An effective reward strategy is one that provides clear guidance on development planning and implementation and achieves its objectives when implemented. Duncan Brown (2001: 14–15) has suggested that effective reward strategies have three components:
- They have to have clearly-defined goals and a well-defined link to business objectives.
- There have to be well-designed pay and reward programmes, tailored to the needs of the organization and its people, and consistent and integrated with one another.
- Perhaps most important and most neglected, there needs to be effective and supportive HR and reward processes in place.
Criteria for effectiveness
The questions to be answered when assessing the effectiveness of a reward strategy as posed by Armstrong and Brown (2006) are:
- Is it aligned with the organization’s business strategy (vertical alignment or integration) and its HR strategies (horizontal alignment or integration)?
- Will it support the achievement of business goals and reinforce organizational values? If so, how?
- Are the objectives of the reward strategy clearly defined, including a convincing statement of how the business needs of the organization will be met and how the needs of employees and other stakeholders will be catered for?
- Is it based on a thorough analysis and diagnosis of the internal and external environment of the organization and the reward issues that need to be addressed?
- Has a realistic assessment been made of the resources required to implement the strategy and the costs involved?
- Is it affordable in the sense that the benefits will exceed any costs?
- Have steps been taken to ensure that supporting processes such as performance management, communication and training are in place?
- Is the programme for implementation realistic?
- Have steps been taken to ensure that the strategy is supported and understood by line managers and staff?
- Will HR and line managers be capable of implementing and managing the strategy in practice?
- Has accountability and ownership for the various reward policies and practices been clarified, defining what success looks like and how it will be measured? Are effective review mechanisms in place?
- Is the reward strategy flexible in adjusting to take account of changes in the business and in the environment?