Reward strategies – who needs them?

Drop the grandiose ideas and take a more dynamic approach to bonuses to gain
employee respect

News stories, ranging from shareholder disquiet at executive packages at
Marconi and BT to huge pay rises for CEOs (News, 4 September) highlight the
important links between business issues and pay and reward policies.

The recent World at Work (formerly American Compensation Association)
conference in Nashville highlighted the extent to which compensation and
benefits managers have adopted this strategic business clothing. They use an
array of "total reward" programmes to build a powerful "employer
brand", which "engages employees" to deliver on the corporate
strategy, and provides "change levers" in support of organisational
transformation. According to one consultancy, "effective reward strategies
add 9.2 per cent to shareholder value".

Yet our faltering economy is starting to put the spotlight on some of these
grandiose claims and terminology. Sure, 95 per cent of UK organisations have
made significant reward changes in the past three years, driven by a business
agenda of improved customer service, innovation, flexibility and speed to

But two-thirds of them are having implementation and operational problems,
notably poor communications and weak performance and line management.

The sensitive and often highly political nature of reward issues leads Marc
Thompson at Templeton College to conclude that, "pay systems may be
stronger sources of competitive disadvantage rather than advantage".

We need to accept, he claims, that "managing reward is a job of
short-term damage limitation and not a strategic lever for change".

According to Professor John Purcell, most reward strategies are an illusion
in the boardroom.

The trouble with the commentators is that they never say what to do instead.
The reality for most organisations facing hyper-competition, intense cost
pressures and industry restructuring, as well as a continuing war for talent,
is that the short-termist, do nothing option is potentially the most dangerous
course of all. It risks essentially rewarding employees to go wrong.

Many UK organisations continue to be strait-jacketed in their competitive
business and labour market-battles by archaic grade structures, automatic
incremental cost escalation, expensive and under-appreciated defined benefits,
pension plans and meaningless profit-sharing schemes.

Correspondingly, there is a wealth of evidence that there are strong,
reinforcing relationships between sustained business performance, employee
commitment and HR and reward practices.

The problem, therefore, is not the need for, or concept of, reward strategy,
but the way in which we have operationalised it. Too often excessively
analytical and complex reward strategies have been formulated by HR specialists
to create a good impression in the boardroom. But they have little meaning and
pay no attention to the realities and constant changes in life, in the
organisation as a whole.

More than half of the organisations in research by Towers Perrin didn’t even
share their strategies with their line management colleagues, never mind their
staff, condemning them to ineffectiveness and irrelevance.

The considerable potential of a more strategic approach to reward management
will, therefore, only be realised if we abandon this over-secretive, top-down
approach in favour of greater clarity, transparency and flexibility.

We need to bin those grandiose reward plans and over-designed schemes and
instead set out a clear direction with broad reward goals, and then adopt what
Ulrich describes as "a flexible, dynamic and responsive approach".

Secondly, we need to abandon our obsession with supposed high performance
and "best" practices, and concentrate instead, as Purcell’s latest
CIPD research illustrates, on "HR processes, supporting the successful
introduction of changes uniquely suited to the organisation and its

As Lynda Grattan at the London Business School puts it, increasingly the
challenge for HR is not the "what" but the "how", and until
we recognise and act on this, then the reward strategies in many of our
organisations will continue to be stillborn.

Duncan Brown is principal at Towers Perrin. This article is based on his
latest book, Reward Strategies: From Intent to Impact

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