Managing reward strategy can pay off

In organisations where an annual pay increase is the norm, the yearly wage hike is eagerly anticipated by employees. But expectation can easily lead to disappointment.

At HR consultancy Mercer, principal David Conroy recounts a recent conversation he had with an HR director who was bemoaning the general reaction to a 1.5% pay rise – a low increase brought about by difficult trading conditions and changes within the company.

There was uproar among the workforce and a universal feeling of being insulted by such a paltry rise. But this pay increase had still cost the company millions of pounds – an expensive gesture if all it achieves is lowering the morale of employees.

Strategic approach needed

“This is indicative of the lack of thinking that occurs around pay and reward,” says Conroy.

Conroy suggested to the HR director that with less money than normal to go round, the company should have been more creative in its approach. For example, it could have told employees that things were tight this year, and in place of a pay rise offered subsidised learning and development opportunities.

“But few organisations are this flexible when it comes to pay and reward. They simply do things the way they have always been done,” he says.

Strategy lacking

Conroy’s experiences are backed up in the latest Chartered Institute of Personnel and Development (CIPD) research on the subject. It’s Annual Reward Survey 2007, released last week, finds that of only 23% of organisations that have a reward strategy at all, just over half measure it effectiveness and under one-quarter link measurement to business data, leaving most unable to show how their reward strategy achieves one of its main objectives – to support business goals.

The findings do not surprise the CIPD’s reward specialist Charles Cotton. He admits many organisations don’t find it easy to adopt a reward strategy, but those that do must take a top-down approach.

“Organisations need to work out what they are about; pinpoint the values and behaviours that underpin this and how they are going to reward these behaviours,” he says.

With such a framework in place, a business case can be devised for any new benefit or bonus scheme and its success tracked.

Clear objectives needed

At wealth management company JS&P Towry Law, reward manager Richard Higginson says organisations drawing up reward strategies must be specific about what they want to achieve.

One example he gives from Towry Law’s reward strategy is that, following a change of business model, the company is now focusing on the needs of the customer, rather than simply on selling as many products as possible.

“From a HR standpoint, this means we need people who can give quality advice and not just sell things.

“It also means we should reward people according to the quality of the advice they give,” says Higginson.

As a result, the company has tied a number of bonuses to key performance indicators that reveal this kind of behaviour. Higginson says these include feedback from clients and industry regulator reports on misselling, as well as looking at employee paperwork and studying figures on client retention.

Measure staff satisfaction

It is also important to ensure that your staff are happy with the level of reward and benefits they are getting. And the best way to do this is simply to ask them, says Higginson.

Employee surveys are the easiest way to achieve this, and because they are usually anonymous HR is guaranteed candid answers.

In addition, suggests Higginson, line managers should be quizzed about what effect they feel pay levels have on staff recruitment and motivation.

Exit interviews are also a rich source of information about how current pay and benefits are perceived on the ground.

“People tend to be brutally honest when they are on their way out,” he says.

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