Our business is operating in a mature and increasingly competitive market. In this context, the business strategy focuses on the need to grow through innovation, compete by understanding and profitably meeting customer needs, winning key new business and investing to enhance the long-term profitability and cash generation capability of the business.
The contribution required of employees to bring about these goals is dependent upon effective leadership and needs to reflect improved customer focus, vigorous defence of business, and a culture of continuous improvement, employee involvement and flexibility.
As part of a broader people-management strategy aimed at harnessing the contribution of employees in the medium- and short-term, the business approach to reward and recognition must play a key strategic role, taking into account prevailing employee relations arrangements, differing needs of the businesses and existing reward and recognition initiatives. The individual components of the reward system have served the business well. Looking forward however, it is important that the future reward and recognition strategy adapts and aligns all these components as part of an integrated and sustainable approach which closely supports the changing needs of the business.
In order for the business to deliver its objectives it needs to have in place a coherent and robust reward and recognition strategy. The key features of this reward and recognition strategy are:
A statement of the philosophy informing the reward and recognition strategy
The key principles governing choices within the reward and recognition strategy.
Our reward and recognition approach will support the achievement of superior business performance. It will do this through:
Supporting the development of a performance culture by rewarding and recognising employee contribution and innovation. In broad terms, this means aligning rewards to encourage the achievement of business outcomes, and using recognition to value effort and quality of inputs
Aligning employee behaviour and focus more closely with business needs
Being flexible enough to respond to changing business needs
Moving towards greater ownership of pay decisions by line managers.
Our reward and recognition strategy is underpinned by the following principles which will guide the organisation in making decisions about its reward and recognition practices. These principles are to:
Promote a clearer link between performance and pay. Where appropriate this will be at the level of the individual but will also include linkages at team and organisational level
Ensure that the salary structure remains competitive in order to recruit, retain and motivate employees
Provide rewards that are valued by employees
Provide the facility to give timely recognition for individual and collective achievement
Be self-funding
Be simple to understand and operate
Be clearly communicated to all employees
Be fairly and consistently designed and applied
Be implemented at a pace that is compatible with the needs of the business
A key to the success of these principles is that the reward and recognition mechanisms and processes which they underpin should be sufficiently flexible in the light of changing business needs.
The key principles underpinning the reward and recognition strategy have a number of practical implications for the organisation. They will require:
The design of a set of principles and a basis for the distribution of performance-related pay.
The formulation and agreement of a policy on the market position of the pay structure. This means clarifying the pay markets the organisation operates in and its preferred position.
The development of a clear policy statement on internal pay comparisons. The company needs to determine a position on the basis on which these comparisons are to be made and what information the organisation will require.
The development of a clear mechanism for the recognition of individual and collective achievement beyond that delivered through the pay system. This will require clarity over the nature of the contributions and achievements for which recognition will be given and the mechanisms available to deliver such recognition.
In order to understand the rewards valued by staff (and recognise that different staff may value different rewards) the organisation needs to undertake research into this issue. This will help sharpen the focus of the reward and recognition strategy through better targeting new and existing reward and recognition approaches.
The communication of the variable pay process and total reward and recognition package as it applies to all employees in a comprehensive and understandable format. This will entail the development of a communication strategy for the launch and support of the new pay system. This will lead to the development of guides, handbooks and communication briefing materials.
The reward and recognition proposals will need to be rigorously modelled in order to ensure that they are self-funding and that the new approach can be financially sustained over time.
The extent to which the new reward and recognition approach is understandable and easy to operate will necessitate the piloting of the model with a cross section of employees and managers.
In order to ensure that the reward and recognition system is fair and consistent, an monitoring and evaluation process needs to be developed.
It is important that there is compatibility and good boundary management between the new reward and recognition approach and other contingent strategies such as the Employee Relations Strategy and the wider HR Strategy.
The reward and recognition philosophy and principles were used as a framework against which to assess the organisation’s current pay and reward and recognition arrangements. The following gaps were identified:
A poor link between performance and reward.
Little managerial discretion over pay decisions relating to the performance of employees.
Too much emphasis on short-term business measures at the expense of longer-term development needs of the organisation.
A small proportion of total potential earnings as variable pay.
A failure to give fully non-pay recognition to individual and collective achievement.
A failure to reward employee competencies and behaviours through the pay system.
Poor communication and training around the existing system.
Our review indicates a need to develop more appropriate reward and recognition policies and practices across the business
The process of changing pay and reward arrangements from one configuration to a new configuration is in practice exchanging one set of advantages and disadvantages for another. In many cases, these only become transparent as the organisation deploys the new approach. However, steps can be taken to minimise these risks.