Effective Reward Management

The criteria for judging the effectiveness of a reward management system is the extent to which it:

• is fit for purpose — the contribution it makes to achieving organizational objectives and recognizing the needs and wants of stakeholders;
• is appropriate — fits the culture and context of the organization;
• is designed in accord with what is generally regarded as good practice in the particular context of the organization, subject to the requirement that it must be appropriate;
• functions in line with well-defined guiding principles, which include the need to achieve fairness, equity, consistency and transparency in operating the reward system;
• includes processes for valuing and grading jobs and rewarding people according to their performance or contribution that are properly conceived and function well;
• makes a significant impact on performance through performance management or contributions to high-performance working;
• has produced an attractive employee-value proposition;
• provides rewards that attract and retain people and enlist their engagement;
• maintains competitive and equitable rates of pay;
• incorporates successfully a total rewards approach;
• manages reward processes carefully and obtains value for money;
• provides for the evaluation of reward processes and taking corrective action as necessary;
• communicates to all concerned how the reward system operates and how it affects them;
• provides for the devolution of a reasonable degree of authority to line managers to make reward decisions, taking steps to ensure that they have the skills and support required and that their decisions are in line with reward policy guidelines.

Effective Reward in the Best Performing Firms

The best-performing firms view their reward programmes differently from the lower-performing organizations:

• Top firms are more likely to use rewards as tools to engage people in improving business performance.
• These firms make greater efforts than others to communicate their plans and to measure reward plan effectiveness.
• They are more likely than the rest to link rewards to their organization's business strategies.

Reward management: six tips

• Reward people according to the value they create.
• Reward people according to what the organization values and wants to pay for.
• Take account of employee as well as business needs.
• Best fit is preferable to best practice.
• Strive to be different, even unique, when developing reward policy and practice.
• Adopt an evidence-based management approach that involves managing reward systems on the basis of fact rather than opinion, on understanding rather than assumptions, on grounded theory rather than dogma.

Fundamental Concepts | Reward Management

Fundamental Concepts

The following fundamental concepts influence the aims of reward management, reward strategy and how people are valued.

The Resource-Based View

This is the view that it is the range of resources in an organization, including its human resources, that produces its unique character and creates competitive advantage. HRM delivers added value and helps to achieve sustainable competitive advantage through the strategic development of the organization's rare, hard to imitate and hard to substitute human resources. The situation in which people are employed with competitively valuable knowledge and skills, as one that confers ‘human capital advantage’.

The role of reward management is to contribute to the acquisition and retention of such people.

Human Capital Management

The concept of human capital is often associated with the resource-based view. ‘it is human capital that is the differentiator for organizations and the actual basis for competitive advantage’. Human capital management (HCM) is often described as being about measurement in the sense of obtaining, analysing and reporting on data relating to employees that inform HRM decisions. But it is sometimes defined more broadly without the emphasis on measurement. Chatzkel states that ‘Human capital management is an integrated effort to manage and develop human capabilities to achieve significantly higher levels of performance.’ HCM as ‘The total development of human potential expressed as organizational value’. He believes that ‘HCM is about creating value through people’ and this is a prime purpose of reward management.

Human Process Advantage

A distinction should be made between ‘human process advantage’ and ‘human capital advantage’. The former results from the establishment of ‘difficult to imitate, highly evolved processes within the firm’, while the latter follows from employing people with competitively valuable knowledge and skills. This suggests that one of the roles of reward management is to differentiate from rather than imitate the ‘best practices’ of other firms.

Motivation Theory

Motivation is the force that energizes, directs and sustains behaviour. Motivation theory explains how motivation works and the factors that determine its strength. It deals with how money and other types of rewards affect the motivation to work and levels of performance, what creates job satisfaction, and the link between job satisfaction and performance. It therefore influences decisions on how people should be valued, the choice and design of financial rewards and the use of non-financial rewards.

A distinction is made between extrinsic and intrinsic motivation. Extrinsic motivation occurs when things are done to or for people to motivate them. These include rewards, such as incentives, increased pay, praise, or promotion, and punishments, such as disciplinary action, withholding pay, or criticism. Intrinsic motivation is provided by the work itself.

There are four main categories of motivation theories as described below.

Instrumentality Theory

‘Instrumentality’ is the belief that if we do one thing it will lead to another. In its crudest form, instrumentality theory states that people only work for money. It assumes that people will be motivated to work if rewards and penalties are tied directly to their performance; thus the awards are contingent upon effective performance. Instrumentality theory has its roots in the scientific management methods ‘It is impossible, through any long period of time, to get workmen to work much harder than the average men around them unless they are assured a large and permanent increase in their pay.’

Content (Needs) Theory

This theory focuses on the content of motivation in the shape of needs. It provides guidance on what needs should be satisfied by the reward system if motivation is to occur. The basis of content theory is the belief that an unsatisfied need creates tension and a state of disequilibrium. To restore the balance a goal is identified that will satisfy the need, and a behaviour pathway is selected that will lead to the achievement of the goal and the satisfaction of the need. All behaviour is therefore motivated by unsatisfied needs. 

