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5 Steps to Nailing Reward Strategies

Bentley Continental

1: Reward Strategy

When it comes to priorities in organisations, where does a reward strategy fit? The likely typical response is not very high due to a number of factors. This means that the resulting remuneration environment in the organization occurs organically rather than with any sense of structure, focus or connectedness with the organisations business strategy.

2: The Critical Hire

Organisational requirements can too often drive an urgent need to hire a key resource. This could be as a result of a new project, a restructure, a new competitor, a departure of an existing key resource or any other number of combinations of these elements.

Whether or not there is a suitable internal candidate, or more typically a need to hire external candidate, the type of remuneration required to attract and motivate the successful candidate will need to be carefully considered.

For the internal candidate, how much of an acceleration in pay and conditions make sense to ensure there is internal pay equity. The external candidate however, comes with both a current level of remuneration plus an expectation of a potential uplift to account for the risk/opportunity to take on a new role in a new organization.

How to meld these two potential extremes together poses a significant question to the leaders of the organization. By paying a premium to an external candidate for example may upset the status quo within similar roles in the organization leading to unrest and agitation for redress.

How does the resultant remuneration reflect and support the organisation’s strategy if there is no strategy in place?

3: The Annual Pay Review

For those organisations with a regular cycle for reviewing the remuneration of employees, both managers and employees want to know what is the right thing to do. From the manager’s perspective, they want to be able to continue to retain and motivate their key staff and to be mindful of their budgetary requirements.

The employee also wants to know what they need to do to be rewarded, what causes a change to remuneration and feel there is a rationale in support of the decisions made.

At the organizational level, there is a need to consider how the remuneration settings of the organization are positioned in the market. Further, what is the market for comparative purposes and what type of data is required inorder to ascertain the appropriate settings? It would seem that having an agreed strategy for remuneration in place would enhance the decision making for what is often a large element of discretionary expenditure in organisations.

This a very contentious area of remuneration strategy and practice for many reasons. Not least of which include the basis for any payout, who participates and why, the extent to which an incentive program makes a measurable difference to the organization’s performance, what happens if the plan fails to achieve minimum performance levels, what type of payment, cash or non cash, guarantees, the vesting of payments and so on.

Embarking on an incentive plan without a context of a remuneration strategy has the potential to have a negative impact on the organization when the opposite is the desired result.

4: Organisation Culture

Leaders of organizations spend much time and effort in communicating their vision and expectations of the staff. A remuneration strategy and its execution in practice provides the concrete examples which either support or degrade the communications efforts of the leaders. It can be said that remuneration strategy supports and reinforces the actual culture of the organization.

Differentiating between actual and desired culture may appear to be a fine distinction but it is essential in understanding what employees think and the extent to which they engage with the organization. If, for example, the organization says it values its people but the remuneration practices lead to employee disengagement, the organization is sub optimizing its potential.

5: A Remuneration Strategy

A typical definition of the word Strategy is “a plan of action designed to achieve a long-term or overall aim”. A remuneration strategy then needs to be considered over the long term and to achieve a result. The context for the remuneration strategy should be the organisation’s long term plan and should provide clear and unambiguous goals and settings.

Having an agreed strategy in place provides leaders in the organisation with a clear context to make important, potential vital decisions for remuneration practices.

A strategy needs to incorporate the business drivers, the type and mix of remuneration elements as well as the settings and methodologies required for a successful business outcome over the long term.

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