1
What is strategic reward?
2
What is the main characteristic of strategic reward?
3
What are the limitations to the concept of
strategic reward?
4
What is reward strategy?
5
What are the main objectives of reward strategy?
6
What are the main arguments in favour of
having a reward strategy?
7
What are the principal areas covered by
a reward strategy?
8
What is reward philosophy?
9
What is the typical approach to formulating
reward strategy?
10
What are the main problems organizations
meet in implementing reward strategy and
how can they be overcome?
Questions
Part
6
Performance and Reward
368
Armstrong, M and Brown, D (2006) Strategic
Reward: Making it happen, London,
Kogan Page
Armstrong, M and Murlis, H (2007) Reward
Management, revised 5th edn, London,
Kogan Page
Lawler, E E (1990) Strategic Pay, San Francisco, CA,
Jossey-Bass
Schuster, J R and Zingheim, P K (1992) The New Pay,
New York, Lexington Books
Thompson, M (1998) Trust and reward, in (eds)
S Perkins and St J Sandringham, Trust, Motivation
and Commitment: A reader, Faringdon, Strategic
Remuneration Research Centre
Trevor, J (2011) Can Pay be Strategic?, Basingstoke,
Palgrave Macmillan
References
27
The practice of
reward management
Key ConCePts and terms
Analytical job matching
Anchor point
Base pay
Base pay management
Broad-banded pay structure
Broad-graded pay structure
Career family pay structure
Compa-ratio
Competency-related pay
Contingent pay
Contribution-related pay
Distributive justice
Evidence-based management
Evidence-based reward
management
Extreme market pricing
Factor plan
Financial rewards
Grade
Grade drift
Incentive effect
Job evaluation
Job family pay structure
Job matching
Job size
Job worth
Job-based pay
Line of sight
Lower quartile
Market pricing
Market rate
Median
Merit pay
Mid-point management
Narrow-graded pay structure
Non-financial rewards
Pay progression
Pay range
Pay spine
Pay stance
Payment-by-results
Performance-related pay
Person-based pay
Point-factor job evaluation
Reference point
Remuneration
Reward management
Reward system
Skill-based pay
Sorting effect
Spot rate
Target rate
Time-based pay
Upper quartile
LearnIng outComes
On completing this chapter you should be able to define these key concepts. You should also understand:
●
The meaning and aims of
reward management
●
Pay determination
●
Job evaluation
●
Market pricing
●
Base pay management
●
Contingent pay
●
Recognition schemes
●
Employee benefits
●
The evaluation of reward
systems
●
The administration of reward
369
Part
6
Performance and Reward
370
Introduction
The aim of this chapter is to describe how reward
management works in practice. It starts with defini-
tions of what reward management is and what it
aims to do. The following components of the reward
system are then dealt with – pay determination
through market pricing and job evaluation, base
pay management, contingent pay, recognition, and
the provision of employee benefits and pensions.
This chapter continues with two sections dealing
respectively with the evaluation and management
of reward.
Reward management
defined
Reward management is concerned with the strate-
gies, policies and practices required to ensure that
the value of people and the contribution they make
to achieving organizational, departmental and team
goals is recognized and rewarded. It is about the
design, implementation and maintenance of reward
systems that aim to satisfy the needs of both the
organization and its stakeholders and to operate
fairly, equitably and consistently.
Reward management deals with non-financial
rewards such as recognition, learning and develop-
ment opportunities and increased job responsibility,
as well as financial rewards.
Aims of reward management
As Ghoshal and Bartlett (1995) pointed out, reward
management is there to add value to people. It is not
just about attaching value to them. Its aims are to:
●
Reward people according to the value
they create by providing for them to be
recognized and paid in accordance with
the degree to which they meet or exceed
expectations.
●
Support the achievement of business goals
by helping to ensure that the organization
has the talented and engaged people it
needs.
●
Promote high performance by ensuring
that the reward system recognizes and
encourages it.
●
Support and develop the organization’s
culture by linking rewards to behaviour
that is in line with core values.
●
Define the right behaviours and outcomes by
defining expectations through performance
management and merit pay schemes.
Pay determination
Pay determination is the process of deciding on the
level of pay for jobs or people. Its two aims, which
often conflict, are: 1) to be externally competitive to
attract, engage and retain the people required by the
organization; and 2) to be internally equitable in
the sense that rates of pay correctly reflect the rela-
tivities between jobs. These aims are achieved re-
spectively by market pricing and job evaluation.
