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Reward Strategy – It’s here to help, don’t fear it!

Instigating any reward change often causes some anxiety with employers unsure about how far they can go, the knock-on effects of any changes or the wider impact on employees and the business

Reward can easily represent anything up to 80% of an organisation’s total cost base and as a result it is somewhat surprising that there are still a lot of employers who do not have an up-to-date strategy for its management and delivery.

It is difficult to imagine any employer having a similar level of expense e.g. on technology, without some form of underlying strategy.

The risk of not having a reward strategy

The lack of a clear reward strategy is likely to prove to be an increasingly costly oversight with the emergence of more pay transparency regulations. The new EU regulations, for example, require widespread communication and sharing of information on how pay is set, managed and progressed with all employees. These regulations have yet to take effect in the UK but will shortly be rolled out across the EU and follow similar developments in markets around the world including the US, Canada, Japan and Australia. Despite the lack of regulation at this stage, practices in the UK will soon be changing as EU employers bring their approaches to the UK market which will force UK employers to respond or risk losing talent to their competitors.

Even without these regulations, however, the lack of a documented reward strategy can be a significant business risk. One of my former large international clients dismissed their Head of Reward on performance grounds and she left the business with immediate effect. This move however left the HR Director with one major problem. They had no idea how or why the reward package was designed the way it was, how it was delivered to employees or what the annual, or even monthly, pay cycle looked like. There were some junior reward analysts who could help to fill in some gaps but there were still a lot of unknowns. This led the HR Director to engage my team and I to conduct a review that included recording current practices and drafting the underpinning philosophy in a reward strategy document and providing culturally-aligned recommendations on potential evolutions. Within two years of the project, and following adoption of many of the recommendations, the organisation was winning awards for the quality of its reward programmes and related communications and transparency.

This was clearly a great outcome and reflected positively on the decisions of the HR Director and their team, however it needs to be remembered that the business was exposed to significant operational risk. Furthermore, this risk extended over a period of some months following the departure of the Head of Reward who took all of their knowledge with them, simply because there had not been a documented reward strategy in place. Clearly, having such a document is good governance and should be regarded as a risk management essential.

Reward strategies are not fixed and static

Another common issue for employers is to perceive their reward strategy as something that is static and once documented, that can be left alone for some years. Reward strategies should be seen as dynamic and living entities that will require periodic review so that small course corrections can be made to ensure that it remains aligned with the needs of the business and its people.

For example, many employers have had to make adjustments to their reward approaches in the last couple of years to account for the cost-of-living crisis their employees currently face. Good practice would include revising the reward documents to reflect this in case of any legal challenges, sudden departures, etc. but many have failed to do this, rendering their reward strategy document largely redundant and accidentally obsolete. As inflation falls to more traditional levels, employers will face the same situation once again, albeit in reverse, and the need to ensure that the reward strategy remains up to date and relevant once again become paramount.

Reward strategy as a key business management tool

An employer’s reward strategy is a key business management tool and employers who fail to understand this are exposing themselves to unnecessary risk and could be giving competitive advantage away in the marketplace. It provides the framework which takes the organisation’s mission, vision and values and turns them into a set of tangible outcomes that deliver value to an organisation. Quite simply, a reward strategy is the bridge between what the company wants and what your people do and are rewarded for doing!

An effective reward strategy requires a business to understand the needs of their employees so that can align them with the needs of the business. In doing so, it will create a potential win:win scenario (or a lose:lose one if things don’t go so well). More specifically, it can add value in a number of ways that we have highlighted in a previous Insight (Is your business’ Reward Strategy doing its job?)

It is clear that a reward strategy is a vital tool in helping to turn business aspirations and plans into the desired performance and in ensuring that employees are motivated and engaged in doing exactly that. In this context, there are few business strategies and frameworks that will be as potentially significant to the success and performance of a business as the reward strategy.

Reviewing a reward strategy – Boil the kettle, not the ocean

Updating a reward strategy can be daunting for many employers. In fact, instigating any reward change often causes some anxiety with employers unsure about how far they can go, the knock-on effects of any changes or the wider impact on employees and the business.

Reward strategies can be particularly intimidating as they are so central to employee performance and motivation and, consequently, to the over performance and success of the business. They can also feel difficult for an employer to really put their arms around and to clearly define what a reward strategy ‘is’ and ‘is not’. In this context, many employers find it difficult to know where to start and how to approach the topic leading them to claim that they don’t want to try to ‘boil the ocean’. The simple truth is that it really doesn’t have to be this way. Using a simple and proven methodology and approach will help to give a framework and a context to any review process.

Blick Rothenberg utilises a flexible review methodology and framework which can work equally well for smaller national employers and well as large multi-national firms. We believe that the key ingredients of any successful review approach are as follows:

  • The process must be consultative and gather views and opinions from business leaders as well as employees (this does not have to be a massive or onerous process)
  • It must understand business aspirations and strategy and the contributions required from employees to deliver these
  •  It must define employee needs and expectations to ensure that any reward offered is valued and appropriate for its target audience
  • It must integrate and support an agreed reward philosophy
  • It must allow sufficient flexibility within a framework for the business to vary practices as necessary across different geographies and/or business divisions
  • It should be reiterative and enable an initial set of proposals to be tested and refined based on feedback from the employees and leaders
  • It should define accountabilities for delivery and ongoing management but should not get into specific policy details (this should be done through more detailed and focused policy documents)

Reviewing and/ or developing a reward strategy can be done very simply with some thought and experience. It does not have to feel like taking a step into the unknown. The important thing, regardless of how it is done, is that it is done at all. Today, organisations need a reward strategy to help them perform and succeed and that need is only going to grow thanks to the increasing focus on pay transparency and evolving employee expectations. This issue here though is that many employers are still not aware of this need, and that is a loss and an opportunity missed.

Do you want to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Stuart Hyland using the form below.

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Stuart Hyland
Stuart Hyland
Partner
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