Reward Management Unit 4

8/6/2019 Reward Management Unit 4

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4

Reward PoliciesReward policies provide guidelines for the implementation of reward

strategies and the design and management of reward processes. They will be

influenced strongly by the guiding principles and reward philosophy of the

organization. The reward policies will be concerned with:

the level of rewards; the relative importance attached to market rates and equity; attraction and retention; the relationship of rewards to business performance; total reward policy;

the scope for the use of contingent rewards related toperformance, competence, contribution or skill;

assimilation policies; the degree of flexibility required; the role of line managers;

the need to involve employees in the design of the rewardsystem; the need to communicate reward policies to employees; transparency the publication of information on rewardstructures and processes to employees.

LEVEL OF REWARDS

The policy on the level of rewards indicates whether the company is a high

payer, is content to pay median or average rates of pay or even,

exceptionally, accepts that it has to pay below the average. Pay policy,

which is sometimes referred to as the pay stance or pay posture of a

organization, will depend on a number of factors. These include the extent to

which the organization demands high levels of performance from its

employees, the degree to which there is competition for good- quality

people, the traditional stance of the company, the organization culture, and

whether or not it can or should afford to be a high payer. A firm may say


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We will pay upper-quartile salaries because we want our staff to be upper-

quartile performers.

Polici

es onpay


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levelswill

also


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referto

differ


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entialsand

the


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number of

steps


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orgrades

that


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should exist

in the


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payhierar

chy.


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Thiswill

be


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influenced

by the


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structure of

the


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company.

In


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todays

flatter


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organization

s an


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extended or

compl


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ex payhierar

chy


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ed onthe

groun


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ds thatit does

not


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reflectthe

way


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inwhich

work


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isorgani

zed


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andwill

constr


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ainflexibi

lity.


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Polici

es on

the


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level

of

rewar


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ds

shoul

d also


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cover

emplo

yee


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benefi

ts

pensi


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ons,

sick

pay,


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health

care,

holida


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ys

and

perks


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such

as

comp


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any

cars.


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MA

RK


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ET

RA


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TE

AN


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D

EQ


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UIT

Y


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A

policy

needs


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to be

formu

lated


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on the

extent

to


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which

rewar

ds are


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marke

t

drive


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n

rather

than


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equita

ble.

This


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policy

will

be


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influe

nced

by the


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cultur

e and

rewar


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d

philos

ophie


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s of

the

organ


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izatio

n and

the


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press

ures

on the


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busin

ess to

obtain


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and

keep

high-


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qualit

y

staff.


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Any

organ

izatio


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ns

that

have


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to

attract

and


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retain

staff

who


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are

much

in


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dema

nd

and


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where

marke

t rates


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are

theref

ore


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high

may,

to a


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degre

e,

have


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to

sacrifi

ce


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their

ideals

(if


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they

have

them)


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of

intern

al


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equity

to the

realis


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m of

the

marke


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t

place.

They


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will

provi

de


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mark

et

pay;


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in

other

words


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, they

will

be


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mark

et

drive


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n.

The

pay


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mana

geme

nt


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proce

ss

must


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cope

as

best it


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can

when

the


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irresis

tible

force


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of

marke

t


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press

ures

meets


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the

immo

vable


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object

of

intern


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al

equity

.


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There

will

alway


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s be

some

degre


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e of

tensio

n in


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these

circu

mstan


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ces

and,

while


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no

soluti

on


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will

ever

be


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simpl

e or

entire


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ly

satisf

actory


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, there

is one

basic


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princi

ple

that


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can

enhan

ce the


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likeli

hood

of


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succe

ss.

That


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princi

ple is

to


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make

explic

it and


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fully

identi

fiable


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the

comp

romis


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es

with

intern


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al

equity

that


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are

made

and


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have

to be

made


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in

respo

nse to


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marke

t


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press

ures.


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The

policy

may


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indica

te that

marke


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t

consi

derati


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ons

will

drive


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levels

of pay

in the


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organ

izatio

n. It


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may,

howe

ver,


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allow

for

the


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use of

marke

t


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suppl

ement

s


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additi

onal

paym


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ents

to the

rate


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for a

job as

deter


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mined

by job

evalu


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ation

(inter

nal


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equity

),

which


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reflec

t

marke


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t

rates.

