Reward Strategies

and Structures
Professor Susan Durbin
2021
Session Outline

Defining Reward
What is Reward?
‘Total Reward’
Strategic Reward
Reward in Context – external influences
What’s going on in the world of Reward?
Reward
 ..Reward management may be simply defined as the combined
actions an employer may take to specify at what levels employee
reward will be offered, based on criteria and data, how the offer will
be regulated over time and how both the intended links between
organisational goals and values should be understood and acted on
by the parties to the employment relationship (Perkins and White
2011: 5)
 Reward management is fraught with peril..perhaps more so than
other facets of human resource management [it] is an attitudinal,
emotional and behavioural minefield. Ill-chosen, badly designed or
poorly implemented [managerial approaches] can communicate
entirely the wrong messages [and] an ill-conceived reward system…
may give rise to endemic organisational misbehaviour (Shields,
quoted in Perkins and White 2016)
Rewards depend upon occupational
hierarchy and demographics
• Managers and senior officials
• Professional
• Associate professional and technical
• Administrative and secretarial
• Skilled trades
• Personal service
• Sales and customer service
• Process, plant and machinery
• Elementary
(age 16-64, (Labour Force Survey)
 Gender, ethnicity, age, sexual orientation, disability, etc. are
also important factors in reward (we will cover this in our next
session on reward and equality)
Theoretical approaches to reward: e.g.
organisation justice theory
 Organisation Justice theory
 Distributive justice – perceptions related to the fairness of
allocative decision making of rewards
 Procedural justice – the perceived fairness of how decisions
are made, including those related to performance (e.g. Cole
and Flint 2004; Risher, 2014; Chen and Fu, 2011; Terpstra
and Honoree, 2003)

 Arepeople being fairly paid for their experience, skills,

commitment and contribution? (CIPD, 2019)
Transparency is key to Procedural
Justice
 Pay transparency important in helping employees feel
they are treated fairly and equally:
 Two thirds of respondents favour pay transparency
(compared to half in 2015) and employees who know
the rationale behind the setting of their annual pay
explained are more satisfied (CIPD)
 Transparency especially important where a series of
reward factors are used, i.e. PRP, competencies, skills
and market rates – how is this package made up?
 Employers are markedly more likely than employees to
say they are transparent about pay (CIPD, 2019)
 Pay transparency more likely in public and voluntary
sectors than private and manufacturing sectors (CIPD,
2019)
What is ‘Reward’?

 Encompasses design, implementation, review

and renewal of reward systems
 People rewarded in accordance with their value
to an organisation
 Core facet of employment relationship
 Linked to performance of the firm
 Can instil notions of ‘fairness’/’unfairness’
 Why reward employees? Employer and
employee perspectives
Total Reward
 All of the employers’ available tools that may be used to
attract, retain, motivate and satisfy employees. This
encompasses every single investment that an
organisation makes in its people, and everything its
employees value in the employment relationship
(Armstrong 2007: 8)

 Can be part of strategic reward, e.g. flexible working,

opportunities to lean alongside pay

 Benefits of total reward

 Around a third of organisations use ‘total rewards’

