CHAPTER 4

Strategic Rewards
 Strategic Reward Management is the process of planning the future development
of reward practices through the development and implementation of reward
strategies that are based on a reward philosophy and incorporate the concept of
total rewards.

 Strategic reward management is an approach to development and

implementations of reward strategies and guiding principles that underpin them.

 According to Armstrong & Brown, it provides answers to 2 basic questions:

 Where do we want our reward practice to be in future

 How do we intend to get there
 Strategic reward is 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.
 As Duncan Brown emphasizes, the ‘alignment of your reward
practices with employee values and needs is every bit as
important as alignment with business goals and critical to the
realization of the latter.’
Rationale of Strategic Rewards
 Duncan Brown suggested SR “is ultimately a way of thinking that you
can apply to any reward issue arising in the organization, to see how
one create value from it”
 The arguments for adopting a strategic approach to reward management
are:
 You must have some idea where you are going in order to know how

to get there.
 A strategic reward framework enables reward processes to be aligned

to HR processes so that they are coherent and mutually supportive.

 There is a positive relationship between rewards, in the broadest sense,

and performance.
 Pay costs in most organizations are by far the largest item of expense

so it makes sense to think about how they should be managed and

invested in the longer term.
 Characteristics of strategic reward
 Strategic reward is a forward-looking approach to reward management
that is characterized by an emphasis on the vertical integration of the
reward strategy with the business strategy and the horizontal integration
of reward management processes with other key HR activities.

 Strategic reward management can be described as an attitude of mind – a

belief in the need to plan ahead and make the plans happen.

 An important characteristic of strategic reward is that it is systematic in

the sense that it is based on analyses of the organization’s internal and
external environment, its business needs and the needs of its
stakeholders.
 Reward philosophy
 Strategic reward management is based on a well-articulated
philosophy – a set of beliefs expressed through guiding
principles that are consistent with the values of the organization
and help to enact them.

 These include beliefs in the need to operate in accordance with

the principles of distributive and procedural justice.
 The philosophy recognizes that reward management is key
factor in establishing a positive employment relationship, one in
which there is mutually- the state that exist when management
and employees are interdependent and both benefit from their
interdependency.
Guiding principles
 A reward philosophy can be expressed through a set of guiding
principles that define the approach an organization takes to
dealing with reward.

 They are the basis for reward policies and provide guidelines for
the actions contained in the reward strategy.

 Importantly, they can be used to communicate to employees how

the reward system operates and takes into account their interests
as well as those of the business.
 They are concerned with matters like

1. Operating the reward system justly, fairly, equitably and transparently in

interest of stake holders
2. Developing reward policies and practices that support achievement of
business goals
3. Rewarding people according to their contribution
4. Recognizing the values of everyone who is making an effective
contribution, not just the exceptional performers
5. Creating an attractive employee value proposition
6. Providing rewards that attract and retain people and enlist their
engagement
7. Helping to develop a high performance culture
8. Maintaining competitive rates of pay
9. Maintaining equitable rates of pay
10. Developing more responsibility for reward decisions to line managers
 Reward Strategy
 Reward strategy provides business and people-focused descriptions of what the
organization wants to do about reward in the next few years and how it intends to
do it.
 They generally start with review of the current reward arrangement and situation,
then a definition of the desired future state, and the development of reward
initiatives and activities to close the gap between the two.
 Aim of reward strategy
 The aim of reward strategy is to provide the organization with a sense of purpose
and direction in delivering reward programmes that support the achievement of
business goals and meet the needs of stakeholders.
 Two primary aims:
 To articulate a distinctive value proposition that attracts and retain the right people
for business.
 Provide frame work from which the company design, administrates and evaluates
effective reward programme.
The content of reward strategy

 All reward strategies are different just as all organizations are different.
 The reality of reward strategy is that it is not such a clear-cut process as
some believe. It evolves, it changes and it has sometimes to be reactive
rather than proactive.
 Reward strategy often has to be a balancing act because of potentially
conflicting goals.
 An overall reward strategy may cover all aspects of rewards – valuing
roles, the design of grade and pay structures, contingent pay, non-
financial recognition, and pensions and benefits, including flexible
benefits. Alternatively, the strategy may be concerned only with
implementing total rewards.
Overall strategy
 An overall strategy covers all aspects of rewards-
valuing roles, the design of grades and pay
structures, contingent pay, non-financial
recognition and pension and benefits including
flexible benefits.
 The aim would be to develop a substantially
revised reward system.
 Specific reward strategies
 Specific reward strategies are more closely focused on one issue such as
introducing contribution-related pay, or two or three linked issues that
can be dealt with in a single programme, often over a limited timescale
to respond to pressing needs.
Such issues includes:
 Placing reward in a program for developing a high- performance work system.
 Introducing revised job evaluation schemes.
 Conducting program for equal pay.
 Developing new pay structures and new grades.
 Introducing revised contingent pay schemes.
 Replacing traditional performance appraisal to performance management
process.
 Introducing flexible benefits.
 The structure of reward strategies

