Reward Systems - Making it work
By popular request. Following our feature in September's newsletter on 'Employee of the Month' Reward Schemes, HR Advantage consultant offers a general guide to choosing and implementing an effective reward system. As pay is probably your biggest cost, this could becalled essential reading.
A recent study on compensation by Towers Perrin (2000) indicates that most organisations are still struggling with how to "get the pay thing right." The study finds that whilst most companies are still relying heavily on base salary as the way to retain their employees, high-performing organisations are successfully marketing a different and less traditional approach to their current and future employees through the introduction of reward packages.
So far, few employers have made the switch from a traditional pay scheme, and where organisations have it has mainly been because of outside pressures - for example, to harmonise benefits following a merger or take-over. Research by the CIPD (2005) across a wide range of industries has found that how an organisation rewards its employees has a direct impact on the quality of customer service they in turn deliver. So how do you go about introducing and managing reward packages?
1. Identify your business objectives
Reward arrangements must support your business strategy and you need to identify what you want to achieve. Reward systems are often linked to appraisals or Key Performance Indicators (KPIs): for instance you could be looking for staff to make more sales, for improvements in customer service, or to ensure the successful launch of a new product or initiative.
Reward packages are often implemented in order to differentiate your organisation from others i.e. to become an 'employer of choice'. In the current climate of skills shortages, potential recruits and existing employees are becoming more sophisticated in seeking the best package they can find and it is becoming necessary to offer more than just a good salary and pension.
2. Choose your reward system
Your scheme must be appropriate to the type of work/workers employed. There are lots of different types of reward scheme, for example, bonuses linked to objectives, performance related pay, incentives (group or individual) etc. Whatever you choose to implement, you must be sure that it is clearly linked to efforts of the individual or team. It is also a good idea to have a range of reward options that appeal to all and allow employees to choose those that are appropriate to them.
3. Implement your reward system
Implementation is key to reward systems working. Fairly often organisations find that their reward scheme ends up as an 'illusion in the Board Room'. It is very well implementing a bonus scheme, but if it is not realistic for employees to hit or there is no way of measuring when targets are reached, this could potentially be de-motivating. In essence, individuals/teams should be able to exert control over their efforts and hence their reward. You also need to ensure that the majority of your budget is spent on the end rewards and not on administering the program.
4. Communicate your reward system
Ensure your employees know about the reward system and how it operates. Communicate regularly on performance. Ideally give your employees the ability to monitor their own performance - on a daily basis if necessary. Line Managers also have a crucial role to play and there must be buy-in from everyone for the scheme to work.
5. Review your reward system
A reward scheme/package must be monitored and updated as applicable - ask staff for feedback. You should also bear in mind whether there are any external factors that may influence and have a negative impact on things like bonus schemes.
Reward systems are a powerful business tool. Designed and applied effectively how you pay will contribute to organisational success. On the other hand an inappropriate system could stifle performance. If you would like more information on reward, pay and benefits and bonus design or help with designing and implemeting an appropriate reward strategy, please email Jenny.Hourican@hradvantage.co.uk or call Jenny on 01494 451681.
November 2006
