Reward And Compensation Strategy: Next, Develop Your Rewards

Reward and Compensation Strategy. Next, develop your reward and compensation strategy by following the first four steps in Figure 6.1 (page 189 of the textbook).

Develop a comprehensive reward and compensation strategy for a client organization by following the initial four steps outlined in Figure 6.1 (page 189 of the textbook). This process involves identifying the targeted employee behaviors that the organization aims to encourage, understanding the role of various compensation components in fostering those behaviors, selecting the appropriate compensation mix, and establishing compensation levels relative to the market. If different job families require distinct behaviors, repeat this process for each family. Summarize the outcomes in a compensation strategy template, ensuring all jobs within a template share the same compensation mix and relative market positioning, although individual pay amounts may differ. Create at least two templates — one for jobs under a pay-for-knowledge system (PKS) and another for jobs evaluated via job evaluation (JE). Exclude top management roles such as CEO and VPs from these templates. When creating job families, decide which jobs fall under PKS based on their nature, using insights from Chapter 4. Remaining jobs should be categorized under JE, considering how many distinct behavior groupings are appropriate — generally between three and five families. Identify behavioral objectives for each job family following the guidelines in Table 6.2 (page 195).

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The development of an effective reward and compensation strategy is fundamental to aligning employee behaviors with organizational goals. Following the initial four steps from Figure 6.1 (page 189), organizations must first define the specific behaviors that are critical for success within each job family. These behaviors typically encompass task performance, citizenship, and membership behaviors, which collectively contribute to organizational effectiveness. For example, in a technology firm, behaviors such as innovation, collaboration, and technical proficiency might be prioritized, whereas in a retail setting, customer service and sales abilities could be central.

Once the desired behaviors are identified, the next step involves understanding the role of various compensation elements—such as base pay, performance incentives, and benefits—in motivating these behaviors. This involves determining the role of intrinsic rewards like recognition and developmental opportunities, extrinsic rewards such as bonuses and benefits, and the overall influence of compensation on behavior. For instance, roles requiring high expertise may be motivated more by intrinsic factors like professional growth, while transactional roles may respond better to extrinsic rewards.

Based on this understanding, organizations select an appropriate compensation mix. This includes dividing the total reward package into components such as base pay, performance-based incentives, and indirect benefits, each weighted appropriately to influence targeted behaviors. For example, a program might allocate 70% of total compensation to base pay for stability, with performance bonuses constituting 15%, and benefits making up the remaining 15%. The mix should be tailored for each job family, ensuring that high-involvement, knowledge-based roles receive suitable incentives to promote behaviors like continuous learning and innovation.

Furthermore, establishing the compensation level involves benchmarking against market data while considering organizational strategy and internal pay equity. The levels can be set to lag, match, or lead the market, depending on the organization's talent strategy. For instance, a firm desiring to attract highly skilled professionals might choose to lead the market by offering above-market pay, whereas a cost-conscious organization might lag slightly behind market levels. This careful calibration ensures that compensation levels reinforce the desired behaviors without overextending the company's budget.

Applying this methodology across multiple job families requires creating tailored compensation strategy templates for each. For example, technical roles such as programmers under a pay-for-knowledge system necessitate a different mix compared to evaluated roles like administrative staff, which are often driven by job evaluation points. Creating these templates involves detailing each component's projected proportion, deciding on appropriate benchmarks and incentive structures, and defining specific pay levels relative to the market.

It is critical to ensure that the number of job families strikes a balance: too many creates complexity and administrative burden, while too few risks mismatching compensation strategies to actual job behaviors. Typically, three to five families provide a manageable structure that supports targeted motivation. For example, high-skilled professionals, administrative staff, and entry-level workers might constitute three distinct families, each with customized strategies.

In conclusion, crafting a nuanced reward and compensation strategy involves systematic behavior analysis, strategic component selection, and market benchmarking. This structured approach aligns organizational needs with employee motivation, supporting the achievement of strategic objectives while maintaining internal and external equity.

References

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