5HR03 Reward for Performance and Contribution
- July 29, 2021
- Posted by: admin
- Category: CIPD Level 5
This unit focuses on how internal and external business factors influence reward strategies and policies, the financial drivers of the organisation and the impact of reward costs. It considers the importance of the role of people practice in supporting managers to make robust and professional reward judgements and the impact of rewarding performance.
Reward: An Introduction
Pay and benefits are important in attracting, retaining and engaging employees. A range of options is available to reward people and recognise their contribution, each with their own opportunities and risks. The most effective reward packages support the business strategy, staff wants, and the organisation’s purpose, culture and performance, in a fair and consistent way.
Reward Management Survey (CIPD, 2020)
The CIPD’s latest reward management survey focuses on the impact that COVID-19 and the ensuing economic turmoil have had on reward practices in the UK. The survey asks whether global events and resulting trends have forced organisations to revisit their reward policies on, for example, matters like employee financial wellbeing. The report examines the motivations behind these changes in reward, the barriers encountered along the way, and includes recommendations for practitioners who plan to update their polices in 2021.
Strategic Reward and Total Reward
Strategic reward takes a long-term approach to how an organisation’s reward policies and practices can support its business objectives. The concept of ‘total’ reward covers all aspects of work that employees value, both tangible and intangible, and may form part of an overall reward strategy.
Total reward may form part of a strategic approach to reward for many employers. For example, an organisation might adopt a total reward approach, providing cutting edge learning programmes together with flexible working options, as well as more traditional aspects of pay and benefits, to recruit, retain and engage the staff it needs to secure its business objectives.
The ability to design and implement a reward strategy and a total reward approach is an important aspect of a HR professional’s role and it forms part of the CIPD’s Profession Map.
Leia Technologies was formed in 2017 and employs 75 people. Recently the company has launched its new app “Money4Future” and provides saving and investment products including Lifetime ISAs, pensions and saving accounts.
After a hectic start up, the company’s HR team is now able to reflect on its reward strategies and policies. They recognise due to the growth of the company, and the amount of new people within the HR team, that there are some gaps in knowledge about Reward for Performance and Contribution.
As a senior member of the HR Team, you have received a request from a colleague for an understanding of the issues relating to the impact of reward approaches and packages, how benchmarking data can inform reward approaches and the role of people professionals in supporting line managers.
Your manager has asked you to produce a guidance document to be sent to your colleagues and a blog article to be placed on the HR Team’s online news page.
Preparation for the Tasks:
- Refer to the indicative content in the unit to guide and support your evidence.
- Pay attention to how your evidence is presented, remember you are working in the People Practice Team for this task.
- Ensure that the evidence generated for this assessment remains your own work.
You will also benefit from:
- Reflecting on your own experiences of learning opportunities and training and continuing professional development.
- Reading the CIPD Insight, Fact Sheets and related online material on these topics.
- You should relate academic concepts, theories, and professional practice to the assessment task(s), in a critical and informed way, and with reference to key texts, articles and other publications.
Don’t forget to:
- Complete the front cover sheet, sign with a “wet signature” and place at the front of your assessment.
- Use the bullet points below each task as headings and sub-headings so your marker can see where your answer begins.
Task One – Guidance Document
You have received a request from a colleague for an understanding of issues relating to the impact of reward approaches and packages. They also want to understand how benchmarking data can inform reward approaches.
Generate a guidance document that covers these two areas, including current models and thinking around the subject. You may wish to break down the guidance document into the following sections:
Section 1 – The Impact of Reward Approaches and Packages
- Evaluate the principles of reward and its importance to organisational culture and performance management. (AC 1.1)
- Explain how policy initiatives and practices are implemented (AC 1.2)
- Explain how people and organisational performance can impact on the approach to reward. (AC 1.3)
- Compare the different types of benefits offered by organisations and the merits of each. (AC 1.4)
- Assess the contribution of extrinsic and intrinsic rewards to improving employee contribution and sustained organisational performance. (AC 1.5)
Section 2 – Benchmarking Data to Inform Reward Approaches
- Assess the business context of the reward environment (AC 2.1)
- Evaluate the most appropriate ways in which benchmarking data can be gathered and measured to develop insight. (AC 2.2)
- Develop organisational reward packages and approaches based on insight. (AC 2.3)
- Explain the legislative requirements that impact reward practice. (AC 2.4)
Task Two – Blog Article
To sit alongside the guidance document, your manager has asked you to create a blog article to sit on the HR Team’s online news page. The article should be titled:
“Supporting Line Managers to Make Reward Decisions – The Role of People Professionals”
It should be aimed at people requiring information and guidance and should cover the areas below:
- Assess different approaches to performance management. (AC 3.1)
- Review the role of people practice in supporting line managers to make consistent and appropriate reward judgements. (AC 3.2)
- Explain how line managers make reward judgements based on organisational approaches to reward. (AC 3.3)
The most important part of this article is covering the areas above. Whilst you should consider the audience (your internal team) you are writing for, you could also research what makes a good blog post and incorporate those elements into your article.
