Employee Reward

This chapter began by outlining seven key objectives and these are revisited here:

Historically, the area of HRM that we now recognise and understand as employee reward primarily concerned wages and payment systems and the ways in which these could be used to exert control over both sides of the wage/effort bargain, enlarge the area of managerial control and so maximise organisational profitability.

In the contemporary era, employee reward is defined more broadly to include base pay, variable pay, benefits and non-financial rewards.

Reward is now recognised by many employers as a key strategic lever that can be used to shape employee behaviour such that it supports and reinforces business goals. Strategic approaches to reward emphasise the importance of matching reward systems and practices to corporate strategy, and integrating reward such that it complements other HR policies and practices. Debates persist, however, as to the precise contribution that reward can make to business performance, and doubts are cast on the ability of employers to design and implement reward strategy effectively. There would appear to remain a gap between rhetoric and reality in this respect.

There are no right and wrong approaches to employee reward; rather, a range of choices exists from which organisations must select the approaches which best meet the needs of the business and are manageable and affordable. Key choices entail whether to pay for the person or for the job, whether to centralise or decentralise reward decision-making, whether to place primary focus on internal equity when determining pay or to be more concerned with external benchmarks, whether to build hierarchy into the reward system such that there are seniority or status-related rewards or to devise a harmonised, single status approach and how to determine the precise nature of the reward ‘mix’.

Reward decisions are influenced by a range of factors in the external operating environment. In particular, the economic climate affects employers’ ability to pay and it guides organisations in determining salary levels/size of the pay review. The legal framework surrounding reward is designed to protect the low paid, set standards for hours of work and holiday entitlement and ensure equal pay for work of equal value.

In practice, approaches to reward are influenced by the size and nature of the organisation, the presence of trade unions, ownership/sector and types of worker employed.

Notable differences emerge between the public sector/voluntary sector and not-for-profit sectors and organisations in the private sector in terms of favoured methods for establishing pay levels, the design of pay structures and the criteria for pay progression, although the gulf between the types of practice typically adopted by the public sector and those practiced by organisations in the private sector is closing.

Despite the rhetoric of ‘new pay’ and the resounding case for strategic approaches to reward, traditionalism is still very much in evidence, alongside experimentation with the new.