Competitive pay
Pay is by no means the only factor that influences
people to join or remain with an organization, but
it is important. The most significant influence on
pay levels is the law of supply and demand. If the
demand for labour exceeds supply, pay levels will be
higher and vice versa. Organizations pay more to
attract and retain high-quality employees in critical
positions.
The need to be competitive means that organiza-
tions have to take account of market rates when
deciding on the level of pay for a job. They bear in
mind the saying: ‘A job is worth what the market
says it’s worth.’ Consequently, establishing market
rates through what is termed ‘market pricing’, as
described in the next section of this chapter, is a vital
step in deciding on levels of pay.
Internally equitable pay
Internally equitable pay is fair pay. This means pro-
viding equal pay for work of equal value as required
by the Equality Act (2010) and supporting case law,
and ensuring that the rates of pay for jobs at differ-
ent levels properly reflect relative values. Internal
Chapter
27
The Practice of Reward Management
371
by job titles to detailed matched analysis collected
through bespoke surveys focused on real market
equivalence. Extreme market pricing can provide
guidance on internal relativities. But it can lead to
pay discrimination against women, where the
market has traditionally been discriminatory, and
it does not satisfy UK equal pay legislation.
The concept of a market rate
Market pricing attempts to establish the market
rate for jobs, but the notion of a market rate is a
more elusive concept than it seems. There is no such
thing as a definitive market rate for any job, even
when comparing identically sized organizations in
the same industry and location. Different market
information sources for the same types of jobs pro-
duce different results because of variations in the
sample, the difficulty of obtaining precise matches
between jobs in the organization and jobs elsewhere
(job matching), and timing (the dates on which the
data is collected may differ).
This means that market rate analysis is most
unlikely to produce definite information on the rate
for the job. The possibly incomplete data from a
number of sources, some more reliable than others,
has to be interpreted to indicate what the organiza-
tion should do about it. This may be expressed as
a ‘derived market rate’, which is a sort of average of
a range of pay information – a dubious notion.
Data may be available for some jobs but not for
others that are unique to the organization.
Market rate analysis
Market rate analysis involves the following steps:
●
Identify and define the jobs for which
market rate data is required. These are
benchmark jobs that are representative of
different levels and occupations and can be
compared with similar jobs. In conducting
the survey the aim will be to ‘match’ these
jobs as closely as possible with jobs
elsewhere.
●
Identify the sources of information. These
can include published surveys conducted
by a pay consultancy or research
organization, surveys conducted specially
by the organization, ‘pay clubs’ (groups of
relativities are established by job evaluation. But
there is a tension between external competitiveness
and internal equity. Some adopt the slogan, ‘the
market rules ok’ – internal equity considerations
are secondary. But if this policy is pursued too
vigorously there is a risk of alienating existing em-
ployees and contravening the provisions of equal
pay legislation. This risk should be assessed.
Market pricing
Market pricing is the process of making decisions
on pay structures and individual rates of pay and
obtaining information on market rates (market rate
analysis). A policy decision is required on the rela-
tionship between market rate levels and levels of
pay within the organization. This is called the ‘pay
stance’, which may be expressed in such terms as
matching median (average) rates or paying upper
quartile rates (loosely, within the top 25 per cent).
Use of market pricing
Market pricing informs decisions on base rates of
pay, ie, the amount of pay that constitutes the basic
rate for the job or the person. The aim is to ensure
that the rates are competitive. It helps to develop
the pay structure – the pay ranges attached to grades.
Information on market rates may lead to the intro-
duction of market supplements for individual jobs
or the creation of separate pay structures (market
groups) to cater for particular market rate pressures.
It is referred to as ‘extreme market pricing’ when
market rates are the sole means of deciding on in-
ternal rates of pay and relativities, and conventional
job evaluation is not used. An organization that
adopts this method is said to be ‘market-driven’.
Market pricing may be associated with formal job
evaluation, which establishes internal relativities
and the grade structure.
Acceptability of market pricing
The acceptability of either form of market pricing is
dependent on the availability of robust market data
and, when looking at external rates, the quality of
the job-to-job matching process, ie comparing like
with like. It can therefore vary from analysis of data
Do'stlaringiz bilan baham: |