REWARD MANAGEMENT

Meaning of Reward Management

Michael Armstrong (2003:13) defines Reward Management as being
concerned with the formulation and implementation of strategies and
policies that aim to reward people fairly, equitably and consistently in
accordance with their value to the organization. It deals with the design,
implementation and maintenance of reward practices that are geared to the
improvement of organizational, team and individual performance.
Analysis of definition

1. Is about rewarding people i.e. giving them their net contribution in the
employment relationship.

2. Has to be expected through particular strategies and policies

(systematic).

3. Is about fairness and equity.

4. Has to be executed consistently
5. It recognizes that employees create value for the organization and
hence have to be rewarded accordingly

6. Its overall intention is to motivate and retain individuals and improve

organizational performance.

The context of reward management

The employment relationship

Tangibles (money, cars, fees)

Intangibles (, recognition, growth)

Employer

Balance

Employee

Tangibles (output, sales, tones)

Intangibles (loyalty, commitment)

Reward management forms the employment relationship. Thus if an HR

Manager is to succeed in successfully managing the employment relationship
he/she will have to do well in Reward Management otherwise there will be an
imbalance in the employment relationship such as strikes and lockouts e.g.
Telone.
Characteristics of a good Reward Management system
The IPMZ (2000) observes that a sound and profitable Reward Management
system should have the following characteristics:

1. Simplicity- a good Reward Management system must be easily

understood by everyone in the organization. Thus people must
understand why they are getting what they are getting from the
employment relationship.
2. Fairness and equitability- every component of the system must be
justifiable and consistently applied. This element is arguably the

most challenging to implement and is the cause of most Reward

Management related problems such as strike, turnover, dissatisfaction
etc.
3. Perceived fairness and equitability Sometimes having a fair and
equitable reward management system is not enough. It must be
understood as being fair and equitable. This could be achieved through
effective communication and training. A survey of most reward
management problems indicated that there are a result of perceived
inequity and unfairness rather than actual inequity and fairness.
4. Participatory A reward management system that is simply dictated
to by management is not bound to work. An effective one should
ideally be negotiated and agreed between management and employees.
NB. Key consideration should be on the drafting of a reward management
strategy.
Reward Management vs. Compensation Management
While these two terms are sometimes used interchangeably, the term
compensation (more commonly used by the Americans) has been generally
discarded because it gives connotations of reward as being only about
Money and other tangibles. Armstrong (2003) suggests that organizations do
it just because it has to be done. However reward management is preferred
as it encompasses all aspects of reward and co notates an activity which
management voluntarily engages in for strategic purposes.
The Total Reward Model
(Armstrong 2003:21)

Financial
Rewards

Base Pay

Total
Remuneration

Variable
Pay

Non
Financial
Rewards

Recognitio
n

Total
Reward

Autonomy

Share
Ownership

Status
Growth

Other
Allowance

Quality of
Work life

The concept of total reward recognizes that in an employment relationship

there is more that employees want and value than just money. Thus a
prudent reward strategy bent on attracting, retaining, motivating and
satisfying employees and making a strategic contribution should adopt the
total reward model (Is money the most important element of reward?)
Reward Management strategy
A reward strategy just like any other strategy in the organization must seek
to address an organizations bottom line. Its purpose must therefore be to
support the corporate strategy and address organizational needs. Thus a
typical reward strategy should house a linear appearance as follows:

Business
Goals

Business
Strategy

HR
Strategy

Reward
Strategy

Some Generic Reward Strategies

Base Pay Reward strategy
Traditionally companies have always adopted the base pay strategy that as
the reward management strategy. This strategy a company pays the legal
minimum wages and salaries. However it became apparent that this strategy
was not adequate in new work cultures and in terms of attracting, retaining
and motivating top performers for strategic purposes (still very commonly
used for lower level employees). The following then became the new options:

Knowledge and skills based strategy

Because of the proven co-relation between skill/knowledge and on the job
performance, organizations have sought to encourage continuous skills
development by tying it to rewards. In this strategy an organization simply
varies its pay structure according to ones level of knowledge and skill (job
evaluation systems). For this strategy to bear fruit an organization must
first define which skills it values and will pay for and must have a supportive

training and development strategy. In practice this strategy will be based on

base pay with an equal base pay and a variation based on skills and
knowledge. While this strategy may be costly in the short-term, in the
organization run it is beneficial, as the organization will begin to benefit
from a knowledge HR base through increased productivity and quality of
products. Thus this strategy is a good example of how a reward strategy can
address an organisations bottom line.
Performance Based (Variable pay) based structure
This strategy is arguable the most strategic from organizational point of
view as it strikes a balance between what the employee gives into an
employment relationship and what he gets out of it. It recognizes and is
based on the philosophy of reward management that employees should be
rewarded only for the value they create. This strategy seeks to
scientifically align ones reward to the value he/she would have created. In
this strategy a company will reward employees in the same grade variably
depending on each employees performance. Obviously for this strategy to
work the organization must have a sound performance management system.
The sole reason why this prudent strategy has often failed and created
many HR problems especially in Zimbabwe is because some HR managers
attempt to introduce it without a sound performance management system.
At the end of the performance management cycle an organization ties the
results to rewards to come up with a performance based reward strategy as
follows:

Aa
+50%
of base pay

B
+30%
of base pay

C
+15%
of base pay

+5%
base
of base pay pay

In practice this strategy is usually rooted on base pay with variation being
from he base pay itself. This strategy has become the most preferred
because of its direct linkages with an organisations bottom line.

