According to Armstrong (2012), strategic reward is an approach to the advancement and execution of reward strategies that guarantees that they are coordinated with and support the business strategy and other human resource strategies and that the different reward strategies cohere. It takes account of individual as well as business needs.Armstrong (2012) also observed that the characteristic of strategic reward is that ‘it is systematic in the sense that it is based on evidence - investigations of the association's internal and external environment, its business needs and the requirements of its partners. It is conducted within a framework of articulated beliefs and values, and it is goal-oriented - the desired ends and the method for achieving them are clearly defined. It assesses the business strategy and what can be done by reward to further its accomplishment. Importantly, it is a key instrument in achieving an integrated approach to reward management, one in which the various aspects of the reward system are connected together and associated with other HR practices so that they are mutually supportive. It concentrates on implementation - it is about completing things as opposed to simply contemplating what should be done. Finally, strategic reward is based upon a philosophy expressed in the form of guiding principles.'
The reward management system: elements and interrelationships (Source: Armstrong, 2007)
According to Armstrong (2012), reward strategy is a statement of aim which defines what the organization needs to do inthe longer term to create and implement reward policies, practices and procedures which willfacilitate the accomplishment of its business objectives and address the issues of its partners.It is based on an understanding of the requirements of the organization and its employees and how they can best be satisfied. It is also concerned with building up the values of the organization on how individuals ought to be rewarded and formulating guiding principles which will ensure that these values are enacted.In the words of Brown (2001): ‘Reward strategy is ultimately a way of thinking that you can apply to any reward issue arising in your organization, to see how you can create value from it.'
It is important to develop reward strategy where it reflects the organization's goals and objectives. Firstly, organizations have to analyze the business strategy and business needs. Next, they will develop HR strategy and justify reward strategy and define guiding principles through analyzing present HR and reward policies and practices, and assessing the needs of stakeholders. With the consultation, involvement and communication with the senior management and employees, organizations will prepare and test the plan. Finally, after the briefing, training and final communication, the plan is ready to be implemented, where organization will review and modify as required.
According to Brown (2001), an effective reward strategy is one in which there are:
1. Clearly defined goals and a well-defined link to business objectives.
2. Well-designed pay and reward programs, tailored to the needs of the organization and its people, and consistent and integrated with one another.
3. Effective and supportive HR and reward processes in place.
References
Armstrong, M. and Brown, D. (2006). Strategic Reward: Making it happen, London, Kogan Page.
Armstrong, M. (2007). A Handbook of Employee Reward, 2nd ed.London, U.K.: Kogan Page.
Armstrong, M. (2012). Armstrong's handbook of human resource management practice, 12th edition. London, U.K.: Kogan Page.
Brown, D. (2001). Reward strategies. London: Chartered Institute of Personnel and Development.