 Reward strategies are diverse and so is the structure used by different

organizations to define and present them. Some reward strategies are
more complex than others but in one form or other their structure will
contain:

 a declaration of intent – proposed reward developments

 a rationale – criteria behind the reward system
 a definition of guiding principles – the values that should be adopted in
formulating and implementing the system
 a plan – how, when and by whom the reward initiatives will be implemented
 Criteria for an effective reward strategy

 It supports the achievement of business goals.

 It takes account of the needs of employees as well as those of the

organization and its other stakeholders.
 It is founded on detailed analysis and study, not just wishful thinking.
 It has clearly defined and achievable objectives.
 It can be turned into actionable programmes that anticipate
implementation requirements and problems.
 It is coherent and integrated, being composed of components that fit
with and support each other.
 It provides a framework within which consistent reward decisions can
be made.
Developing reward strategy
 The formulation of reward strategy is best described as
a process for developing a sense of direction, making
the best use of resources and ensuring strategic fit.
 Limitation of the formal approach to developing
reward.
 Its about evolution not revolution
 Focus on the context
 Manage the balance
 Keep it simple
 Think implementation
 Achieve vertical and horizontal integration.
DEVELOPING AND INTEGRATED REWARD STRATEGY

BUSINESS STRATEGY

Continuous Operational Market Cost

Innovation improvement effectiveness development control

HR STRATEGY

Resourcing/talent management Performance

management
Total reward Learning and development
Work
Employee relations
environment
INTEGRATED STRATEGIC REWARD AT GLAXOSMITHKLINE

Business strategy
• To be the indisputable leader in the pharmaceutical industry
• Portfolio – build the best pipeline (the time it takes to bring a
drug to market).
• Product commercialization – developing products from a
‘molecule’ into a blockbuster drug.
• Global competitor – having a global mindset where
appropriate.
• Operational excellence – to be the best-managed
organization. Processes should be slick, smooth and efficient.

HR strategy Reward strategy

• Stress pay for performance.
• Increase the proportion of pay
We want GSK to be a place where at risk.
• Emphasize total reward –
the best people do their best work.
total cash, life style benefits, and
savings choices.
 INTEGRATED STRATEGIC REWARD AT LANDS’ END

Business strategy
• Enhance the brand – drive sales through stronger
alignment of merchandizing, creative and marketing.
• Put the customer first.
• Execute focused strategies – source better quality products
for the best value.
• Be a great place to work.
• Entrepreneurial growth through new business development.

HR strategy Reward strategy

Based on the principle that staff who are
enjoying themselves, are being supported
and developed, and who feel fulfilled and
respected at work, will provide the best
service to customers.
• Based on total rewards rather than just pay.
• Focus on physical, emotional, intellectual,
social, spiritual and occupational rewards that
represent different aspects of the whole person.
• Seven key strands: financial rewards, career
development, pride, appreciation, make work
challenging and fun, good leader relations,
involvement.
 REWARD GUIDING PRINCIPLES: TESCO

 We will provide an innovative reward package that is valued by our

staff and communicated brilliantly to reinforce the benefits of working
for Tesco.
 Reward investment will be linked to company performance so that
staff share in the success they create and, by going the extra mile,
receive above average reward compared to local competitors.
 All parts of the total reward investment will add value to the business
and reinforce our core purpose, goals and values.
 Implementing reward strategy

 The aim of implementation is to make the reward strategy an operating

reality by building the capacity of the organization to put into practice the
proposals worked out in the development stage.
 Issues and problems of reward strategy implementation. Problems are
caused by poor project management, inadequate attention to managing
change and neglecting to ensure that the supporting processes, such as
performance management are in place. Failure to achieve acceptance and
understanding of the strategy and commitment to it.
 Implementing worthwhile, realistic and achievable strategies:
Thank you