Principles of Reward and its Importance to organisational culture and performance management (AC 1.1)
Rewards cover all the financial provisions that an organisation makes to employees, which includes cash payments and other benefits. Reward may also include wider provisions for employees, which may include non-pay benefits (CIPD.org, 2021a). In regard to payments, it may include fixed pay, which is the guaranteed cash wage or salary that is paid to an employees as a result of working for a specific number of hours in a week (CIPD.org, 2021a). On the other hand, variable pay may include bonuses, incentives, and overtime payments. There are several principles of rewards, which should be used as guidelines for an organisation. First, the rewards system should create a positive and natural reward experiences to the organisation and employees (CIPD.org, 2021 a). As such, employees are more likely to respond, if the reward approach is designed and delivered according to their preferences (CIPD.org, 2021a). For instance, informal rewards such as gift appreciation could be as important as the formal rewards. Secondly, the rewards should be aligned with organisational goals, in a win-win like partnership. When an organisation rewards individuals or team due to their direct support and achievements helps to benefit the organisation and the firm.
The rewards should be an extension between the effort and the outcome in a way that they encourage smart working. In this case, the approach used by the management should be well understood by employees so that they can focus on what is really important (CIPD.org, 2021a).This necessitates the need for communication between the organisation and the team. The management should also integrate rewards in a way that offers a customised deal for the employees. In regard to this, it is appropriate to use the different tools of the total rewards including base pay, variable pay, benefits, and development opportunities to meet the needs of the individual (CIPD.org, 2021a). It is also important to reward inputs with base pay, where the management offers a commensurate salary to employees as a demonstration of their valued competency and performance. The final principle is on fairness, where the organization is required to establish a consistent and fair treatment of all the employees thorough the framework that allows flexibility to respond towards the attainment of objectives (CIPD.org, 2021a).
The rewards strategy has numerous roles to the organisation. First, it helps in supporting the achievement of the business/organisational goals through a development of a performance culture that stimulates high performance (CIPD.org, 2021a). Secondly, it helps in attracting and retaining the best talent in the organisation, which is important in organisational performance and attainment of goals (CIPD.org, 2021a). Rewards also help to motivate and win the engagement of employees, which is essential in promoting better performance. Through adherence to the ideal rewards principles, it becomes possible to promote a culture that value, and recognises employees with outstanding performance. In doing this, the management inculcates a performance based culture among employees, which also helps in meeting the organisational goals.
Implementation of Policy initiatives and Practices (AC 1.2)
In reward strategy development, the pay policy should be competitive with the external labour market in order to retain the best personnel for the organisational success. The organisation can consider the pay structure and offer a framework that values job and understanding how they relate to one another within the organisation as well as to the external labour market (Jones & Perkins, 2020). In policy development, pay levels are also an essential element to be considered. In this case, the policy on pay levels should be based on job evaluation if it is on government based entities, but market pricing for the private sector. It is therefore, the obligation of the management to make consideration of the pay levels and ensure that they should base on media or upper quartile range of the amount (Jones & Perkins, 2020). In regards to pay awards, a key factor is to review the budget for the annual pay, and develop a policy that includes a performance based approach for the increase in salaries. The organization should ensure that the pay award that is developed are based on the ability to pay, inflation considered, and are adjusted based on market rate changes.
