Reward Strategy: Defence Mechanism or Strategic Tool?
17 May 2011
One of the main criticisms levelled at Remuneration Reports is that the reward strategy and principles they describe do not, clearly and transparently, derive from and support business strategy. If companies cannot show this linkage, then reward strategy risks being interpreted as a “post facto” justification for (high) pay levels – a defence mechanism rather than a pro-active strategic tool.
In reality, most companies derive their reward strategy and reward architecture from a mix of some or all of the following contributing factors:
· A set of principled beliefs (linked to that company’s culture, history, geography, etc)
· An aligned response to business strategy (which may involve culture change)
· A pragmatic response to prevailing economic circumstances
· Conventional wisdom / practice in the market, including tax efficiency
· Personal preference / past experience of top management (CEO, RemCo Chair, etc).
This session examined the experience of companies that have developed vision, purpose and clarity around their reward strategy and practice – and how this has resulted in enhanced business performance. Case studies were by members Kingfisher and Reckitt Benckiser. Nicki Demby of Towers Watson helped us extract the key messages and learnings.
We examined why certain companies pay more attention to some rather than others of the factors listed above and what might be causing them to do that. Participants were given the opportunity to consider their own reward strategy in terms of the mix of factors that might lead to higher levels of business performance within their company.
This was an opportunity to consider the drivers of your organisation’s reward principles and beliefs and to ask yourself the following questions:
· How much do your organisation’s reward principles fit with your business strategy?
· Do the reward principles that appear in your Remuneration Report tell a convincing story or are they just the product of high quality ‘back-spinning’?
· Would a different mix of drivers for your reward principles and architecture result in greater focus and improved business performance?
· What barriers might be faced and what would it take to change these?