reward management unit 4
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4
Reward PoliciesReward policies provide guidelines for the implementation of reward
strategies and the design and management of reward processes. They will be
influenced strongly by the guiding principles and reward philosophy of the
organization. The reward policies will be concerned with:
the level of rewards; the relative importance attached to market rates and equity; attraction and retention; the relationship of rewards to business performance; total reward policy;
the scope for the use of contingent rewards related toperformance, competence, contribution or skill;
assimilation policies; the degree of flexibility required; the role of line managers;
the need to involve employees in the design of the rewardsystem; the need to communicate reward policies to employees; transparency the publication of information on rewardstructures and processes to employees.
LEVEL OF REWARDS
The policy on the level of rewards indicates whether the company is a high
payer, is content to pay median or average rates of pay or even,
exceptionally, accepts that it has to pay below the average. Pay policy,
which is sometimes referred to as the pay stance or pay posture of a
organization, will depend on a number of factors. These include the extent to
which the organization demands high levels of performance from its
employees, the degree to which there is competition for good- quality
people, the traditional stance of the company, the organization culture, and
whether or not it can or should afford to be a high payer. A firm may say
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We will pay upper-quartile salaries because we want our staff to be upper-
quartile performers.
Polici
es onpay
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levelswill
also
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referto
differ
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entialsand
the
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number of
steps
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orgrades
that
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should exist
in the
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payhierar
chy.
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Thiswill
be
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influenced
by the
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structure of
the
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company.
In
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todays
flatter
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organization
s an
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extended or
compl
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ex payhierar
chy
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ed onthe
groun
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ds thatit does
not
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reflectthe
way
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inwhich
work
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isorgani
zed
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andwill
constr
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ainflexibi
lity.
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Polici
es on
the
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level
of
rewar
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ds
shoul
d also
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cover
emplo
yee
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benefi
ts
pensi
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ons,
sick
pay,
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health
care,
holida
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ys
and
perks
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such
as
comp
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any
cars.
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MA
RK
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ET
RA
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TE
AN
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D
EQ
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UIT
Y
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A
policy
needs
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to be
formu
lated
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on the
extent
to
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which
rewar
ds are
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marke
t
drive
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n
rather
than
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equita
ble.
This
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policy
will
be
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influe
nced
by the
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cultur
e and
rewar
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d
philos
ophie
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s of
the
organ
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izatio
n and
the
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press
ures
on the
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busin
ess to
obtain
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and
keep
high-
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qualit
y
staff.
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Any
organ
izatio
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ns
that
have
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to
attract
and
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retain
staff
who
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are
much
in
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dema
nd
and
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where
marke
t rates
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are
theref
ore
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high
may,
to a
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degre
e,
have
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to
sacrifi
ce
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their
ideals
(if
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they
have
them)
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of
intern
al
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equity
to the
realis
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m of
the
marke
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t
place.
They
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will
provi
de
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mark
et
pay;
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in
other
words
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, they
will
be
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mark
et
drive
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n.
The
pay
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mana
geme
nt
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proce
ss
must
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cope
as
best it
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can
when
the
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irresis
tible
force
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of
marke
t
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press
ures
meets
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the
immo
vable
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object
of
intern
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al
equity
.
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There
will
alway
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s be
some
degre
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e of
tensio
n in
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these
circu
mstan
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ces
and,
while
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no
soluti
on
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will
ever
be
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simpl
e or
entire
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ly
satisf
actory
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, there
is one
basic
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princi
ple
that
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can
enhan
ce the
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likeli
hood
of
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succe
ss.
That
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princi
ple is
to
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make
explic
it and
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fully
identi
fiable
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the
comp
romis
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es
with
intern
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al
equity
that
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are
made
and
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have
to be
made
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in
respo
nse to
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marke
t
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press
ures.
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The
policy
may
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indica
te that
marke
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t
consi
derati
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ons
will
drive
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levels
of pay
in the
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organ
izatio
n. It
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may,
howe
ver,
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allow
for
the
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use of
marke
t
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suppl
ement
s
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additi
onal
paym
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ents
to the
rate
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for a
job as
deter
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mined
by job
evalu
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ation
(inter
nal
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equity
),
which
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reflec
t
marke
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t
rates.