In regards to pay progression, the organization should develop a policy that is made from a consideration of the different factors. In this case, the policies can involve an assessment of the individual employees’ performance against the wider labor market. The pay progression should also be based on cash bonuses and incentives (Jones & Perkins, 2020). Finally, the policy should be developed and implemented based on the legal requirements. All payment and reward policies should meet the provisions of legal requirements such as the minimum wage rate and statutes on discrimination (Jones & Perkins, 2020). For instance, in the UK, the national minimum wage rate applies to all workers aged 16 years and above and there are different categories of covering the workers at different age categories.
People and organisational Performance can Impact on the Approach to Reward. (AC 1.3)
When developing a rewards system, the organisation may be influenced by the people or the organisational performance. The primary aim of rewards is to influence people to join the organisation and retain them, while they offer their best in the firm (Rose, 2018). As such, the behaviour of people may influence one to make certain decisions on the reward approach. For instance, in the past, salaries were used as a means of attracting people to the organisation, while benefits helped to retain them, and bonuses and incentives was a motivation to them (Rose, 2018). However, this could be different in the current times as people have focused on other benefits as a means of reward other than merely financial incentives.
In regard to people, they are attracted, retained and engaged to work by the different financial and non-financial rewards, which change with time and depending on the labour market (Rose, 2018). In some situations, some people may consider financial element as a key factor in reward system, which influences the decision in reward approach. This is common for the people who are at the beginning of their career and are more interested in gaining access to the organisation and career development. On the other hand, some people could be willing to work for lower rates, if they have a strong attachment to the organisational goals. As such, the nature of the people that an organisation is dealing with influences the reward approach to choose (Howlett, 2020). From the organisational perspective, some employers may be more concerned with the performance as a determining factor to the development of the reward system. In this case, some employers may choose a reward approach that is tied to performance to ensure that employees are meeting their individual goals that culminate to the attainment of the organisational goals (Howlett, 2020). For instance, some organisation may provide pay increment or bonuses based on performance assessment results, which depicts that the reward is tied to organisational performance.
Comparison of the different types of benefits and the Merits of each (AC 1.4)
This is a benefit that is in line with the legal requirement that offers a retirement package for employees. This approach has the merit that it can provide protection for the income to the employee at the old age, which can even be inherited by dependants in case of the members’ death (Admassie, 2019).
Holidays and Time off
Employers may provide paid annual leaves and holiday, where some go an extra mile to exceed the minimum requirement outlined in law. Some of the statutory entitlement includes maternity, paternity, adoption as well as bereavement. The advantage of this approach is that it creates a sense of belonging on the employee as well as helps them to refresh for better performance (Admassie, 2019).
Healthcare and Risk Benefits
These are benefits that are provided to employees to ensure that their welfare and productivity is protected. The common types of benefits in this category include occupational sick pay, employee assistance programs, life assurances, eye care programs, and discounted gym on site programs (Admassie, 2019). These approaches help to ensure that workers welfare is protected for better performance.
Some organisation provides allowances to their employees such as house or car allowances. This form of benefits helps to relieve off the employee the burden of meeting for the costs of acquiring the car or paying the rent, thereby providing a huge impact on their engagement and retention (Admassie, 2019). For instance, when an employee is provided with a company car, it creates a greater sense of belonging and attachment to the company, hence promoting retention and engagement.
Assessment of the contribution of Extrinsic and Intrinsic Rewards (AC 1.5)
Extrinsic rewards are the financial tangible rewards that are given to employees, which may include pay raises, bonuses and other benefits. They are considered extrinsic because they are external to the completion of the work itself and are controlled by other people and not employees (Khern-am-nuai et al., 2018). Extrinsic rewards are essential when jump-starting the initial buy in or participation from the people in their early stages of readiness to cause change. In this case, they are used as the initial tools of motivating employees to improve their performance and contribute more to the organisation. In addition, they have limited impact over time if they are not improved (Khern-am-nuai et al., 2018). For instance, once an employee has his or her pay raised in a certain year, there is likelihood that the employee will not be motivated if the pay will not be increased further. This means that they may not create a sustained increase in organisational performance. However, extrinsic rewards are powerful tools to reinforce and drive behaviours that are aligned to the cultural values, but do not create a norm (Khern-am-nuai et al., 2018). As such, organisations may use they aid in reinforcing organisation performance without necessary affecting the culture of the firm.
