of the new pay was developed by Schuster and Zingheim, who described its fundamental principles as follows:

• Total compensation programmes should be designed to reward results and behaviour consistent with the key goals of the organization.
• Pay can be a positive force for organizational change.
• The major thrust of new pay is in introducing variable (at risk) pay.
• The new pay emphasis is on team as well as individual rewards, with employees sharing financially in the organization's success.
• Pay is an employee relations issue – employees have the right to determine whether the values, culture and reward systems of the organization match their own.

But Lawler later emphasized that the 'new pay' ideology should be regarded as a conceptual approach to payment rather than a list of prescriptions, pointing out that: 'The new pay is not a set of compensation practices at all, but rather a way of thinking about reward systems in a complex organization… The new pay does not necessarily mean implementing new reward practices or abandoning traditional ones; it means identifying pay practices that enhance the organization's strategic effectiveness.'

Dynamic Pay (Flannery, Hofrichter and Platten)

Flannery, Hofrichter and Platten expounded the concept of 'dynamic pay' and suggested that the nine principles that support a successful pay strategy are:

1. Align compensation with the organization's culture, values and strategic business goals.
2. Link compensation to the other changes.
3. Time the compensation programme to best support other change initiatives.
4. Integrate pay with other people processes.
5. Democratize the pay process.
6. Demystify compensation.
7. Measure results.
8. Refine. Refine again. Refine some more.
9. Be selective. Don't take to heart everything you hear or read about pay.

Pay People Right (Zingheim and Schuster)

Zingheim and Schuster have laid down the following six principles for 'paying people right':

1. Create a positive and 'natural' reward experience.
2. Align rewards with business goals to achieve 'a win–win partnership'.
3. Extend people's 'line of sight' between effort and outcome, motivating 'smart working' over simply expending extra effort.
4. Integrate reward with strategic aims and the kind of contribution desired.
5. Reward individual ongoing (input) value to the organization with base pay.
6. Reward results (outputs) with variable pay.

The New Realism (Armstrong and Brown)

The US writers referred to above created the belief that reward management was a major lever for change, even the main lever. This view was tempered by Armstrong and Brown, who wrote:

Models of pay popularized in the 1980s and 1990s are not necessarily regarded as appropriate or workable in the 21st century. The belief that reward can be a leading driver of, rather than a contributor to, cultural change is not accepted in the UK so readily as it used to be. Mark Thompson at Oxford University writes that, 'Managing reward is often a job of short-term damage limitation, not the strategic lever for change that appears so seductive in the writing of American commentators'. The dream of all-powerful strategic reward, of the Tom Cruise Top Gun style reward managers described by Schuster and Zingheim has been subjected to a reality check.

Armstrong and Brown have suggested the following approach to reward strategy, which more realistically fits the UK scene. This has the following characteristics:

• appreciating that a good strategy is one that works and therefore focusing on implementation programmes;
• 'planning with implementation in mind' – recognizing during the design process that plans have to be converted into reality and taking steps to anticipate the problems involved;
• aligning reward strategies with the business and HR strategies;
• ensuring that reward strategy fits the culture and characteristics of the organization, meets business needs and takes account of individual needs and preferences;
• being aware of good practice elsewhere but not being seduced by the notion that it is best practice, ie universally applicable and easily replicated;
• paying more attention to using strategic reward initiatives to support the engagement and commitment of people so that they are motivated and productive, rather than focusing on the mechanics of new reward 'fads';
• bearing in mind that the development and implementation of reward strategy is an evolutionary process – it is about doing things better at a manageable pace rather than extraordinary new developments;
• providing 'flexibility within a framework', ie developing a flexible approach to the reward of different people but always within a framework that provides for consistent treatment;
• appreciating that implementing reward strategy will require a comprehensive change management programme;
• recognizing the importance of the part played by line managers in implementing reward strategy and the need to ensure that they are committed and have the necessary skills;
• paying close and continuous attention to communicating with employees and involving them in the development as well as the implementation of reward strategy;
• being absolutely clear about the objectives of the strategy and resolute about evaluating its effectiveness.