Jun 10, 2011

Factors Affecting Reward Management Policy And Practice

Reward management policy and practice are subject to a number of influences. As summarized below, these consist of contextual factors arising from the internal and external environment and conceptual factors relating to theories and beliefs about strategic management, total reward, human capital management, the factors affecting pay levels, motivation, engagement, commitment and the psychological contract.

The Internal Environment

The internal environment consists of the organization's culture and its business, technology and people.

The External Environment

The features of the external environment are competitive pressure, globalization, and changes in demographics and employment. 

Strategic Management

Strategic reward is an aspect of strategic management the purpose of which, is to 'elicit the present actions for the future' and become 'action vehicles – integrating and institutionalizing mechanisms for change'. Strategic management as 'the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization'.
However, strategic management in reality is not necessarily a formal, well-articulated and linear process. Strategies may be formulated as they are used, strategy emerges over time in response to evolving situations. He believes that business strategy is best regarded as a 'pattern in a stream of activities'. This applies equally to reward strategy.

Total Reward

Total reward policies provide for a holistic approach to be adopted to reward management, which ensures that all aspects of reward are treated as a coherent portfolio of policies and practices.

Human Capital Management

Human capital management (HCM) is concerned with obtaining, analysing and reporting on data, which informs the direction of value-adding people management strategic, investment and operational decisions at corporate level and at the level of front-line management. An HCM approach to reward management will assemble data on the effectiveness of reward management policies but in a more advanced form will attempt to assess the impact of remuneration policies on people and the business, thus informing strategic plans.

The Factors Affecting Levels of Pay

The factors affecting levels of pay influence pay decisions regarding the rate for the job, market rates and pay reviews.


Motivation theory is important as a guide to the use of contingent pay and the non-financial elements of total reward.

Engagement and Commitment

The concepts of job engagement and organizational commitment also provide guidance on total reward policies and contingent pay.

The Psychological Contract

It is necessary to understand what the psychological contract is and its significance when formulating and implementing reward policy as a key aspect of relationships with employees.


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