During the 1990s, the ‘new pay’ writers said reward practices should be used to achieve strategic business objectives, and other strategic reward priorities should be subordinate. How this should be achieved has been hotly debated since then.
For most service-based organisations, pay and benefits account for 70% to 80% of corporate costs. Yet there is relatively little evaluation of whether their reward systems are delivering value for money.
Much research on reward system evaluation shows how hard it can be to disentangle the effect of reward from the wider employment experience. However, as costs in many organisations continue to be constrained, the focus is on achieving bottom-line value from pay and benefits.
The emphasis for many organisations may be, on the one hand, using pay to ameliorate the harmful effect of loss of talent. The CIPD [Chartered Institute of Personnel and Development] Employee outlook survey, published in June 2011, shows the prime reason for staff wanting to change jobs relates to pay and benefits. On the other hand, in many organisations there are no real increases in pay for most staff. For many, the ‘push’ effect on pay from cost-of-living rises is constrained by employee fears of unemployment.
Even so, employers can still seek to use reward to deliver positive organisational outcomes. The government’s Workplace employment relations survey, published in 2004, showed employee satisfaction with the amount of pay received is associated with employee commitment, which can have a direct effect on business outcomes.
So, it is important to focus on pay satisfaction and understand that it may be associated more with what is termed procedural justice.
This concept implies that people can even accept that pay cuts are fair if they buy into the reasons for them. So, the emphasis for managers should probably be much more on reward communication.
Angela Wright is senior lecturer in HR at Westminster Business School