To what extent can pay be strategic? This question was posed by Trevor (2009: 21) who noted that pay is seen as ‘a means of aligning a company’s most strategic asset – their employees – to the strategic direction of the organization’ and that strategic pay theory is predicated on the notion of strategic choice. But he claimed that rationalism is limited and pointed out that pay systems tend to be selected for their legitimacy (best practice as advocated by institutions such as the CIPD and by management consultants) rather than for purely economic reasons. His research into the pay policies
and practice of three large consumer goods organizations revealed a gap between intended and actual practice – intent does not necessarily lead to action. ‘Irrespective of the strategic desire or the saliency of the design, ineffectual execution results in ineffectual pay practice which then reacts negatively upon the pay outcomes experienced as a result… Attempting to use strategic pay systems such as incentive pay, results often in unintended consequences and negative outcomes that destroy value rather than create it’ (ibid: 34). The main implications of the findings from this research were that: ‘Theory is out of step with reality and may represent a largely unattainable ideal in practice… an alternative approach for the use of pay systems in support of strategy is required: one that acknowledges the relative limits on the ability of companies to manage pay strategically’ (ibid: 37). As Wright and Nishii (2006: 11) commented: ‘Not all intended HR practices are actually implemented and those that are may often be implemented in ways that differ
from the original intention’.
A similar point was made by Armstrong and Brown (2006) when they described ‘the new reality’ of strategic reward management as follows.
Source review The reality of reward strategy – Armstrong and Brown (2006: 1–2)
When mostly North American concepts of strategic HRM and reward first entered into management thinking and practice in the UK we were both some of their most ardent advocates, writing and advising individual employers on the benefits of aligning their reward systems so as to drive business performance. We helped to articulate strategic plans and visions, and to design the pay and reward changes that would secure better alignment and performance.
Some twenty years later, we are a little older and a little wiser as a result of these experiences. We remain passionate proponents of a strategic approach to reward management. But in conducting and observing this work we have seen some of the risks as well as the opportunities in pursuing the reward strategy path: of an over-focus on planning
at the expense of process and practice; on design rather than delivery; on the boardroom and the HR function rather than on first and front-line managers and employees; and on concept rather than communications.
At times there has been a tendency to over-ambition and optimism in terms of what could and couldn’t be achieved by changing pay and reward arrangements, and how quickly real change could be delivered and business results secured. At times the focus on internal business fit led to narrow-minded reward determinism, and a lack of attention to the increasingly important external influences and constraints on reward, from the shifting tax and wider legislative, economic and social environment. And sometimes the focus on designs and desires meant that the requirements and skills of line and reward managers were insufficiently diagnosed and developed.