and founding
pillars
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Section I
Reward Management
The foundations of Reward Management
Reward management should basically aim at influencing people actions and behaviour in
order to organizations attaining their overall business objectives and aims. This target is
much more likely to be achieved by aligning individual objectives with organizational
objectives (Daniels et al, 2006). It can consequently be said that reward management is
essentially concerned with all of the complementary initiatives, actions and activities
designed and implemented by employers in order them to receive their staff full support
for the achievement of organizational strategy.
It clearly emerges that reward management cannot be considered, developed and
managed independently of the other HRM practices, business strategy and organizational
culture. On the contrary, reward management should be used by employers as an
additional powerful system by means of which not only more easily achieving their
intended objectives, but also fostering integrity and endorsing desired behaviour within
the organization. These objectives are quite hard to achieve, but the successful
identification, development and execution of the right approach can undoubtedly help
employers to attain organizational success.
Since reward management is also concerned with organizations’ strategy, it also needs
to be in turn strategic and constantly fitting the changing business circumstances.
Irrespectively of the causes behind these, changes within organizations are occurring at
a faster and faster pace, and reward specialists need to be ready to adapt reward
approaches, systems and schemes to the changes required from the exogenous and
endogenous environment as well.
Reward management is then concerned not only with design and execution but also with
the maintenance of the system, that is, the regular review of the practices, policies and
procedures of which it is formed (Armstrong, 2010).
Organizations recruit and reward people “not for their ability to follow instructions” but
for their expertise (Bersin, 2012), capabilities and skills and for the results these can
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Reward Management
yield and the contribution they can make to organizational success. This idea entails that
people cannot consider their working experience fulfilling whether, in addition to financial
reward, they would not receive other forms of recognition. To this extent research has
broadly shown that individuals are motivated by their job if they are made aware of its
worthiness and meaningfulness, especially if their job is openly acknowledged by
employers as contributing to the attainment of organizational objectives. Reward
management needs to duly take into consideration this aspect and in addition to financial
reward needs, hence, to provide individuals access to and opportunity for personal and
professional growth, development, learning, participation, training, involvement, job
design, work-life balance and all of those initiatives and activities making employees’
day-to-day working experience more involving and gratifying.
The importance of a consistent and bespoke Reward Management
approach in an ever changing world
Businesses’ activities, cultures and strategies are nowadays the more and more
influenced by the ever-increasing speed at which changes occur in the external
environment. The international business scene tends to be increasingly dominated by
concepts like globalisation. Modern means of transportation have practically contributed
to remove most of the barriers to international exchange and trade, remarkably
contributing to the creation of the so called Global Village, ultimately making markets
geographical limits the more and more blurred.
However, this does not mean that all the places are the same, as well as are not the
people living in the different geographical regions. Indeed, every country has its own
culture which people essentially tend to preserve and, most importantly, individuals are
different, very often even sensibly different, one another. Differences in needs,
expectations and behaviour can in fact clearly be identified amongst people within every
organization, department, unit or even office of every business. Yet, individuals’ needs
and expectations are very likely to change over time, making even harder sometimes for
employers understanding people feeling and perceptions of the reward packages they
offer.
Employers need to be aware of these differences, and need to take them into duly
consideration when designing, developing and implementing their HRM practices. People
are different one another so that in order to develop the right policies and practices,
employers should previously acquire a thorough and deep understanding of people needs
and expectations. But this is not enough, in doing so employers should also duly
consider the importance of the psychological contract and do everything they can in
order to avoid that individuals could ever perceive that they have breached it.
The one-size-fits-all approach is never likely to work when applied to people. Employers
and reward specialists as well have then to be cautious and wary about introducing and
implementing within an organization a given approach only because it has revealed to be
effective and suitable elsewhere. HRM and reward practices have instead to be designed
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and developed on the basis of the circumstances in order to meet the different, specific
needs and have to be regularly assessed and reviewed in order to take account of the
eventually changed circumstances.
In order to develop a healthy workplace, where individuals can feel comfortable and
valued and perceive their work as meaningful, employers need to know, understand and
meet their staff expectations. Employers also have to do whatever they can to make
people feel that the activities they perform and the results they produce are valuable
both for the organization and themselves; respecting, preserving and to some extent
nurturing differences amongst individuals. Diversity is a value that every organization
should be able to acknowledge, understand and foster; a value which should be
embedded in every organization’s culture in that likely to favour innovation and
creativity.
The circumstance that people are different, have different needs and expectations and
that these different needs and expectations are also subject to change over time clearly
also has to be duly considered by employers in terms of reward management. In that it
is crucial that the awards offered to employees have to be considered and perceived as
valuable by these, differently all of the effort and resources deployed by employers
should merely represent a massive waste which, in some circumstances, could even
produce undesirable drawbacks.
