Reward management is about the design, implementation, maintenance, communication and evolution of reward processes which help organizations to improve performance and achieve their objectives.
Reward processes are based on reward philosophies and strategies and contain arrangements in the shape of policies and strategies and contain arrangements in the shape of policies, guiding principles, practices, structures and procedures which are devised and managed to provide and maintain appropriate types and levels of pay, benefits and other forms of reward. This constitutes the financial reward aspect of the process which incorporates processes and procedures for tracking market rates, measuring job values, designing and maintaining pay structures, paying for performance, competence and skill, and providing employee benefits. However, reward management is not just about money. It is also concerned with those non-financial rewards which provide intrinsic or extrinsic motivation.
The key issues facing reward management are:
- How to ensure that reward management strategies support the achievement of the organization’s business strategies and satisfy the needs and aspirations of employees for security, stability and career development?
- How to achieve internal equity and external competitiveness?
- How to respond to a fragmenting pay market and maintain a reasonably coherent pay structure?
- How to concentrate on rewarding for output and maintain, indeed enhance quality standards?
- How can we reward individual performance and contribution and promote teamwork?
- How to introduce sophisticated performance management process and ensure that
- managers are committed and have the skills required to get the best out of them?
- How can we give high rewards to high achievers and motivate the core of the employees upon whom we ultimately have to rely?
- How to achieve consistency in managing reward processes and provide for the flexibility needed in ever-changing circumstances?
- How can we devolve power to the line managers to manage their own reward processes and retain sufficient control to ensure that corporate policies are implemented?
- How to continue to provide motivation for those who have reached the top of their pay range and maintain the integrity of the grading system and contain costs?
- How to introduce more powerful pay-for-performance schemes and ensure to get value of money from them?
- How to deliver the message that improved performance brings increased reward and cap bonus earnings to cater for windfall situations or a particularly loose incentive scheme?
- How to operate enterprise-wide bonus scheme and ensure that they increase motivation and commitment?
- How to reward people for their outputs and their inputs?
- How to operate job evaluation schemes as a means of allocating and controlling gradings in a formal hierarchy and cater for the role flexibility which is increasingly required in the organization?
Key Reward Management Trends
Following are the key reward management trend in today’s scenario.
- Greater sensitivity to sector and functional market practice to enable more effective market positioning to help with attracting and retaining high caliber employees.
- The implementation of increasingly focused performance awards starting at the top and working down through organizations as performance orientation increases.
- Pay increases linked to market worth and individual or team performance-not service and/or cost of living.
- More attention given to achievement or success-oriented individual bonuses rather than payment increases in base pay.
- A move towards team pay as the importance of teamwork increases.
- More flexible pay structures based on job families and using broader pay bands or pay curves.
- More integrated pay structures covering all categories of employees.
- A growing linkage between pay practice and training and development initiatives through the design and implementation of skills and competency based pay processes which reward the acquisition and use of new skills and behaviors.
- The development of integrated performance management systems with the emphasis on coaching development, motivation and recognition through the identification of opportunities to succeed.
- A search for simpler and more flexible approaches to job evaluation which enable a move away from the control of uniformity to the management of diversity. This will make use of techniques such as job family modeling and computer assisted job evaluation.
- Increased awareness of the need to treat job measurement as a process for managing relativities which, as necessary, has to adapt to new organizational environments and much greater role flexibility and can no longer be applied rigidly as a system for preserving existing hierarchies.
- More emphasis on the choice of benefits and ‘clean cash’ rather than a multiplicity of perquisites.
- Greater creativity and sensitivity in benefit practice.
Purpose and Aim
The purpose of a pay structure is to provide a fair and consistent basis for motivating and rewarding employees.
The aim is to further the objectives of the organization by having a logically designed framework within which internally equitable and extremely competitive reward policies can be implemented, although the difficulty of reconciling often conflicting requirements for equity and competitiveness has to be recognized.
The structure should help in the management of relativities and enable the organization to recognize and reward people appropriately according to their job role size, performance, contribution, skill and competence. It should be possible to communicate with the aid of the structure the pay opportunities available to all employees.
The pay structure should also help the organization to control the implementation of pay policies and budgets.
Criteria for Pay Structures
Pay structure should:
- Be appropriate to the characteristic and needs of the organization: its culture, size and complexity, the degree to which it is subjected to change and the type and level of the people employed.
- Be flexible in response to internal and external pressures, especially those related to market rates and skills shortages.
- Facilitate operational and role flexibility so that employees can be moved around the organization between jobs of slightly different sizes without the need to reflect that size variation by changing rates of pay.
- Give scope for rewarding high level performance and significant contributions while still providing appropriate rewards and recognition for the effective and reliable core employees who form majority in most organizations.
- Facilitate rewards for performance and achievement.
- Help to ensure that consistent decisions are made on pay in relation to job size, contribution, skill and competence.
- Clarify pay opportunities, development pathways and career ladders.
- Be constructed logically and clearly so that the basis upon which they operate can readily be communicated to employees.
- Enable the organization to exercise control over the implementation of pay policies and budgets.
Reward management has an important part to play in the development of cultures in which individuals and teams take responsibility for continuous improvement. It affects organizational performance because of the impact it has on people’s expectations as to how they will be rewarded
Organization must reward employees because in return, they are looking for certain kind of behavior; they need competent individuals who agree to work with a high level of performance and loyalty. Individual employees, in return for their commitment, expect certain extrinsic rewards in the form of salary, promotion, fringe benefits, perquisites, bonuses or stock options. Individuals also seek intrinsic rewards such as feelings of competence, achievement, responsibility, significance, influence, personal growth, and meaningful contribution. Employees judge the adequacy of their exchange with the organization by assessing both set of rewards.