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pay structures, methods of progressing pay according to perfor-
mance, contribution or service, and employee benefits such as
pension schemes and sick pay. The degree to which these prac-
tices are formalized will vary considerably between different
organizations. For example, many organizations (60 per cent
according to a recent e-reward survey) have formal job evalua-
tion schemes, but a large proportion rely on more or less
informal methods. Similarly, a lot of organizations have formal
grade and pay structures but 20 per cent of those responding to
the e-reward survey had no structure at all. And performance
and contribution-related pay schemes vary enormously in the
ways in which they operate.
The implication is that if you want to play your part in
managing the reward system you must understand how it
works. You should be told this by HR but, if not, it s up to you
to find out.
Approaches to rewarding people
You need to understand the factors that determine the effective-
ness of the formal or informal system in terms of the degree to
122 % How to manage people
which it satisfies people because they feel valued and the extent
to which it contributes to their motivation and engagement.
These factors consist of the use of both financial and non-finan-
cial rewards and how the system is operated as a fair, equitable,
consistent and transparent approach to rewarding people.
Financial and non-financial rewards
Financial rewards consist of the rate for the job (base pay), pay
related to performance or contribution (contingent pay) and
benefits such as pension schemes. The ways such rewards work
as motivators were considered in Chapter 3. To be effective,
such rewards should be perceived as fair, equitable and consis-
tent (see below). They will work better if the system is trans-
parent. People should also expect that their efforts will lead to
a worthwhile reward there must be a line of sight between
what they do and what they get, between the effort and the
reward. They will also respond more to financial rewards if the
system is transparent they know how it works and how it
affects them.
Non-financial rewards can provide a better basis for valuing
people because they are more under your control. You are in
the best position to value people through them. Financial
rewards are restricted by financial budgets and company proce-
dures. The main ways of valuing people through non-financial
rewards are:
% providing them with the opportunity to achieve;
% recognizing their contribution by praise and by applause
(letting others know how well you value an individual);
% giving people more responsibility (empowering them);
% providing them with the opportunity to grow offering
learning opportunities, encouraging and supporting the
preparation and implementation of personal development
plans and broadening their experience (job enlargement).
Both financial and non-financial rewards are important. Many
organizations are now combining their impact by developing
Rewarding people % 123
what is called a total reward system. Essentially, this notion of
total reward says that there is more to rewarding people than
throwing money at them. Unilever states that total reward
encompasses all the elements that make it worthwhile for
people to come to work . Perhaps the most powerful argument
for a total rewards approach was produced by Professor Jeffrey
Pfeffer (1998) of Stanford University:
Creating a fun, challenging, and empowered work environment in
which individuals are able to use their abilities to do meaningful jobs for
which they are shown appreciation is likely to be a more certain way to
enhance motivation and performance even though creating such an
environment may be more difficult and take more time than simply
turning the reward lever.
Fairness
People will react positively to financial rewards if they feel that
they are fair this is the felt-fair principle. Perceptions on fair-
ness are based on the extent to which people believe that the
procedure followed in making the reward is fair and they are
rewarded according to their desserts. If there is a performance-
related pay system they will want to feel that the method of
assessing their performance was based on what they had actu-
ally achieved and was not affected by bias, prejudice or igno-
rance. They will also want to feel that their rewards are
commensurate with their performance compared with other
people, ie they are equitable, as discussed below.
Equity
Equity is achieved when people are rewarded appropriately in
relation to others within the organization and in accordance
with their worth and the value of their contribution. An equit-
able reward system ensures that relative worth is measured as
objectively as possible and that a framework is provided for
making defensible judgements about job values and grading.
124 % How to manage people
Consistent
The system should allow consistent decisions to be made about
reward levels and individual rates of pay. Policy guidelines
should be available to line managers to ensure that they avoid
making decisions that deviate unjustifiably from what would
be generally regarded as fair and equitable.
Transparent
Transparency exists in a reward system when people under-
stand how reward processes function and how they are affected
by them. The reasons for pay decisions are explained at the
time they are made. Employees have a voice in the development
of reward policies and practices.
The role of managers
You are in a strong position to make the difference in all these
areas. But remember that if you want people to be more moti-
vated and engaged because they feel more valued, it is deeds
not words that count. Inconsistency between what is said and
done is the best way to undermine trust and generate employee
cynicism, lack of interest or even open hostility.
Fixing grades and rates of pay
If there is a grade and pay structure, those parts of the organi-
zation s reward system in the form of its job evaluation scheme
and its procedures for analysing market rates largely determine
how jobs are graded and the basic rates for jobs. You can influ-
ence decisions about individuals by invoking the job evaluation
scheme to grade or re-grade jobs and by scanning any informa-
tion on market rates that you think justifies more pay for
someone.
Rewarding people % 125
Job evaluation procedures are based on job descriptions
which highlight the characteristics of the job with respect to
any factors used in the scheme, such as the levels of skill and
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