Intrinsic rewards are the psychological rewards that employees get when they do meaningful work and perform it well. They are considered intrinsic because they are internal to the organisation and they largely depend on the efforts of the employees (Khern-am-nuai et al., 2018). This means that the rewards level is greatly influenced by the performance of the individual employees. Due to the close connection between employee performance and reward level, there intrinsic rewards are essential tools in creating sustained behaviour change among employees and promoting greater performance (Khern-am-nuai et al., 2018). They can be created by allowing employees to do more and managing themselves, being innovative, improvising, and problem solving (Khern-am-nuai et al., 2018). In addition, they motivate employees to work hard and contribute more because when they achieve the rewards it creates an emotional reaction.
Section 2 – Benchmarking Data to Inform Reward Approaches
Business context of the Reward Environment (AC 2.1)
The implementation of the reward system is influenced by the effect it has on the business. This means that an organisation makes consideration of the impact that the reward system will have on the business and productivity of the employees. When the organisation is introducing a reward system, it evaluates the impact of the reward environment on the business goals. In this case, the rewards environment should reward the values and behaviours of the employees such that they enhance performance (CIPD.org, 2021a). Secondly, the reward system should fit within the HR strategies, people management, and development practices within the organisation (CIPD.org, 2021a). Furthermore, a reward environment created by the organisation should create value to the current and future employees to promote business growth in a sustainable manner (CIPD.org, 2021a). In addition, the rewards system is also evaluated based on the key stakeholders who are involved. In this case, a reward system is appropriately chosen if there is a team that is well skilled to support its implementation.
From the business perspective, implementation of the reward system is with the intent of attract and retaining the best talent. Due to the cost implication that arises from the engagements, it is imperative that the organisation makes an analysis of the cost versus benefits (CIPD.org, 2021a). In this case, the management makes a consideration of the benefits such as the performance versus the costs. The analysis could be quantified by the cost accountants to create the intended impression. Finally, a consideration of the communication of the reward system also creates a business effect especially when the intention is to promote performance.
Generating Benchmarking Data and Measurement (AC 2.2)
Data on benchmark can be collected by using surveys and be analysed quantitatively to develop more insights regarding how organisations can enhance their performance. Data can be gathered by different entities including research organisations. For instance, the 2018 CIPD management survey collected data on the different rewards system ranging from the traditional methods to the modern approaches (CIPD.org, 2021b). The findings from the survey was to intended at providing benchmarking and information resource on the current and emerging reward management practices in the United Kingdom (CIPD.org, 2021b). Indeed, trough this survey, the researcher was able to explore the trends in employee benefits, which provide information that is valuable to other organisation to benchmark on
Other entities that can gather benchmarking data include audit firms such as Deloitte. For instance, in the year 2017, Deloitte conducted a benchmarking research and found notable trends in rewards system: social wellbeing, financial wellbeing, emotional wellbeing, and physical wellbeing. Some of the measures that can be used to determine the effectiveness of the reward benchmarking include rate of turnover, level of staff satisfaction, profit level, workforce composition, customer satisfaction, reward budget costs, sales growth, productivity per employee, and economic valued added (CIPD.org, 2021b).These parameters are used to assess the effect of the reward system and form basis for benchmarking.
Organisational Reward Packages and Approaches based on insight. (AC 2.3)
Based on the benchmark data from CIPD and other sources, it is possible to develop an organisational reward package. It is imperative that the proposed reward package takes the form of a total reward approach. Under this approach while also based on the data, it shows that financial or pay in kind rewards still attract significance importance even in the current times. In light of this, the proposed rewards include:
- Pay rate increase based on performance and prorate basis
- Salary progression based on performance
- Pay awards (CIPD.org, 2021b).
In regard to non-financial rewards, the data indicated that nearly 97% of the employers are planning to increase their spending on such benefits. Based on these insights, the proposed reward package also encompasses development benefits that cover mentoring programmes and business apprenticeship (CIPD.org, 2021b).
