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What Are Strategic Reward and Total Reward

What Are Strategic Reward and Total Reward

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Published by Fahad Furqan

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Published by: Fahad Furqan on Jan 13, 2013
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What are strategic reward and total reward?

Strategic reward Strategic reward is based on the design and implementation of long-term reward policies and practices to closely support and advance business or organisational objectives as well as employee aspirations. Total reward The concept of total reward encompasses all aspects of work that are valued by employees, including elements such as learning and development opportunities and/or an attractive working environment, in addition to the wider pay and benefits package. Links between strategic and total reward The use of total reward may form part of a strategic approach to reward for many employers. For example, an organisation might adopt a total reward approach, encompassing the provision of both cutting edge training programmes together with flexible working options, as well as more traditional aspects of the pay and benefits package, in order to recruit, retain and motivate the high quality staff that are best placed to help it secure its business objectives. The role of strategic reward Developing a reward strategy The deployment of strategic reward approaches is often based on the setting out of a formal, written reward strategy, although it is also possible to adopt a strategic approach to reward without the use of such a document. According to our annual reward managment surveys, around one third of employers overall have a reward strategy in place.

See more in our annual reward survey reports

Content of reward strategies

he identifies four elements typically included in strategies:     a declaration of intent. While varying approaches to strategic pay exist. performance-related pay. market pricing and bonuses. examples of the type of principles that need to be considered include the following:     designing pay structures and pay progression arrangements that ensure that the business is able to recruit. pay progression. using cash bonuses or commission to drive desired business outcomes such as higher sales levels while also taking account of corporate governance standards and risk management) developing a pay policy that is competitive with the external labour market in order to recruit and retain key personnel needed to achieve business success (for instance. However. linking individual pay progression with those types of performance that are valued by the business such as customer focus) positioning variable earnings carefully against basic pay to encourage appropriate employee behaviours (for instance.‘Reward strategies are diverse and so is the structure used by different organisations to define and present them’. see our factsheets covering these topics      Go to our factsheet on Pay structures Go to our factsheet on Pay progression Go to our factsheet on Performance-related pay Go to our factsheet on Market pricing and job evaluation Go to our factsheet on Bonuses and incentives . retain and engage the staff it needs to achieve its goals (for example. or statement of proposed reward developments a rationale setting out the business case for the reward proposals a definition of guiding principles an implementation plan. ensuring that pay progression arrangements are aligned with company culture or succession planning arrangements). as observed by Armstrong1. For more information on how reward strategies can be supported by pay structures. paying certain high-performing staff at the upper quartile level when compared with the external labour market) ensuring both ‘vertical’ integration of employee reward approaches with business goals (such as developing performance-related pay arrangements to help increase revenues) as well as ‘horizontal’ integration of reward policy with wider HR policies (for example.

One recent paper by Trevor concludes that attempts to use strategic pay systems are especially problematic for ‘a frustrated and often much maligned pay function and longsuffering line management’2. These are: . However.  Go to our guide to the pay review process For more detailed information on risk management approaches to reward. rather than a strategic. What is included in total reward? The US organisation WorldatWork (formerly the American Compensation Association) has identified five separate components of the work experience in addition to pay and benefits. employers might be better-served taking a risk management. approach to reward. total reward has wide-reaching implications for employers and employees alike.Putting strategic reward into practice Although the basic concept of strategic reward – at its simplest. some commentators have highlighted difficulties in translating the theory into reality in organisational practice. the adoption of strategic and risk-based approaches to reward are not necessarily mutually exclusive. total reward is not new. As with many trends in reward management. see our report on risk and reward. using reward policy to support long-term business goals – is often taken for granted as a desirable concept. the development of formal concepts and theoretical models of total reward originally came from the USA (where the description ‘total rewards’ is generally used rather than the singular version of the term often favoured in the UK).  Go to our reward risks report Approaches to total reward By recognising that pay is not the only motivator. According to this paper. CIPD members can find further information on both approaches to managing reward in our guide to the pay review process. As a concept. and acknowledging the importance of not only tangible but also intangible rewards within the wider context of the work experience.

