CIPD Level 7HR03 Strategic Reward Management

CIPD Level 7HR03 Strategic Reward Management

Reward management focuses on developing and implementing strategies and policies that reward employees fairly, equitably, and consistently by their organisational values.

In simple terms, HR or top management is responsible for applying various strategies to reward people for contributing to the organisation efficiently and effectively.

Rewards act as a motivation factor that compels employees to perform better in the organisation. This is a key area of study in CIPD Level 7HR03 Strategic Reward Management.

Roman Empire

Julius Caesar became emperor, and I think most of us have at least heard of him.

But Julius Caesar, in 54 BC, was the first to develop a reward program, and that was to reinforce the strategy of building a professional army. He was worried he might lose some of his experienced people in the army, so he tripled his Centurions’ (the officers’) salaries as a starting point.

That is an interesting example of the first permanent salary structure. But there was also a practice whenever they went into battle against the enemy. The practice was that the soldiers and everyone who took part and survived shared what they got from the enemies in the looting.

But this often caused problems. Later on, he decided to change this, and the reason was political. Sometimes, they had to fight an enemy where the reward was not that big. There was a huge risk of losing their lives, but there was not much to gain from it.

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So he decided everything they looted from the enemies would go into the state coffers. Then, he developed what we now recognise as the first incentive scheme. He stated that if they successfully campaigned, each soldier would receive 50 dinars, and the Centurions, the officers, would receive 500. They knew upfront what they were going to receive if they were successful.

The army also introduced a pension fund. So, he was progressive, not only in terms of administration but in many other aspects. But here, we are specifically interested in remuneration.

Now, the question we can ask is: what has changed since then? What has changed over the past 2,000 years? Over time, a stronger and more explicit link between employee rewards and enterprise goals and performance has evolved.

I want to share a few reward options available today that combine into different solutions.

Reward solutions

First, we have monetary rewards, which we all know. These could be permanent pay, bonuses, or other financial incentives. However, there are also non-monetary rewards, which I believe organisations should use more effectively.

Then, we have recognition and incentives. Recognition is, after the fact, someone notices that you have done something well and acknowledges it. Incentives, on the other hand, are like what Caesar did.

He told his soldiers beforehand that if they succeeded in the campaign, each soldier would get 50 dinars and the Centurions 500. The line of sight was clear. They knew exactly what they would get.

Next, we have fixed and variable rewards. Fixed rewards include salaries and permanent benefits, often called permanent rewards. Variable rewards, on the other hand, are bonuses and incentives that are not guaranteed. You have to achieve something specific to receive them.

Then, we have short-term and long-term incentives. Short-term incentives include monthly, annual, or six-monthly bonuses. Long-term incentives include stock options, phantom share schemes, or deferred compensation.

Lastly, we have intrinsic and extrinsic rewards. Intrinsic rewards are internal. They provide personal satisfaction, like when researchers succeed and feel a deep sense of fulfilment.

On the other hand, extrinsic rewards are external. They are about recognition and visible achievements, like those seen in marketing professionals who want to showcase their success.

Understanding these concepts is important because they combine to create different organisational solutions. Organisations must create solutions that match their needs and goals when developing a reward strategy.

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These questions need to be answered by the organisation if they want to be successful with reward management.

The first one is, what are we aiming at? That is the reward strategy. The reward strategy allows that whatever reward programs you bring into the organisation fully fit the organisation’s strategy.

It will reward the behaviour that helps the organisation achieve its goals. We have seen so many companies get this wrong, where they reward behaviours that have very little or nothing to do with what the organisation wants to achieve.

The second question is, what will guide us? This is a strange one to a certain extent because philosophy and reward do not always seem directly connected. However, philosophy consists of several principles that guide people in the organisation to make proper decisions.

The next question is, how will we govern or manage rewards? This is done through a reward policy. The reward policy provides more detail on

1. when will increases occur?
2. what elements are included in the remuneration package?
3. what the cycle looks like?
4. what will happen and when?

Most importantly, your reward policy, principles, and philosophy help facilitate decision-making, improving the organisation’s strategy execution.

The last question is, how does everything fit together? This is where the reward model comes in. The reward model provides a clear picture of that specific organisation, showing how the different reward elements and systems fit together.

Reward management

All right, and that brings us to the reward system. A well-functioning reward system should have the following elements:

They must be reversed; again, we discussed them in full support of the organisation’s strategy team. We have the reward philosophy and principles we discussed with the reward policy.

The important thing here is that if you have a fairly progressive company and when you involve all the leadership at the different levels, Nesta, managers, supervisors, everybody, in the reward decision, you need to have a proper reward policy and entry reward philosophy with principles to guide the people.

Then, we look at the dependencies. They are also important dependencies. First, it will probably fail if leadership does not fully support your goal with a reward system. So, that is the first dependency.

The second dependency, which we discussed so many times in our office, is that in everything we do in people management, profiles come in, which is why we call it the foundation. We use route profiles to compare houses internally in the organisation to make sure that we pay people fairly and also to do external benchmarking to see that we are more or less with the markets to reward people appropriately.

The third one is performance management. Once again, if you, and most organisations nowadays, want to fight for performance over output and if you want to do that, you will struggle without a proper performance management system.

So, a performance management system, a proper one, will provide you with rating performance ratings, which is important for long-term and short-term rewards.

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The last one here is governance. We have also seen many companies introduce relations committees. An important thing is that they appoint external independent people on the committee to help them make proper and good reward decisions. So, all the strategy policies and everything else will run through the elimination committee before somebody eventually signs it off.

In the middle, we have the reward model. Now, all of these things fit together, and then there are three things that we need to discuss. First of all, the rewards cycle. We will see it in the last slide to show you what it looks like. That is important because we need to know when it will happen.

All of these tools. So, the first tool will look at booking your award decision consideration. So, when considering your reward, you must look at individuals, the market value, and the role value.

I think many organisations today are a bit different because many organisations have decided to cut remuneration because of our situation. But you know, the days when people just had normal increases as inflation should have been gone long ago. But I think it will be much more top-of-mind as we go along. So that is a tool you need to look at.

The second tool, which is interesting to me, is looking at the factors impacting executive pay. Once again, I think where we are today, looking at inclusive economies and executive pay in a way that factors impacting it in the future could change vastly. However, there are a lot of factors that you need to take into consideration when looking at executive pay.

Then, of course, look at the reward allocation matrix. Performance management is one of them. You also look at, you know, in those circumstances, you also start looking at the cost of your remuneration. You might be moving more towards giving remuneration at risk or giving, you know, those kinds of remuneration instead of getting fixed pay increases.

The reward cycle is important because performance management is not just one thing. You need to consider many factors during the year, or when getting your term off with employment, and when you give your reward, you look at the rewards and performance cycles.

Then, of course, we spoke about collaboration sessions, where people sit together and decide whether the remuneration is fair regarding output. That is not just based on one person’s decision. Lastly, looking at reward pitfalls, what practices must you avoid when making reward decisions in the future?

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So, as an HR, you must understand the best strategic reward management approach for your team, and that is what the **CIPD Level 7HR03 Strategic Reward Management course prepares you for. Do not hesitate to use our CIPD 7HR03 assignment help** to allow you to understand the information provided fully.