The


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policy

may

lay


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down

that

these


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paym

ents

shoul


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d be

revie

wed


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regula

rly

and


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no

longe

r


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offere

d if

they


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are

unnec

essary


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.

Mark

et


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suppl

ement

s for


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those

who

have


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them

may

not be


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withd

rawn

(they


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would

not

lose


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pay),

but

adjust


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ments

may

be


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made

to pay

progr


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ession

to

bring


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their

rates

more


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into

line

with


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those

for

comp


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arable

jobs.

Mark


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et pay

and

marke


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t

suppl

ement


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s can

lead

to


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gende

r

inequ


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alities

if, as

is


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often

the

case,


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men

in

comp


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arable

jobs

are


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paid

more

gener


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ously

or

more


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men

get

marke


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t

suppl

ement


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s than

wome

n.


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Equal

pay

case


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law

(see

Chapt


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er 11)

has

ruled


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that

marke

t pay


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and

marke

t


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suppl

ementshould be objectively justified and the requirement to do this

should be included in the pay policy.

ATTRACTION AND RETENTION

Market pay and market supplements are the first resort of firms wishing to

attract and retain high-quality people. Golden hellos and golden

handcuffs (recruitment and retention bonuses) may be used for this purpose.

But there is more to attracting and retaining people than simply throwingmoney at them. A total reward policy as described in Chapter 2 is required.

Attraction policies

The overall policy should be to become an employer of choice. More

specifically, an attraction strategy will need to be based on a competitive


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remuneration package (possibly including golden hellos). In addition, the

policy should be to adopt a targeted approach. This means analysing the

factors for specific occupations or categories of employees that are likely to

affect their decision to apply for jobs and to accept them when offered

because they potentially offer higher rewards in the broadest sense than

those they are getting at present or could obtain elsewhere. These factors

could include career prospects, training and development opportunities, the

intrinsic interest of the work, flexible working arrangements and other

work/life balance policies and, especially for research workers, the facilities

available to them and the scope to enhance their reputation.

Retention policies

Retention policies take into account the particular retention issues the

organization is facing and sets out ways in which these issues can be dealtwith. This may mean accepting the reality, as mentioned by Capelli,1 that themarket, not the company, will

ultimately determine the movement of employees. Capelli believes that it may

be difficult to counter the pull of the market you cant shield your people

from attractive opportunities and aggressive recruiters and suggests that:

The old goal of HR management to minimize overall employee turnover

needs to be replaced by a new goal: to influence who leaves and when. This,

as proposed by Bevan, Barber and Robinson,2 could be based on risk analysis

to quantify the seriousness of losing key people or of key posts becomingvacant.

Talent management policies

The overall approach to the attraction and retention of good-quality people can be

described as talent management, which goes far beyond crude attempts to curethe problem with money. Talent management is the process of winning the war

for talent by ensuring that the organization attracts, retains, motivates and

develops the talented people it needs. There is nothing new about the various

processes that add up to talent management. What is different is the developmentof a more coherent view as to how these processes should mesh together with an

overall objective to acquire and nurture talent wherever it is and wherever it isneeded by using a number of interdependent policies and practices. Talent

management is the notion of bundling, ie linking HR policies and practices

together so that they are mutually supportive, in action. It should not, however, be

assumed that talent management is only concerned with key people the high

flyers. Everyone in an organization has talent, and talent management processes


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should not be limited to the favoured few, although they are likely to focus most

on those with scarce skills and high potential.

The key talent management processes are:

developing the organization as an employer of choice a

great place to work; using selection and recruitment procedures that ensure that

good-quality people are recruited who are likely to thrive in the organization

and stay with it for a reasonable length of time (but not necessarily for life);

designing jobs and developing roles that give peopleopportunities to apply and grow their skills and provide them

with autonomy, interest and challenge;

providing talented staff with opportunities for careerdevelopment and growth;

creating a working environment in which work processes andfacilities enable rewarding (in the broadest sense) jobs and

roles to be designed and developed;

providing scope for achieving a reasonable balance betweenworking

in the organization and life outside work; developing apositive psychological contract; developing the leadership

qualities of line managers; recognizing those with talent byrewarding excellence, enterprise

and achievement; conducting talentaudits that identify those with potential

and those who might leave the

organization.