Best practice or best fit
Over the years, different Authors have provided several definitions of “best practice” and
“best fit”; overlaps between the two definitions notwithstanding, it is rather
straightforward identifying the differences between the two approaches also when these
are applied to reward management. At large, it can be said that proponents of the best
practice approach believe that organizations can achieve competitive edge having
recourse to pre-identified practices which can invariably be applied in whatever, and
irrespective of, the circumstances; whereas the best fit approach is essentially based and
developed on the underpinning idea that what is best actually depends on the
circumstances. The idea of best practice is hence based on “universality”, whereas that
of best fit on “contingency.”
The best practice concept is underpinned by the idea that the “bundling” approach
represents the only method enabling employers to achieve improved organizational
performance. It is in fact only by means of the combined effect of HRM practices, and
reward practice amongst them, that organizations can achieve the desired level of
performance. Practices in general include: recruitment and selection, training, employee
voice and involvement, job security and competitive reward schemes (Pferrer, 1998 and
Huselid, 1995). Indeed, it is not having recourse to the bundling approach in itself which
has attracted so much criticism to the best practice approach, but rather the
universalistic connotation attributed to it by the best practice advocates. The final result
produced by a series of combined, simultaneous initiatives in fact is likely to be much
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more effective and remarkable than that produced by a limited plan of action, but these
actions need to be identified, designed and planned according to the circumstances.
According to this approach, additionally, employees’ duty would not just be that to help
employers achieving their intended strategy; on the contrary, thanks to the combined
effect of all of the practices existing within an organization, will be the “superior human
resources” recruited by the organization who will influence and determine organizations’
strategy (Milkovich and Newman, 2002). This would practically account for reversing the
process in that, according to this idea, policies would precede strategies (Morris and
Maloney, 2005). What also strikes about this specific aspect is that businesses would
practically be delegated to the valuable managers recruited by means of the best
practices (in this case recruitment practices) put in place by the employers, whereas
strategy definition should invariably rest with companies’ business boards and
shareholders. To this extent, this approach is questionable at best in that excellent and
talented staff can clearly help employers in the process, especially in the execution
phase, but deciding an organization’s direction should always be an employer
prerogative and should invariably rest with this.
Nonetheless, the most relevant aspect associated with this approach is that, according to
its proponents, businesses can invariably achieve increased organizational performance
by means of the same bundle of HR practices, whereas divergences amongst advocates
of this approach remain just for secondary details (Torrington et al, 2008).
The best fit concept is, on the contrary, underpinned by the idea that, in order to enable
employers to achieve competitive edge and hence their intended strategy, HR and
reward practices need to be developed according to the circumstances. This objective
will be attained by aligning HRM and reward strategy with the overall business strategy,
from which all of an organization’s practices flow, and that is why models fitting reward
management are also known as “matching models” (Sparrow and Hiltrop, 1994).
Advocates of this approach consider business strategy as the engine and guide of all of
the business activities (Lawler, 1995), so that it can ultimately be defined as the
“touchstone for the development of reward strategy” (Morris and Maloney, 2005).
Despite the two approaches are underpinned by completely different ideas, some
common ground can be identified. Supporters of the two approaches in fact broadly
agree on the fact that reward management needs to support HR strategy, as well as
organizational strategy, culture and structure. Yet, both approaches also recognise the
pivotal role played by effective reward practices to enable employers to attract and
retain quality staff (Morris and Maloney, 2005).
Common grounds notwithstanding, the differences between the two approaches
definitely prevail. Although both best practice and best fit approaches foster and support
fair reward practices, views about how to attain this common objective in practice
sensibly differ. Whilst best practice advocates support reward systems based on equality,
best fit proponents support systems based on equity. More in particular, according to the
best practice approach employers, in order to foster “collegiality and cooperation”,
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should offer individuals performing the same activities the same reward package (Morris
and Maloney, 2005). Pfeffer (1998), who strongly supports the idea that people should
not be rewarded according to their performance and the outcome they produce,
delivering a speech at a Toyota Motor plant in the US averred that people carrying out
the same job should receive the same salary, in that this approach is the most likely to
foster cooperation and team working. In contrast, best fit advocates foster reward
practices based, and hence differentiated, according to the contribution provided by each
individual to the organization performance (Morris and Maloney, 2005). Employers
should then design and develop reward practices aiming to establish a clear “line of sight”
between employees’ behaviour and the reward packages they receive (Lawler, 1995).