The
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policy
may
lay
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down
that
these
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paym
ents
shoul
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d be
revie
wed
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regula
rly
and
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no
longe
r
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offere
d if
they
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are
unnec
essary
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.
Mark
et
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suppl
ement
s for
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those
who
have
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them
may
not be
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withd
rawn
(they
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would
not
lose
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pay),
but
adjust
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ments
may
be
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made
to pay
progr
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ession
to
bring
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their
rates
more
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into
line
with
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those
for
comp
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arable
jobs.
Mark
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et pay
and
marke
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t
suppl
ement
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s can
lead
to
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gende
r
inequ
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alities
if, as
is
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often
the
case,
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men
in
comp
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arable
jobs
are
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paid
more
gener
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ously
or
more
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men
get
marke
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t
suppl
ement
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s than
wome
n.
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Equal
pay
case
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law
(see
Chapt
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er 11)
has
ruled
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that
marke
t pay
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and
marke
t
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suppl
ementshould be objectively justified and the requirement to do this
should be included in the pay policy.
ATTRACTION AND RETENTION
Market pay and market supplements are the first resort of firms wishing to
attract and retain high-quality people. Golden hellos and golden
handcuffs (recruitment and retention bonuses) may be used for this purpose.
But there is more to attracting and retaining people than simply throwingmoney at them. A total reward policy as described in Chapter 2 is required.
Attraction policies
The overall policy should be to become an employer of choice. More
specifically, an attraction strategy will need to be based on a competitive
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remuneration package (possibly including golden hellos). In addition, the
policy should be to adopt a targeted approach. This means analysing the
factors for specific occupations or categories of employees that are likely to
affect their decision to apply for jobs and to accept them when offered
because they potentially offer higher rewards in the broadest sense than
those they are getting at present or could obtain elsewhere. These factors
could include career prospects, training and development opportunities, the
intrinsic interest of the work, flexible working arrangements and other
work/life balance policies and, especially for research workers, the facilities
available to them and the scope to enhance their reputation.
Retention policies
Retention policies take into account the particular retention issues the
organization is facing and sets out ways in which these issues can be dealtwith. This may mean accepting the reality, as mentioned by Capelli,1 that themarket, not the company, will
ultimately determine the movement of employees. Capelli believes that it may
be difficult to counter the pull of the market you cant shield your people
from attractive opportunities and aggressive recruiters and suggests that:
The old goal of HR management to minimize overall employee turnover
needs to be replaced by a new goal: to influence who leaves and when. This,
as proposed by Bevan, Barber and Robinson,2 could be based on risk analysis
to quantify the seriousness of losing key people or of key posts becomingvacant.
Talent management policies
The overall approach to the attraction and retention of good-quality people can be
described as talent management, which goes far beyond crude attempts to curethe problem with money. Talent management is the process of winning the war
for talent by ensuring that the organiza- tion attracts, retains, motivates and
develops the talented people it needs. There is nothing new about the various
processes that add up to talent management. What is different is the developmentof a more coherent view as to how these processes should mesh together with an
overall objective to acquire and nurture talent wherever it is and wher- ever it isneeded by using a number of interdependent policies and prac- tices. Talent
management is the notion of bundling, ie linking HR policies and practices
together so that they are mutually supportive, in action. It should not, however, be
assumed that talent management is only concerned with key people the high
flyers. Everyone in an organi- zation has talent, and talent management processes
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should not be limited to the favoured few, although they are likely to focus most
on those with scarce skills and high potential.
The key talent management processes are:
developing the organization as an employer of choice a
great place to work; using selection and recruitment procedures that ensure that
good-quality people are recruited who are likely to thrive in the organization
and stay with it for a reasonable length of time (but not necessarily for life);
designing jobs and developing roles that give peopleopportunities to apply and grow their skills and provide them
with autonomy, interest and challenge;
providing talented staff with opportunities for careerdevelopment and growth;
creating a working environment in which work processes andfacilities enable rewarding (in the broadest sense) jobs and
roles to be designed and developed;
providing scope for achieving a reasonable balance betweenworking
in the organization and life outside work; developing apositive psychological contract; developing the leadership
qualities of line managers; recognizing those with talent byrewarding excellence, enterprise
and achievement; conducting talentaudits that identify those with potential
and those who might leave the
organization.