RELATING REWARDS TO BUSINESS

PERFORMANCEThis aspect of reward policy refers to the link between business performance

and pay. It will cover the extent to which pay will vary according to results.

Ability to pay and value for money will also be important considerations.

The policy will include guidelines on how gainsharing or profit-sharing

schemes should operate (see Chapters 25 and 26).


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TOTAL REWARD

The total reward policy should state that although contingent rewards play

an important part in the reward policies of the organization other forms of

non-financial reward are regarded as being equally important.

CONTINGENT REWARDS

The policy will need to determine whether or not the organization wants to

pay for performance, competence, contribution or skill and, if so, how much

and under what circumstances. There may, for example, be a policy that

bonuses should be paid for exceptional performance but that, to be

significant, they should not be less than, say, 10 per cent of basic pay, while

their upper limit should be restricted to 30 per cent or so of base pay. Thepolicy may also indicate the approach to be used in relating pay to

individual, team or organizational performance.

ASSIMILATION POLICIES

The introduction of a new or considerably revised pay structure means that

policies have to be developed on how existing employees should be

assimilated into it. These policies cover where they should be placed in their

new grades and what happens to them if their new grade and pay range

means that their existing rate is above or below the new scale for their job.The policy should therefore cover red-circling (identifying and dealing

with overpaid people) and green-circling (identifying and dealing with

underpaid people). In the case of red-circled staff, protection policies may

have to be formulated to safeguard their

existing rates of pay. In the case of green-circled staff, the policy may have

to determine when (not if) their pay should be increased to fit into the new

scale. It is sometimes necessary to save costs by phasing the increase and

this should be included as a possible policy. Assimilation policies are dealtwith in greater detail in Chapter 17.

FLEXIBILITY

Reward policies have to take into account the extent to which reward

processes should operate flexibly in response to fast- changing conditions,


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the adoption of a less rigid organization structure and approach to

management, and changes or variations in the needs of the company or its

employees. A particular aspect of this policy will be the extent to which the

organization wants to introduce flexible benefits (see Chapter 32).

THE ROLE OF LINE MANAGERS

Line managers play a crucial role in administering rewards, and the policy

should recognize this. The extent to which the responsibility for rewards

should be devolved to line managers is a policy decision. The aim may be to

devolve it as far as possible, bearing in mind the need to ensure that other

reward policy guidelines are followed and that consistent decisions are made

across the organization by line managers. The policy may cover the level of

decisions managers can make, the guidance that should be made available to

them and how consistency will be achieved. The training and ongoingsupport that line managers require to exercise judgements on reward and to

conduct performance management reviews could also be covered by the

policy.

INVOLVING EMPLOYEES

Reward policies and practices are more likely to be accepted and understood

and, therefore, more effective if employees are given a voice in the design

and management of reward processes. This particularly applies to jobevaluation and methods of measuring and assessing performance and

relating rewards to that performance (performance management and paying

for performance or contribution processes).

COMMUNICATING TO EMPLOYEES

Reward processes are powerful media for conveying messages to employees

about the organizations values and the contribution they are expected to

make in upholding those values and

achieving the organizations goals. They should not, however, be left to

speak for themselves. It is essential to communicate to individuals, teams

and representative bodies what reward processes are setting out to do, how

they propose to do it, how they affect them, how they will benefit, and the

part individuals and teams will be expected to play. It is particularly


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important to explain the basis of any pay-for-performance scheme and also

to convey to employees how their total remuneration package of pay and

other benefits is made up.

TRANSPARENCYTraditionally, organizations in the private sector have tended to keep some

information about pay policies secret. This is no longer a tenable position.

Employees will only feel that the reward management processes of an

organization are fair if they know what they are and how they are used to

determine their level of pay and methods of pay progression. Lack of

understanding breeds suspicion and hostility. One of the aims of reward

management should be to enhance commitment, but there is no possibility of

this being achieved if the organization is secretive about pay.

Without transparency, people will believe that the organization has

something to hide, often with reason. There is no chance of building a

satisfactory psychological contract unless the organization spells out its

Reward Management Unit 4

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