(CIPD)
Components of Total Rewards
Pay methods
 Just under half of employers use individual arrangements or
spot salaries to manage base pay (CIPD)
 Market rates the (70%) followed by ‘ability to pay’ most
important factor in determining base pay levels
 Payments by Results (PBR) - any method of payment
determined by objective criteria – the amount done or its
value – rather than just the number of hours worked – merit
pay; profit-related pay; share schemes
 Most organisations positioning total cash earnings at or
close to the median (but more towards the top for private
and toward the lower end for public/volutary sectors) (CIPD)
 Little evidence of decline of narrow grading and pay spines
in favour of more flexible forms (broad-banding)
Performance-related Pay
 Most extensively researched area of reward
management: met with both scepticism (academics and
trades unions) and support (consultants and HRM)
 Proponents of ‘new pay’ = rewarding individual
performance with pay linked to business performance
(e.g. Lawler 1990)
 Used in several (and combined) forms: individual, team
and organisation-wide
 Used as both an incentive (future reward based on
performance) or a reward for past performance
 Can be consolidated or non-consolidated
 Longer-term decline in use of PRP – 44% reported its
use in 2019, compared with 65% in 2012 (CIPD, 2019)
Non-financial Reward
 Associated with intrinsic rewards (the job itself,
interesting/challenging, etc.
 Focus on the needs people have to varying
degrees for recognition, achievement,
responsibility, autonomy, influence and personal
growth (Armstrong 2010)
 Intangible: relational rewards – e.g. quality of
working life, work-life balance, etc. Involve little
cost to employers
 Tangible: cash and non-cash rewards to support
recognition programmes
 Need to strike a balance between financial and
non-financial rewards (Shields et al. 2016)
Reward in Organisations: Strategic HRM
Fit
 A business focused statement of the intentions of the
organisation linked to rewards
 Provides a road map – where we are now/where we
want to get – the bigger picture
 Reward strategy flows from the business strategy
 Reward can be extrinsic (pay and non-pay benefits) or
intrinsic
 About a third of organisations have a reward strategy
(more likely in public sector)
 Reward systems should be aligned with business needs
and be adaptable to changing circumstances (Kessler
2007: 162)
Strategic Reward (CIPD)
 Design and implementation of reward policies and
practices that support organization and people objectives
 Reward strategies will include:
 A statement of proposed reward developments
 A rationale for the case for reward proposals
 A definition of guiding principles
 Ensuring pay policies are fair
 Pay structures and pay progression that link to organization
values
 Think carefully how to link performance related pay to outcomes
 Ensure fairness and transparency (procedural justice)
 Align with HR policies and external factors
Linking HR to Corporate Plans
Vertical Integration ensures that HR plans
are linked through the business

Organisational Strategy

Business Plans

HR Plans
 Linking HR Plans together
Horizontal integration ensures that HR
plans, policies, and systems complement
each other
HR Plans

Training Organisation
Resourcing Employee Succession Reward
Learning plans,
Relations Planning
and change
Development management,
etc

HR INTEGRATION
Reward in context

 Those devising pay strategies need to take

account of a range of factors

 Key decision in organisational context

 Reward doesn’t exist in a vacuum!

 Global forces, including Brexit

Reward in Context
 Market, legal, political
 Trade unions
 Market rates of pay (ASHE)
 National legislation: NMW (1998) and NLW (2016,
gradually phased in)
 Equality Act (2010) (incorporates other anti-discrimination
Acts – equality in education and employment
 Disclosure requirements – gender pay gap reporting
(2018 onwards)
 Firm size
Reward in context: Covid-19
 Some issues reported by CIPD in 2020:
 Limited changes to pay and benefits but pay increase
decisions have been frozen in many cases
 Some reward strategies not fit for remote workers
 Mental health risk for those working from home
 One third of employers plan redundancies in 2020
 Tribunal cases surge (unfair redundancies)
 Unemployment at highest in 3 years
 More than 1M paid less than NMW under furlough
scheme (employers not topping up)
 NMW rate may be frozen this year
 UK productivity rate drops at fastest rate since
records began
Key reward decisions
 External factors

 Internal business and reward strategies

 Rewards:
 How much to pay
 Whether to pay monetary incentives on an individual,
group or collective basis
 How much emphasis on financial and non-financial
rewards.
Base pay review factors (CIPD)

Ability to Pay 78%

Going Rate 46%
Recruitment/retention issues 45%
Inflation 41%
Movement in market rates 40%
Government funding/pay guidelines 30%
Economic confidence 26%
National minimum wage pressures 23%
Union/staff pressures 21%
Living wage pressures 20%
Shareholder views 14%
Criteria to progress employees in pay
grades (CIPD, 2019)

