Developing your reward strategy involves designing and implementing reward policies and practices to support and advance organisational objectives. Investing time in your reward strategy can pay dividends. It can maximise the value you get from your reward arrangements. In this article I will outline some important considerations when developing a reward strategy. First, it might be sensible to talk about why you should develop a reward strategy in the first place…
You might think your business is too small, and so you don’t need a reward strategy. Or, you do some pay benchmarking, so you know what market rates are in your sector and that’s enough. You’d be wrong. Thinking about and developing plans to support your business goals and objectives, makes sense from any perspective. It means you are more likely to make proactive goal-orientated decisions about pay and reward in your organisation. You are more able to attract and retain good quality candidates and have a motivated workforce. You are also less likely to have pay inequalities within your organisation and pay is more likely to be perceived as fair.
This is essential because pay is generally accepted as being one of the most, if not the most, important term of the employment contract to employees. Other aspects of your offering and company culture are vital, you must focus on those aspects too, but pay is the headline. It catches the eye and spreads dissatisfaction if it is not at the right levels or there is perceived unfairness. And that’s not all, without a proper framework and policy in place you are on the back foot, reactively responding to requests from your top performers and trying to stop competitors catching their eyes with salary levels that your organisation, with a bit of foresight, could be mapping out for them. It is about making your pay arrangements future proof and sustainable.
Finally, in terms of the ‘why’… everyone else is doing it. Other areas of the business develop strategies all the time – product development, marketing, sales will all create strategies to support expansion in a particular area or the continued development of their area of business. Reward should be no different and is certainly no less important than these areas.
So, enough about why to do it. How do you actually do it?
Sit at the top table
You need access to the overall business plans and long term strategy. If you do not know what the ultimate goal or strategy is, how can you ensure that your reward strategy will help the business meet it? For example, if company strategy is to be acquired or to sell the company to a larger entity, perhaps keeping profits high and costs low will be the ultimate aim of senior leaders. Bonus schemes might focus on cutting costs and winning new business. If there is a longer term strategy for organic growth, then there may be more scope for setting pay rates at higher levels, and there may be an appetite for longer term contracts and relationships with benefit providers. Incentive plans for senior executives might have longer timeframes. Bonus schemes might focus on client satisfaction or product development. You can see how, depending upon what the ultimate goals is, the approach to reward will need to be different.
Costs and budgeting
Overall cost of reward must be considered – what proportion of business costs are invested in pay and reward in your business? In the service sector there is little capital employed and reward can be over 70% of total costs. In other sectors – e.g. oil and gas – the total costs of reward can be as little as 5% of total business costs. What would a 1% increase in the reward budget do for your business? This is the type of consideration you should have if your approach to reward is at a strategic level – the detail around the cost of your pay benchmarking provider or your healthcare offering is of course important, but it comes later.
Define your approach and direction
When you know what the overall goal and budget is you need to decide what direction the arrangements need to take the company in. For example, an organisation that values longevity and long service may have pay arrangements that increase with service. DB pensions schemes were an example of this – stay with us for your whole career and you can retire in comfort. This approach is obviously on the decline but many organisations, particularly in the public sector, still reward their workforce based on length of service. The opposite approach might be to reward based on performance – for example by piece work, bonus, profit share or incremental increase for productivity, performance, or meeting targets. Nowadays, most organisations pay arrangements will sit somewhere in between these two examples but clearly there is a vast difference between the two approaches, deciding exactly where the business should sit and defining your offering is vital.
SWOT analysis and strategic planning
When you know what the goals are there needs to be some SWOT analysis and consideration of existing company culture, values and USP. This is so that you know what your obstacles and accelerators are. What will help and what will hinder you? What makes your company different and how did you get to where you are? Try to anticipate what might get in the way and how your reward offering might help. This might be competitors, unions, government, or tax arrangements. Consideration of all these things will help ensure that your strategy is relevant, future proof and achievable.
Get buy in
There should also be round table discussions, and at a senior level. There must be buy in for the strategy development and a willingness to implement it. Frequently, obstacles to implementing strategy can come down to cost. Ensuring that you know your budget and your proposals for any development or projects are fully costed will ensure that your proposals are taken seriously. Having discussions with those who you need to sign off your plans at an early stage is essential to prevent time being wasted working on strategies that will never be implemented.
There should be consideration of the wider, total package – benefits, bonuses, LTIPS, wider terms and conditions and non-financial recognition or psychological reward, and how the total reward package will differ for different areas of the business. Consider whether employees have purely financial, material drivers or are there vocational drivers, do employees work for you because they want to make a difference? Or, does your organisation offer opportunities to be involved with innovative work that will advance the careers and experience of employees. These elements are also aspects of your wider reward package. What will motivate one group of employees will not motivate the whole workforce. That said, coherence and a rationale for differences is essential.
Operational planning and implementation
When the direction is set, operational plans can be made to support those objectives and tasks, and projects can be allocated to the right teams and people. Tasks and projects that might flow from these plans could be developing job descriptions, evaluating roles in the business, developing incentive plans for senior leader and bonus schemes for the wider staff body. Think about providers, consultants, and experts. Who will you need and what will they cost? Or, can you manage these things by yourself?
Setting clear objectives for the workforce is essential in any setting but if pay is to linked to performance setting SMART objectives that will help the business achieve its goals will be vital. SMART is specific, measurable, achievable realistic and time framed. Objectives must be cascaded down through the business and don’t assume that managers (or senior leaders) will be adept at setting SMART objectives. Training or facilitated sessions may be required to stop organsational strategy simply being duplicated for departments and the maturity of the organisation needs to be considered. Is the organisation mature enough to deliver the necessary objectives and outcomes in a consistent fashion?
Measure your impact and value
It is also important to measure impact – and map that impact back to the reward arrangements so that you can demonstrate the value that the business gets from your strategy. Consider how you will do this – through engagement surveys, through the performance management process or facilitated focus groups. Good quality HRMI is essential.
How we can help
At Turning Point HR Solutions, we can support you in all of these areas, and we also have excellent software systems that can support your remuneration arrangements and reporting obligations. More importantly though, we can also help you see the wood from the trees and connect your pay and reward strategy to your overall company strategy. We ask the question, what are you looking to achieve? And spend time helping get there through your reward offering.