For instance. of the following elements as well as traditional elements of pay and benefits packages:             flexible benefits access to professional and career development a challenging role at work freedom and autonomy at work opportunity for personal growth recognition of achievements preferred office space or equipment capacity to raise matters of concern involvement in decisions that affect the way work is done flexible working hours opportunities for working from home secretarial support. some commentators use the term primarily to ensure a focus the value of pensions (in addition to basic pay) as part of the overall remuneration package. or all. In more detail. they have often been taken for granted and thus not actively managed. This is important since experience shows that employees place great emphasis on intangible rewards when deciding where to work and the level of commitment to give to their work. total reward may include some. Under a total reward policy. though.     recognition work/life balance company culture employee development environment. that the term total reward is also occasionally used in a more limited way simply to refer to the benefits package beyond basic pay. all aspects of the work experience are recognised and prominence is given not only to remuneration but also to less tangible rewards. Although these elements have always existed in the workplace. including job design and the physical workspace. It is worth noting. Characteristics An analysis of various total reward models by Thompson3 finds that they can be characterised by an approach that is: .

retention and . Integrative: it delivers innovative rewards that are integrated with other human resource management policies and practices. Best fit: it adopts a contingency approach – total reward programmes need to be tailored to the organisation's own particular culture. among the public sector pay review bodies (which recommend pay rises for several groups such as medical staff. such as high-quality pensions and work-life balance provisions. there has in recent years been a particular focus on the non-basic pay advantages of working in the sector. Customised: it identifies a flexible mix of rewards that offers choice and is better designed to meet employees' needs. their lifestyle and stage of life. Coverage While private sector employers have tended to be at the forefront of the formal development and adoption of total reward policies. they [have] a direct relevance to recruitment. retain and engage employees to contribute to organisational success using an array of financial and non-financial rewards. To take one example of heightened interest in total reward in the public sector. teachers and defence workers). o See our report Employer branding and total reward Evolutionary: it is a long-term approach based on incremental rather than on radical change. there is growing interest in the approach among public sector organisations. Strategic: it aligns all aspects of reward to business strategy – total reward is driven by business needs and rewards the business activities.        Holistic: it focuses on how employers attract. employee behaviour and values that support strategic goals and objectives. work process and business objectives. Distinctive: it uses a complex and diverse set of rewards to create a powerful and idiosyncratic employer brand that serves to differentiate the organisation from its rivals. structure. 'While pensions and total reward [are] not specifically mentioned in review body remits. with relatively little variation currently recorded in the coverage of total reward approaches between private and public employers. People-centred: it recognises that people are a key source of sustainable competitive advantage and begins by focusing on what employees value in the total work environment.

Total reward has a particularly strong potential to enhance the reputation of an organisation as an employer of choice through its capacity to place a value on the non-basic pay or wider non-financial benefits of working for an organisation. it would often be very difficult to meet everyone’s requirements. which can be very substantial for an employer.motivation'. for example. In respect of the working environment. with employers expressing concern at how well they have integrated the behaviour of these staff within a total reward approach. moreover. Employers frequently provide individual employees with total reward statements (either print versions or online) that emphasise the value not only of basic pay but also the wider benefits package and potentially other congenial aspects of employment in a particular company. retention and performance levels. as well as being important in the considerations of broad pay comparability with the private sector4. In such cases. An area of concern revealed by the research is line manager behaviour. the aims of total reward include the desire to enhance recruitment. . over flexible working) the approach is likely to fail. many employees might prefer a desk located by a window – but office accommodation is a finite and not particularly flexible resource. Clearly. Advantages and drawbacks of total reward Advantages In common with many reward policies. if line managers do not support the organisation’s commitment to total reward (for example. some rewards that might be included in a total reward package are more easily provided than others. in the view of one commentator from the Office of Manpower Economics. Yet. Hence the use of total reward is often closely associated with the desire to communicate to employees the value of their employment package. Drawbacks Research from our reward management surveys indicates that employers believe they are better at integrating financial aspects (pay and benefits) into a total reward approach than the non-financial aspects. Many employees have traditionally been unaware of the costs to the employer of benefits such as pensions.

Total reward has wide-reaching implications for cultural change in organisations as it can focus in part on employee empowerment rather than employer command management.One other difficulty in developing a total reward package. beyond the challenge of supplying certain rewards. This should not. is attempting to measure or weigh their value against one another – particularly if the aim is to include a numerical or tangible value in total reward statements distributed to employees. it can be difficult to translate the approaches into practice or to quantify their impact on individual or organisational performance. CIPD viewpoint Strategic reward is potentially very powerful in helping employers align their reward approach with HR and business strategies as well as employee needs in order to improve organisational performance. prevent further exploration of the ideas behind such approaches. however. Both strategic and total reward approaches have the potential to be very powerful management tools and change catalysts. with a view to implementing at least some of their principles when possible. While both strategic and total reward are fundamentally simple concepts. .

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