Reward strategies: the important link to managerial effectiveness

By | June 28, 2017

Reward strategy is a complex area with the potential to have a profound impact on the effectiveness of management within any organisation. An aspect not often correlated with reward strategy is the concept of the incompetent manager. An incompetent manager is one who is promoted to a position where their skill set no longer matches the requirements of the position in terms of the level of technical, conceptual or human skills required (Robbins, Bergman, Stagg, & Coulter, 2008).

Katz (1955) theorised that there were three skills needed by managers, technical, human and conceptual. The proportion of these skills required by managers varies, depending on the organisational level. Line managers require a higher level of technical skill, in order to perform managerial tasks involving the planning and organisation of technical work tasks. As the hierarchical level progresses, managers require less technical skill, and a great amount of human and conceptual skills. At some point, technical skill ceases to be a requirement at all.

When a technically competent front line staff member is rewarded with a promotion to a line manager position, there is a tendency for them to operate in a senior technical, rather than managerial role (Badawy, 1995). This is further accentuated by the lack of human and conceptual skills held by front line staff, for example the absence of the ability or desire to have difficult discussions with subordinates. The end result of such rewards to front line staff is an overall drop in efficiency, and staff who are promoted beyond their level of competence (Robbins, et al., 2008).

In order to prevent the use of promotions to managerial roles as rewards for technical staff, it is necessary to take a look into the reward strategy in use within the organisation (Hartel, Fujimoto, Strybosch, & Fitzpatrick, 2007). A common reason that non-financial rewards, such as promotion, are used, is that the organisation does not have the capability to provide financial rewards of significant value. Regardless, the use of promotion as a reward tool is almost certain to doom the organisation in the long term, and focus should be on other areas of reward strategy.

Reward strategy is divided into four broad areas, base financial rewards, performance based financial rewards, benefits, and non-financial rewards (Hartel, et al., 2007). Most organisations place a significant focus on financial rewards, however it is well understood that money is not a motivator; its absence is a demotivator (Hartel, et al., 2007; Robbins, et al., 2008). This means that, beyond a certain point, money ceases to motivate employees. Therefore, in rewarding technical staff, the focus must move to performance based rewards, or non-financial rewards.

In using performance based financial rewards, it is possible to control reward costs. Additional reward payments are contingent on performance, which should be linked to organisational performance or profit. This allows the organisation to develop a reward strategy that is somewhat scalable, allowing employees to receive equitable rewards for their performance, without committing the organisation to excessive costs. In a similar way, non-financial rewards can be used. These usually cost the organisation substantially less than their perceived value, meaning they are more cost effective than direct financial rewards. The use of either non-financial or performance linked financial rewards prevents the need to promote unqualified staff, leading to a more effective managerial staff.

Considerable benefits can be gained through proper planning and implementation of reward strategies. It is necessary to identify and plan rewards for technical staff that are performance based or non-financial. Additionally, non-financial or performance based financial rewards are more likely to motivate employees. Furthermore, the use of such rewards prevents the common practice of promotion as a reward, which leads to ineffective management.

Reference List

Badawy, M. K. (1995). Developing Managerial Skills in Engineers and Scientists: Succeeding as a technical manager (2nd ed.). New York: John Wiley & Sons.

Hartel, C., Fujimoto, Y., Strybosch, V., & Fitzpatrick, K. (2007). Human Resource Management – transforming theory into innovative practice. Frenchs Forest: Pearson.

Katz, R. (1955). Skills of an effective administrator. Harvard Business Review, 33(1), 33-42.

Robbins, S., Bergman, R., Stagg, I., & Coulter, M. (2008). Management (5th ed.). Frenchs Forest, NSW: Pearson Education Australia.