Extending Innovative Reward Systems to New Business Environments
Traditional reward systems in the early 20th century placed an emphasis on base pay and benefits. A major determinant of the level of pay and benefits was seniority. This approach was developed in private unionized companies and extended to nonunion companies, public sector organizations, and nonprofit organizations.
Table 8-1. Reward System Readiness Checklist for the 21st Century
Organization Readiness
The rewards philosophy and system dovetails with the business strategy and the goals of the organization (i.e., employee performance and goal achievement leads to organizational success and goal attainment).
The short-term and long-term financial resources of the organization are ample enough to support the rewards system.
Compensation Expertise
The organization has the in-house compensation expertise to support the current and future rewards system needs.
The organization continually seeks out new information on compensation trends and changing rewards systems and practices and participates in relevant wage surveys and market studies.
Rewards systems fundamentals are updated and in place, including a functional job evaluation system; pay ranges or bands; job descriptions; lead, match, or lag philosophy; and so on.
Employee Readiness
The front-line management team is informed and educated about the components of the compensation system. They are prepared and understand how to make effective compensation decisions, and they have the authority to make rewards decisions and communicate those decisions as appropriate.
The employees are educated on the components of the rewards system, the pay-for-performance link, and their influence on individual and team pay, and they have a sense of internal and external equity.
System Readiness
The rewards system is flexible and dynamic and therefore able to meet the needs of exceptional employee circumstances, the changing needs of the organization, and the shifting labor market.
An auditing process is in place to periodically assess if the rewards plan is meeting the needs of the business and tracking with labor market demands.
A scalable rewards plan is in position that adapts as the company grows and diversifies.
At the end of the 20th century, private nonunion companies began to use more innovative reward programs. A common theme to these programs was to focus on pay increases based on performance. Performance was defined in a multitude of ways ranging from performance ratings to output measures at the individual, team, and organizational level. In the 21st century, private unionized companies, public sector organizations, and nonprofit organizations are likely to also use innovative reward programs. Resistance to performance rather than seniority as a primary determinant of pay is down in unions because they realize that pay-for-performance results in greater productivity and in turn, greater productivity leads to more job security.[15] The public sector is more receptive to pay-for-performance because they realize that they must compete with private sector organizations to deliver services to the public. In this new 21st century environment, measures of performance such as customer service are critical to public sector organizations.[16] Nonprofits in the 21st century will not only be responsible for delivering services, but also for doing it at the lowest cost possible. Innovative reward strategies such as gain-sharing are critical to nonprofit organizations as they provide rewards on the basis of cost reductions to the organization.