In addition, the importance of pension still remains a key reward tool for the current generation and hence incorporated for this package. In this case, the organisation can exceed the minimum statutory requirement in a bid to remain competitive in the labour market. Furthermore, there are insights regarding the use of car or house allowances. This is a common phenomenon that is increasingly recorded as a trend hence appropriate for the current reward package (CIPD.org, 2021b). The importance of the employee assistance programs is also demonstrated from the benchmark data. On this note, more than half of the respondents in the CIPD 2018 data revealed that their organisations are engaging in employee assistance programs (CIPD.org, 2021b). The use of work life balance strategy is also part of the common trend in the current workforce and hence included as part of the benefits to the organisation.
Other benefits that are appropriate based on the insights provided include:
- Paid leave for bereavement
- Training and career development
- Occupational sick pay
- Children vouchers
Legislative Requirements that impact Reward practice (AC 2.4)
Reward practice is based on the legislative requirements that ought to be followed strictly. For insurance, the Equality Act of 2010 provides that men and women, who are in the same employment and perform the same work, must receive equal pay unless any differences can be justified (CIPD.org, 2021a). The law articulates that same work is one that is broadly similar and may involve same tasks that require use of congruent knowledge and skills. The work may be considered similar if any difference in the work does not create practical importance. Secondly, the work may be related equivalent if it has been rated under the same after job evaluation as being of equal value in terms of how demanding it is (CIPD.org, 2021a).Thirdly, work is considered as equal if it creates equal value in terms of the demand for effort, knowledge, skills, and decision making (CIPD.org, 2021a). In concise, people working under the three conditions should receive the same reward regardless of gender or any attributes.
In addition, the pay and regards are also influenced by other legal requirements such as the national minimum wage. For instance, in the UK, every employer is required to meet the legal minimum wage requirements and report on the gender pay gap as well as executive pay ratio. This move is intended at ensuring that there is fairness in payment and reporting. It is important to note that the minimum wage requirement applies to all workers from 16 years (CIPD.org, 2021a).The UK provides for four categories covering apprentices, workers below 18 years, those between 18 and 20 years, and those aged between 21 and 24 years (CIPD.org, 2021a). On the other hand, the national living wage applies to those aged 25 years and above. The law also provides that some benefits be mandatory and be provided by the employer. Depending on the country, there is a requirement to ensure that pensions and sick leave be part of the reward (CIPD.org, 2021a).In addition, every organisation is also required to provide an annual leave of 21-25 days to every employee in the organisation, especially those employed on permanent basis. Concisely, the legal requirement on rewards influences the decisions by organisations as they ought to be followed to the latter.
Assessment of different approaches to Performance Management (AC 3.1)
Performance management is the attempt by a firm to maximise their value creation by ensuring that employees contribute to the business objectives. The intent of performance management is to align the organisational strategy in order to suit the type of jobs that are under perspective (CIPD.org, n.d). The objective of performance management is for the employees to consider themselves as part of their organisation mission and strategy performance management is seen as an approach of improving performance among employees, teams, as well as the organisation (CIPD.org, n.d). Performance management also helps to hold people to account of their performance as it is linked to reward as well as career progression.
Performance management take the form of different approaches. First the organisation has to make consideration of the key objectives that are associated with an individual, team or organisation (CIPD.org, n.d). It is appropriate to create a relevant performance objective that links every individual job role, team, and the entire organisation. This may entail use of key performance indicators (KPIs), smart goals, SWOT analysis as an indication of the preparedness of the organisation to manage its operations (CIPD.org, n.d). Secondly, a firm may engage in continuous conversation that takes the form of a coach or mentorship form of approach to encourage them to grow and empower them (CIPD.org, n.d).
The organisation may also measure the performance of the employee as a form of performance management. Measurement of performance helps in identifying the success as well as highlighting the areas where the specific employees will be required to make improvements. Measurement of performance also helps in defining, tracking, and analysing performance for the provision of future action (CIPD.org, n.d). An example of the approaches used in measuring performance includes performance appraisals or 360 degree feedback (CIPD.org, n.d). Some organisations also use reward and recognition program as part of the performance management approach. These approaches have to be genuine, specific, well thought, and frequently used. In addition, some organisations use varied compensation models to calculate the employee’s financial remuneration package. Some of the factors that may be considered include base pay, commission, bonuses, allowances, holiday allowances, as well as medical insurances (CIPD.org, n.d).