The different conclusion to which each approach comes to is actually depending on, and
directly associated with, the motivational theory put at the basis of the two different
methods by their proponents. In general, best practice advocates rely on content theory
and, more in particular, on Herzberg’s two-factor theory (1957, 1968) and consequently
consider money exclusively as a hygiene factor. They also claim that employees are
motivated by meaningful jobs and opportunities for personal and professional growth
and uphold that reward packages based on higher portions of fixed salary contribute to
reinforce individuals’ idea that they are valued by their employers (Morris and Maloney,
2005) and that they are fairly paid. On the other hand of it, supporters of the best fit
approach developed the founding idea of their method on the basis of the expectancy
theory. Therefore, for a successful implementation of an effective and consistent reward
system, the existence of a link between pay and performance should be first and
foremost clear and visible. Yet, this clear relationship also needs to be reinforced by a
“climate of trust and credibility” (Lawler, 1981). The existence of these circumstances
can contribute to satisfy individual perceptions that the expectancy and instrumentality
elements of the expectancy theory are met. Indeed, also the third requirement of the
expectancy theory, that is, valence needs to be met. In order to satisfy individuals’
expectations in terms of the value and importance each person associates with the
outcome of his/her activities, therefore, a direct and discernible “line of sight” needs to
be established between the outcome produced by individuals’ actions and the consistent,
relevant financial reward which is offered to them (Lawler, 1995).
Without a doubt, in an ever changing world where external factors are constantly
impacting and influencing organizations’ strategy and culture, the best fit approach has
to be considered preferable to the best practice one. This makes even more sense if we
consider that businesses are nowadays constantly struggling in markets dominated by a
harsh and constantly increasing competition. Reward management practices need to
constantly support employers in their quest and constantly be adapted to the changing
circumstances in order to effectively support businesses in attracting and retaining the
individuals they need to keep pace with the ever-changing, competitive business world.
In order to effectively accomplish these tasks reward practices absolutely need to be
aligned with both organizational strategy and culture. But this is not actually all, sound
and appropriate reward management practices cannot be designed and developed
irrespectively of all of the main aspects and features characterising an organization such
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Reward Management
as: size, management style, structure, the kind of people employed and the technology
used (Armstrong et al, 2010). Proponents of the best fit approach also suggest that, in
addition to these factors, employers should also consider the key elements linked to the
product market strategy they are aiming to pursue and the relevant labour markets’
features (Torrington et al, 2008). Low cost organizations will clearly aim at developing
practices based on cost containment and minimization, whereas organizations aiming to
differentiate their offer will develop high performing work system privileging innovation
and expertise. So that, for instance, a small business aiming to gain competitive
advantage by means of cutting-edge, superior products and competing in a tight labour
market will most likely have recourse to “sophisticated human resource practices” whilst
offering informal working place, whereas large low-cost organizations will adopt more
bureaucratic approaches and HR practices based on cost minimization (Torrington et al,
2008).
The alignment of reward management practices within organizations should be
overarching or, to put it another way, reward practices should be consistent and aligned
both with the other management practices – vertical alignment – and with the other HR
practices – horizontal alignment (Wright and McMahan, 1992). This will, in turn, ensure
that all of the practices within an organization will support one another and will be
perceived by staff as coherent, ultimately contributing to foster integrity within the
organization.
For definitely preferable the best fit approach is, it is not, however, completely immune
from problems. Reward practices design and development phases cannot in fact be
managed as exclusively contextual-driven processes. Even though contingent and
depending on the circumstances, these policies also need to be developed according to
conscious and conscientiously made choices and decisions (Paauwe, 2004). Additionally,
reward policies as well as all of the HRM practices, also need “to fit with social legitimacy
goals” (Boxall, Purcell and Wright, 2007).
But one important aspect which definitely deserves to be duly considered is that it is not
always possible being able to adapt all of the contingent variables of HR and reward
management to business strategy needs and being able to thoroughly take into
consideration the knock-on effect that a change in a variable can have on the others
(Purcell, 1999).
Best fit approaches do not need to subserviently be introduced; reward specialists must
actively and constructively contribute to reward strategies and practices design and
development. In the event they should identify some anomalies in terms of viability and
implementation or, more in general, some inconsistencies or difficulties on supporting
organizational strategy by means of reward practices, it is reward specialists’ precise
duty submitting to the attention of businesses leaders their doubts and concerns. This
not necessarily means altering the main aim and objectives that organizational strategy
intends to attain, but just provide feedback for eventually introducing the adjustments
which might be necessary in order to avoid, at best, time and resource wastage and, at
worst, serious detriment to the organization stability and steadiness.
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In order to make strategic decisions, business leaders clearly need to gather as many
information as they can, in that, the different existing circumstances can actually
account for them to reach different conclusions. In order to take sound and appropriate
decisions, employers need to consider and focus on the endogenous as well as on the
exogenous environment whose contingent features clearly play a pivotal role in their
decision making process.
It can finally be agreed with Dyer and Holder (1998) that “The inescapable conclusion is
that what is best depends.”
Reward management in context
In order to effectively adopt the best fit approach, employers should previously gain a
thorough, overarching understanding and knowledge of the context in which their
business operates. An in depth and extensive knowledge of both the internal and
external environment is, indeed, of paramount importance regardless of the particular
approach to reward management an employer might intend to pursue; irrespective of
the circumstances, extra care definitely needs, by extension, invariably to be taken with
this aspect.
The influence of the internal context
Within the internal environment can be identified several factors differently influencing
reward management practices and policies.