Individual performance 75%

Competencies 62%
Skills 56%
Employee potential/retention 55%
Market rates 55%
Length of service 29%
Negotiated with union 21%
What’s going on in the world of reward?
(ASHE)
 Median weekly earnings for full-time employees reached
£585 in April 2019, an increase of 2.9% since April 2018
(ASHE, 2019).
 Median weekly earnings for part-time jobs increased at a
greater rate. In 2019, earnings increased by 5.2% in
nominal terms, which translates to a 3.1% increase in
real terms. The median weekly earnings for part-time
employee jobs of £197 is 6.5% higher than in 2008 in
real terms.
 One fifth of workers asked for a pay rise in the past two
years, and more likely to be men (CIPD, 2019).
 75% of HR professionals compared to 33% of workers
think that their pay is fair (CIPD, 2019)
What’s going on in the world of reward?
(CIPD)
 Private companies paying more attention to market
rates; public sector grappling with a pay cap/low % pay
rises
 PRP – taken a downturn, move from goal sharing
incentive schemes and shift towards traditional profit
sharing and back to individual bonuses.
 Slight increase in use of narrow graded pay spines and
slight decline in broadbanding.
 Pay determined by market rates and underpinned by JE
(but 25% also cite market rate without JE)
 Resurgence in collective bargaining
References
 Armstrong, M. (2012) Armstrong’s Handbook of Reward
Management Practice: improving performance through reward.
 Armstrong, M. and Brown, D. (2006) Strategic Reward: making it
happen. USA: Kogan Page Limited.
 Becker, W., Cropanzano, R. and Sanfey, A. (2011) Organizational
neuroscience: taking organisational theory inside the neural black
box. Journal of Management, 37, pp 933-61
 Bratton, J. and Gold, J. (2007) Human Resource Management:
theory and practice (4th edition). Hants: Palgrave Macmillan (chapter
10, Reward Management).
 Chen, H. M. and Fu, P. C. (2011) Perceptions of Justice in Extrinsic
Reward Patterns. Compensation and Benefits Review, 43, 361-70.
 Claydon, T. (1997) ‘Human Resource Management and the Labour
Market’, in I. Beardwell and L. Holden, Human Resource
Management: A Contemporary Perspective.
 CIPD (2013-14) Employee Outlook: focus on employee attitudes to
pay and pensions
 CIPD (2014) Our Minds at Work: developing the behavioural
science of HR. London: CIPD (
http://www.cipd/co.uk/hr-resources/research/minds-at-work-hr.aspx
References
 CIPD (2014-15) Annual Survey Report: reward management.
London: CIPD.
 CIPD (2017 and 2019) Reward Management: focus on pay. Survey
Report. London: CIPD.
 CIPD (2017) Facing the Future: tackling post-Brexit Labour and
Skills Shortages. London: CIPD
 CIPD (March 2015) Show me the Money! The behavioural science
of reward (research report)
 Doeringer, P. and Piore, M. (1971) Internal Labour Markets and
Manpower Analysis. Lexington, Mass: D. C. Heath
 Druker, G. and White, J. (eds.) (2000) Reward Management: a
critical text. London: Routledge
 Jones, S. E. and Perkins, S. J. (2020) Reward Management:
alternatives, consequences and contexts (4th edition) London:
Kogan Page
 Leopold, J. and Harris, L. (2009) The strategic Managing of Human
Resources (2nd edition). Pearson: Essex
 Nolan, P. (1983) ‘The Firm and Labour Market Behaviour’, in G. S.
Bain (ed.) Industrial Relations in Britain. Oxford: Basil Blackwell.
 Perkins, S. J. and White, G. (2011/2016) Employee Reward:
References
 Risher, H. (2014) Reward Management Depends Increasingly
on Procedural Justice, Compensation and Benefits Review, 46,
3, 135-138.
 Terpstra, D. E. and Honoree, A. L. (2003) The Relative
Importance of External, Internal, Individual and Procedural
Equity to Pay Satisfaction: procedural equity may be more
important to employees than organisations believe.
Compensation and Benefits Review, 35, 67-74.Trevor, J.
(2009) ‘Can Pay be Strategic?’ in S. Corby et al. Rethinking
Reward. Hants: Palgrave Macmillan.
 Senior, C., Lee, N. and Butler, M. (2011) Organisational
Cognitive Neuroscience. Organisation Science, 23, 3, pp 804-
15
 Shields, J. et al. (2016) Managing Employee Performance and
Reward: concepts, practices, strategies. Cambridge:
Cambridge University Press