Performance management may also take the form of feedback from employees and peers. For instance, an organisation may organise pulse surveys, which may entail collecting data using online tools such as survey monkeys (CIPD.org, n.d). On the same dimension, feedback about other attributes of the employees such as their social behaviours through peer review, which provides great insights about the character of the person (CIPD.org, n.d). In other instances, some organisation rely on the appraisals of the managers as the people who are directly involved with the employees.
Role of people practice in supporting line managers in Reward Judgements (AC 3.2)
Employers often face the challenge of managing the pay of their workers. Traditionally, they focused on attracting, retaining, and motivating employees in order to meet the needs of the employer, but they have to rely on the line managers as the people to provide the judgement on the abilities of the employees. For the line managers to accomplish their goals there is need for the line managers to be appropriately supported for them to make consistent and appropriate reward judgement (Russell et al., 2018). For example, line managers should be provided with the necessary training for them to manage their staff, develop appropriate communication skulls, deal with difficult conversion, and make decision. Secondly, they need a climate that is fostered by senior management that encourages rewarding people management responsibilities (Russell et al., 2018).
Line managers are needed to be provided with tools that allows proper reward judgement. The tools should be provided across the board in order to ensure that they implement the assessment in a fair and transparent manner (Russell et al., 2018). For instance, they should be provided with well developed 360 degree feedback appraisal and employee attitude surveys that help to examine and explore the safety net in monitoring their performance. Line managers should also be provided with the necessary infrastructures to enable them to communicate with the employees (Russell et al., 2018). In this case, it is important that firms conduct decentralization of the HR roles with outsourcing and call centered to reduce the tension and cultural shift.
Line managers make reward judgements based on organisational approaches to reward (AC 3.3)
Line managers make reward judgements through different ways. First, they are involved in annual or periodical appraisals, where they engage with staffs to understand their abilities and review their performance (Russell et al., 2018). They can also collect data on the employees using the different tools and resources that are associated with performance assessment. For instance, they make assessment on the performance based on the Key performance Indicators, which may measure the productivity of the employees against the set goals. They also use other tools such as 360 degree feedback, which allows a more holistic and comprehensive review of the employee’s ability and performance (Russell et al., 2018). They also provide routine feedback on the employees, which is a key tool in providing the needed judgement on rewards (Russell et al., 2018). For instance, they provide a review of the performance of every employee, within their supervision, which is essential in providing judgement on the employee. They also regularly check on the staff identifying those experiencing challenges, hence they are able to make appropriate judgement.
Line managers are also mandated at taking a lead role in coaching, developing and setting goals for the employees. Indeed, from their records and close association with the employees they decide how their employees should be rewarded (CIPD.org, 2021a). Indeed, employers tend to trust the information that they get from their line managers as they are considered more closely attached to them that senior managers. Based on this revelation, the HR department relies on the line managers to get feedback about their employees for reward judgement (CIPD.org, 2021a). They also help to provide information about their employees, which makes it possible to reward them appropriately based on the diverse aspects. Indeed, they not only provide information about performance, but also on behaviour aspects as they are directly involved with the employees.
Admassie, G. A. (2019). Impact of Rewards Management System on Employees’ Satisfaction in Case of DebreBirhan University Administrative Staffs. J Invest Manag, 8, 16-24.
CIPD.org (n.d). Performance Management. https://peopleskillshub.cipd.co.uk/planning-people-strategy/performance-management#gref
CIPD.org. (2021). Employee benefits: an introduction. https://www.cipd.co.uk/knowledge/fundamentals/people/benefits/factsheet#8293
CIPD.org. (2021). Reward: an introduction. https://www.cipd.co.uk/knowledge/fundamentals/people/pay/reward-factsheet#gref
Jones, S. E., & Perkins, S. J. (2020). Reward Management: Alternatives Contexts and Consequences 4th edition. Kogan Page.
Khern-am-nuai, W., Kannan, K., & Ghasemkhani, H. (2018). Extrinsic versus intrinsic rewards for contributing reviews in an online platform. Information Systems Research, 29(4), 871-892.
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Russell, Z. A., Steffensen, D. S., Ellen III, B. P., Zhang, L., Bishoff, J. D., & Ferris, G. R. (2018). High performance work practice implementation and employee impressions of line manager leadership. Human Resource Management Review, 28(3), 258-270.