Be careful of what you reward, because what is rewarded will be repeated.
A large number of organisations do not possess a well organised approach to manage employees’ remuneration and this includes incentive/bonus schemes. A rather obvious need therefore is to have a well-structured and formalised reward (remuneration) system that enables a consistent approach to reward management, resulting in remuneration that is fair and affordable and that rewards behaviour that realises the organisation’s goals.
Reward management is one of a number of HR practices which all form part of the HR value chain or employee life-cycle and plays a major role in talent management, the organisation’s unique employee value proposition (UEVP) as well as employee engagement. Figure 1 below shows the HR value chain or employee life-cycle.
Figure 1: HR Value Chain (Employee Life-Cycle)
A Sound Reward System
A sound reward system consists of different components that require alignment to the organisation’s values and strategy. The reward system must furthermore be developed and aligned in such a way that it enables the organisation to reward employee behaviour that is consistent with what the organisation values. At the same time, the maximum benefit must be attained from each reward rand invested.
Components of a reward system that need to be well-designed and structured are listed below:
Although the reward strategy is not the only component of the reward system that should be aligned with the organisation’s strategic objectives, it certainly is the one area that will make change happens. Organisational change depends on changed employee behaviour, and behaviour is largely motivated by reward – monitory as well as non-monitory. Besides, the behaviour rewarded, depends on what is focussed on in the remuneration strategy and how pay programmes such as incentive schemes are developed, implemented and managed.
A reward philosophy consists of a set of beliefs which underpins the organisation’s reward strategy, governs the reward policy and provides the foundation for the guiding principles which determine how the reward processes operates. These principles furthermore should reflect the business strategy and the core values of the organisation.
The reward model consists of all the elements of the reward system and portrays the organisation’s approach to reward management. It provides a clear integrated view of what the business employs to remunerate employees, how the reward system is guided and governed, what influences the reward decisions and how everything fits together. It furthermore emphasises the importance of affordability and long-term sustainability.
The reward policy governs the reward practices and cycle, prescribing what should happen and to a certain extent, why and when it should occur. Along with the reward principles (philosophy) it furthermore ensures consistent and fair remuneration decisions, enhancing the execution of the organisation’s strategy.
The reward policy and cycle covers amongst other things the following:
- Reward elements – available reward options inclusive of incentive/bonus schemes and what the reward package consists of
- Factors influencing reward decisions
- Annual reward review exercise
- Managing reward costs
Depending on the situation and need there are a variety of remuneration tools available to enhance reward decisions and to ensure a quality overall reward management approach. These tools include, amongst others, the following:
- the performance appraisal decision tree,
- the performance/potential matrix,
- the reward allocation matrix,
- calibration session,
- the purse distribution calculator and
- Bonus calculator
These tools are selected and implemented according to the need of the specific organisation.
Reward System Dependencies
- Role Profiles
Quality role profiles are used in all the major HR practices and certainly also in reward management. It is used in role (job) evaluation (grading) to determine the relative size of the role and to compare the role with the market (reward market research) in determining equitable reward.
- Performance Management
Performance management is an HR practice used to improve performance by the ongoing enhancement of the individual’s contribution as well as competence (knowledge, skills and attitude). Performance furthermore plays a major role in determining all forms of reward; be that short or long term, fixed or variable, monetary or non-monetary and therefore is a critical dependency of the reward system
The collective behaviour of leaders to a very large extend determines the organisation culture and climate and as such has a decisive impact on how employees experience the work environment and also how they act on and react to practices such as reward. Obtaining the active support and full buy-in of senior leadership on their role to champion the reward system is therefore a non-negotiable and critical for the buy-in of all employees and long term success of the reward system.
Important Reward Considerations
Internal parity with regards to remuneration, which is now also formalised in the labour legislation, is probably the most important reward consideration. It is initiated by an internal analysis of employees’ remuneration, while external parity is managed by benchmarking remuneration packages with similar role’s packages in the market to ensure competitive remuneration. The approach to parity as well as benchmarking (internal and external) is guided and governed via the remuneration strategy, philosophy and policy.
- Change Enablement
Reward management is a very emotive and often difficult to manage aspect of employment. Attempts to change the reward system or aspects of it, or to introduce something new, is in most cases viewed by employees with suspicion and widespread mistrust. This can however be avoided or minimised by catering for inclusion and open communication when changes or something totally new is initiated.
It is vital therefore to always ensure that there is a full understanding of the entire remuneration system by leaders, managers and supervisors, but certainly also among other employees. The success of whatever is planned, introduced and implemented is dependant mainly on the understanding, commitment and active support of leadership.
Murray Burger and Dr. Dennis Farrell have developed sound People and Reward Management Practices to assist organizations to manage their employee performance and reward.