Incentive Based Pay Structure

The incentive based pay strategy is similar in terms of philosophy to the
performance based strategy in that it also links reward to certain
performance measures but being different in that it focuses on group
performance rather than individual performance. The starting point in this
strategy is to define group performance targets such as productivity sales
volumes or profitability. An achievement n each of these categories will be
accompanied by commensurate rewards such as productivity bonus or profit
sharing for management. At individual level the most common form of this
strategy is piece-rate pay where an employee is paid purely for what he/she
produces without a base pay e.g. sales reps. Like the performance based
reward strategy this strategy addresses on organisations bottom line as it
is based on organizational performance and is commonly used for managerial
employees.

Reward Management policies

Because consistency and fairness are critical elements of reward
management with a capacity to make or break a reward management system,
a clear reward policy outlining the following is a must.
1. The job evaluation and differential method
2. An organizational pay stance

Some Generic Pay Stances/Reward policy

Market Stance/Market Rate policy
Here the organization simply pays according to prevailing Market rates. Such
an organization will be found engaging in salary surveys to determine
market freely.

Below Market policy

Here an organization will be paying below prevailing market trends. However
this policy will have to be supported by other non-pay rewards if it is to
make any business sense.

Above Market policy

Here the organization first surveys the market and sets its pay structures
slightly above the going market rate. This policy pays dividends in terms of
attracting and retaining good talent.

Differential Pay policy

Here an organizational pay policy is to vary levels of pay depending on
individual or team performance.
The Flexibility policy
Here the organizations reward policy is not to adopt any particular strategy
or stance but to remain flexible and adapt to any current company and
employee needs.

Factors that affect an organizations Reward policy and Strategy

1. Affordability what an organization can afford to pay. The argument
here is that an organization cannot borrow to reward employees but
should reward from the value created by the employees themselves.
However in any case an organization has to afford to pay above legal
minimums.
2. Legislation- legislation sets the minimum base pay (minimum fixed pay
rate), which becomes the starting point in calculating for all of an
organisations policies.

3. Trade Unions/workers committees depending on the power of a

union, pay levels are determined through collective bargaining. The
most powerful ones will strike higher levels.
4. External job value the market value of the job e.g. what is the
market value of an Hr Manager or CA?
5. Internal job value the value or perceived value of a job compared to
the other jobs which the organization will determine the reward for
that job e.g. Hr manager compared to Finance manager.
6. Value of the person employees holding similar jobs can be paid
differently depending on the value to the organization performance.
7. The economy (labour supply/demand). A depressed economy (Zim)
increases the supply of labour, which in turn reduces its price and
hence affects reward policy strategy.

The Legal and Institutional Framework for Reward

Management in Zimbabwe
Legal
Until the 1930s liberalization policy under ESAP the sovereignty through
the minister used to set minimum wages for all industries. Currently the
new Amendment Act also gives the Minister power to set minimum
wages for certain industries even though this has been left to be done
under special circumstances.
Institutional

Base pays in Zimbabwe particularly for lower level employees are set at
institutional levels The NECs set minimum wages for the whole
industry. These minimum wages are then usually topped up by
negotiating through works councils at plant or organizational level.
Minimum wages agreed at NEC level have a legal effect similar to
statutory instruments o a ministerial order and hence organizations
cannot pay below these minimums.

Salaries and Wages Administration

Data input for salaries and wages
Data processing
Taxation (various tax bands)
Statutory and non statutory deductions and payments
Legal processing for salaries and wages
The payroll and payroll packages
The overall process
The Significance of effective Reward management to HR and overall
Business Management
HR
A wide range of HRM strategies can be successfully implemented with the
aid of appropriate Reward Management strategies.

Retention strategy- through a total reward strategy that would

discourage turnover.

Talent attraction (recruitment)- through an above market strategy.

Performance management- as an incentive for those who meet

performance targets.

IR- most IR related problems are reward centered and hence an

effective IR strategy must also encompass a reward strategy.

Training and Development- a T&D strategy can work much more

efficiently with a supportive skills based reward strategy.
To Business

If an enterprise is as good as the people ho work in it then Reward

management becomes central in that it can determine the goodness of
the people who work in the form of motivation and commitment. They
show to the organization (unsatisfactory rewards = low commitment).
This explains why the organizations with well to do Reward systems
(Econet/Trust) enjoy better results in terms of productivity and general
performance then those with poor ones such as the civil service.

Characteristics of a profitable Reward Management strategy

(Armstrong 2003:614)

Supports the achievement of overall business strategy

Is integrated with other HRM strategies

Is strategic in nature in the sense that it looks at supporting overall

organizational effectiveness and efficiency

Adopts a total reward approach which recognizes that there are a

number of ways of rewarding people- being both financial and non
financial

Is based on a philosophy of rewarding people differently for the value

they create i.e. the return on human capital investment

Seeks to achieve a perfect balance in the employment relationship and a

generally positive employment relationship.

Skills practice
On attachment