RELATING REWARDS TO BUSINESS
PERFORMANCEThis aspect of reward policy refers to the link between business performance
and pay. It will cover the extent to which pay will vary according to results.
Ability to pay and value for money will also be important considerations.
The policy will include guidelines on how gainsharing or profit-sharing
schemes should operate (see Chapters 25 and 26).
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TOTAL REWARD
The total reward policy should state that although contingent rewards play
an important part in the reward policies of the organization other forms of
non-financial reward are regarded as being equally important.
CONTINGENT REWARDS
The policy will need to determine whether or not the organization wants to
pay for performance, competence, contribution or skill and, if so, how much
and under what circumstances. There may, for example, be a policy that
bonuses should be paid for exceptional performance but that, to be
significant, they should not be less than, say, 10 per cent of basic pay, while
their upper limit should be restricted to 30 per cent or so of base pay. Thepolicy may also indicate the approach to be used in relating pay to
individual, team or organizational performance.
ASSIMILATION POLICIES
The introduction of a new or considerably revised pay structure means that
policies have to be developed on how existing employees should be
assimilated into it. These policies cover where they should be placed in their
new grades and what happens to them if their new grade and pay range
means that their existing rate is above or below the new scale for their job.The policy should therefore cover red-circling (identifying and dealing
with overpaid people) and green-circling (identifying and dealing with
underpaid people). In the case of red-circled staff, protection policies may
have to be formulated to safeguard their
existing rates of pay. In the case of green-circled staff, the policy may have
to determine when (not if) their pay should be increased to fit into the new
scale. It is sometimes necessary to save costs by phasing the increase and
this should be included as a possible policy. Assimilation policies are dealtwith in greater detail in Chapter 17.
FLEXIBILITY
Reward policies have to take into account the extent to which reward
processes should operate flexibly in response to fast- changing conditions,
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the adoption of a less rigid organization structure and approach to
management, and changes or variations in the needs of the company or its
employees. A particular aspect of this policy will be the extent to which the
organization wants to introduce flexible benefits (see Chapter 32).
THE ROLE OF LINE MANAGERS
Line managers play a crucial role in administering rewards, and the policy
should recognize this. The extent to which the responsibility for rewards
should be devolved to line managers is a policy decision. The aim may be to
devolve it as far as possible, bearing in mind the need to ensure that other
reward policy guidelines are followed and that consistent decisions are made
across the organization by line managers. The policy may cover the level of
decisions managers can make, the guidance that should be made available to
them and how consistency will be achieved. The training and ongoingsupport that line managers require to exercise judgements on reward and to
conduct performance management reviews could also be covered by the
policy.
INVOLVING EMPLOYEES
Reward policies and practices are more likely to be accepted and understood
and, therefore, more effective if employees are given a voice in the design
and management of reward processes. This particularly applies to jobevaluation and methods of measuring and assessing performance and
relating rewards to that performance (performance management and paying
for performance or contribution processes).
COMMUNICATING TO EMPLOYEES
Reward processes are powerful media for conveying messages to employees
about the organizations values and the contribution they are expected to
make in upholding those values and
achieving the organizations goals. They should not, however, be left to
speak for themselves. It is essential to communicate to individuals, teams
and representative bodies what reward processes are setting out to do, how
they propose to do it, how they affect them, how they will benefit, and the
part individuals and teams will be expected to play. It is particularly
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important to explain the basis of any pay-for-performance scheme and also
to convey to employees how their total remuneration package of pay and
other benefits is made up.
TRANSPARENCYTraditionally, organizations in the private sector have tended to keep some
information about pay policies secret. This is no longer a tenable position.
Employees will only feel that the reward management processes of an
organization are fair if they know what they are and how they are used to
determine their level of pay and methods of pay progression. Lack of
understanding breeds suspicion and hostility. One of the aims of reward
management should be to enhance commitment, but there is no possibility of
this being achieved if the organization is secretive about pay.
Without transparency, people will believe that the organization has
something to hide, often with reason. There is no chance of building a
satisfactory psychological contract unless the organization spells out its
top related