The main needs identified by these and other writers are those for achievement, recognition, responsibility, autonomy and the opportunity to develop and use skills. These have to be taken into account in deciding how people should be rewarded and also in achieving motivation through job design. But a note of caution is necessary. Content theories propose that to a large extent all people strive for the same fundamental goals. In fact, people are more varied and complex than this. Theories stating that there are strong similarities between people lead to the conclusion that there is ‘one best way’ to motivate and reward them, which is simply not true. Process theory as described below is based on more realistic, albeit more complex ideas.

Process Theory

In process theory, the focus is on the psychological processes or forces that affect motivation, as well as on basic needs. The three main theories are:

• Expectancy theory which states that motivation will be high when people know what they have to do to get a reward, expect that they will be able to get the reward and expect that the reward will be worthwhile.
• Goal theory which states that motivation and performance are higher when individuals are set specific goals, when goals are difficult but accepted, and when there is feedback on performance.
• Equity theory which states that people will be better motivated if they are treated equitably, and demotivated if they are treated inequitably. There are two forms of equity: distributive equity or distributive justice, which is concerned with the fairness with which people feel they are rewarded in accordance with their contribution and in comparison with others; and procedural equity or procedural justice, which is concerned with the perceptions employees have about the fairness with which company procedures in such areas as performance management, promotion and discipline are being operated.

The main distinction between content and process theory is that the former provides guidance on what needs should be satisfied by a reward system while the latter indicates how they should be satisfied, especially in pay schemes that are contingent on performance, contribution or skill. In their case, process theory is the most important.

Cognitive Evaluation Theory

Cognitive evaluation theory (CET) argues that placing strong emphasis on monetary rewards decreases people's interest in the work itself, thus dampening a powerful alternative source of motivation. In other words, extrinsic rewards erode intrinsic interest.

Principal Agent Theory

Principal agent theory, sometimes known as agency theory, is based on the supposition that the separation between the owners (the principals) and the agents (the managers) means that the principals may not have complete control over their agents. The latter may therefore act in ways which conflict with what the principals want. So it is desirable to provide for ‘incentive alignment’, which means paying for measurable results deemed to be in the best interests of the owners.

The Psychological Contract

A psychological contract is a set of unwritten expectations that exist between individual employees and their employers. It is concerned with: ‘The perceptions of both parties to the employment relationship of the reciprocal promises and obligations implied in that relationship’. A psychological contract is a system of beliefs that encompasses the actions employees think are expected of them and what response they expect in return from their employer, and, reciprocally, the actions employers believe are expected of them and what response they expect in return from their employees.

The concept of the psychological contract highlights the fact that employee/employer expectations take the form of unarticulated assumptions. Disappointments on the part of management as well as employees may therefore be inevitable. These disappointments can, however, be alleviated if managements appreciate that one of their key roles is to manage expectations, which means clarifying what they believe employees should achieve, the competencies they should possess and the values they should uphold. All this can be done through reward and performance management.

Achieving the Specific Aims | Reward Management

Support the Achievement of Business Goals and High Performance

Reward management supports the achievement of business goals by helping to ensure that the organization has the talented and engaged people it needs. It contributes to the achievement of high performance by ensuring that the reward system recognizes and encourages it.

Support and Develop the Organization's Culture

Reward management can support and help to change the organization's culture by:

• stressing the importance of high performance through contingent pay and performance management;
• reinforcing the behaviours required in a high-performance culture;
• emphasizing that upholding core values is a major criterion when assessing performance;
• linking rewards specifically to behaviour that is in line with core values;
• demonstrating that the organization cares about the well-being of employees through the provision of pensions and other benefits.

Define the Right Behaviours and Outcomes

Reward management can define expectations through performance management and contingent pay schemes.

Reward People According to the Value They Create and What the Organization Values

People are assessed according to the contribution they make to achieving organizational goals and rewarded accordingly. Having defined expectations, reward management can provide for people to be rewarded in line with the degree to which people meet them. Managers should be aware of the results expected from people and the behaviour needed to achieve these results and to support the organization's values. The reward system should ensure that the results and behaviour are valued and recognized.

Align Reward Practices with Employee Needs

Employees need to be paid fairly for what they do, in line with the principles of distributive and procedural justice and equity as defined above. Their needs for recognition can be directly satisfied by the reward system and a total rewards approach will enable other needs such as those for growth, responsibility and autonomy to be met. Segmentation of rewards may be appropriate to reflect the different needs of employees.

Help to Attract and Retain High-Quality People

Pay levels are important means of attracting people to organizations, although the employer's reputation and the opportunities it provides for career development and scope to use skills and abilities are also important. Decisions to remain with an organization are affected by expectations on pay growth, feelings about the fairness of the reward system and comparisons with what could be earned elsewhere. This is what labour economists call the ‘sorting effect’.

Win the Engagement of People

Employee engagement takes place when people are interested in and positive, even excited, about their jobs and are prepared to go the extra mile to get them done to the best of their ability. A total rewards system can win the engagement of people through a mix of elements tailored to meet individual needs. These elements will include financial incentives but also other forms of non-financial rewards in the form of recognition, scope for growth and job design.

Factors Influencing the Achievement of the Aims

The achievement of the aims is influenced by the context and the reward strategy as affected by the context. The aims of total reward management are also affected by the concepts of the resource-based view, human capital management, human process advantage and HR process advantage.

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.

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.

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.

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

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.