Five mistakes to avoid when developing a reward strategy

The need to develop a reward strategy is often triggered by something happening in the business. Typically, a new CEO might be appointed who creates a vision for the business, which means the current arrangements are regarded as no longer fit for purpose. A new approach is therefore required, meaning some serious thinking under a number of headings, for example:

  • Underlying structure;
  • Base salary management;
  • Variable pay;
  • Integration with other HR processes;
  • Internal equity; and so on.

A large business is likely to have a dedicated reward function that has the experience to lead the technical work. However, most businesses in the UK are not so fortunate and the work often falls on the shoulders of HR people who do not profess to be reward experts. Whichever group you fall into, I hope you find this blog a useful guide to the mistakes businesses often make so you can avoid them!

Mistake 1: Not starting with the end in mind

The nature of reward arrangements means that in many cases they are either explicitly contractual or contractual through custom and practice. This means that in order to change what you do, it is likely that you will need to reach an agreement. This could be with a trade union, an employee forum or employees individually. Starting with the end in mind, you put the process and project structure in place from the start, which will help ensure your implementation is as smooth as possible.

Mistake 2: Underestimating implementation time and resources

This is linked to mistake number one. In some ways, deciding what you want to do and even designing the new reward elements is the easy bit. In our experience, the real challenge is in implementation and this could be a third or more of the project. There is a lot to do including documenting the new arrangements, communicating them to your people, making sure your managers are prepared, dealing with problems and challenges as they arise, and so on. Underestimate the time and effort required for implementation and you could seriously reduce the positive impact of the changes you want to make.

Mistake 3: Failing to consult widely enough

Different businesses have different styles, but failing to consult with a broad spectrum of people can have serious consequences. Clearly, the directors will have a strong view, which must be taken into account; but the real impact of your new arrangements will be felt most strongly by the mass of people doing the operational and service delivery roles that create value for your customers. In our experience, it is very common for there to be a gap between what the directors want to happen, what line managers believe is happening and want to change, and what employees generally see as the issues and opportunities. Without a comprehensive consultation process you may miss the opportunity to create a reward strategy that addresses the real issues.

Mistake 4: Looking at reward too narrowly

There are two parts to this. The first is failing to grasp the opportunity of joining up your HR processes, for example, reward, performance management, career development and so on. Creating “joined up writing” has almost as much impact as the design decisions you make in your new reward strategy.

The second is focussing too much on pay and benefits. Total reward encompasses not only these extrinsic factors but also how much personal growth opportunity you create for people and the culture within which you ask them to work.

Mistake 5: Failing to get the communication right

Changing the reward strategy means that you are likely to be changing things that people are really concerned about. For example, you might be changing the way you manage base pay, bonus, grading, and so on. Everyone is naturally quite anxious about how these changes will impact them. Without a well-developed communication plan, there is tendency for people to rely on the grapevine or even try to fill in the gaps themselves. On the other hand, with a well-developed communication plan you can make sure you get your message across clearly and consistently and consequently make the change process a lot less stressful for all involved.

In conclusion

I hope you find this a useful list of things to consider. What I hope it shows that, as I’ve not mentioned it at all, the technical work around pay design and grading is not where the problems occur. In my experience, the things that cause all the problems are rooted in the processes supporting any significant change management project and as such are largely manageable and predictable.