“Aligning reward strategy to business goals is more important than aligning to employee needs”

1. “Aligning reward strategy to business goals is more important than aligning to
employee needs”
Rewarding is one of the most important areas of human resources management, if not the
most important one. Indeed, the ranges of rewards given to employees as the results of
performing their job, which are working in the business sphere, are considered to be the first-
priority motivational force (Morrel, 2002; Armstrong, 2001). So, in the view of this fact,
reward management, defined by Armstrong and Murlis (2000) as “the formulation and
implementation of strategies and policies that aim to reward people fairly, equitably and
consistently in accordance with their value to the organization”, becomes the foundation
stone of the human resource management. Reward management practices of an organization
are expressed in the reward strategy, which is formed as the part of HR strategy under the
influence of the business strategy, on the one hand, and organization’s reward philosophy on
the other, as Armstrong (2001) explains. So, the essential purpose of reward strategy is
retaining high-performance employees and motivating them to achieve the goals of an
organization via the guidance of pay programs, as Allen and Kilmann (2001) note.
So, the question of whether reward strategy should be firstly aligned to business goals rather
than to employees needs is a complicated issue, but the critical evaluation of this statement
would be prolific for understanding the theory of reward management and academic
knowledge of reward strategy, as well as the HR management in general, because of the
comprehensive role of rewarding in human resource management.
Indeed, rewarding and incentives pay greatly influence almost all the aspects of HRM, such
as, recruitment policy’s successfulness, employees’ effectiveness and their development,
relations between the workers and general climate in the organizations (Osman, et. al, 2011;
Armstrong, et al, 2011). However, being such an important part of HR policy, it is also
subjected to the range of factors, such as the type of organizational structure, management and
employees’ practices, economical development of a region and current economical
conditions, as Armstrong and Murlis (1998) note.
Gilbert (2010) notes that employers nowadays are increasing their emphasis on reward
strategy in the HR management in order to reach their business goals via "enabling
organizations to deliver the right amount of rewards, to the right people, at the right time, for
the right reason". But, the analysis of the statement should not focus only on the reward

2. strategizing, but also consider the reward management theories, such as equity theory,
motivational theories, and performance evaluation and appraisal practices in order to view the
“whole picture”. Top Pay Research Group (2003) notes that nowadays managing reward is
not only defined as the varying salary or wage and authority an employee receives, but also
includes the comprehensive batch of propositions from employers to employees, which can be
divided into monetary remuneration, benefits and career opportunities. Both Top Pay
Research Group and Gilbert note the increase of attention paid to benefits and especially
career opportunities parts.
During the design and formation of organization’s reward strategy should not only rely only
on the set level of payment and benefits that are provided, they should be also adjusted with
the justice perceptions of the employees, as Till and Karren (2011) emphasize. They make an
analysis of rewarding employees from the point of behaviorists’ theories, and especially
Equity theory, according to which the employees’ contribution to the success of an
organization should be rewarded fairly. Flynn (2011) also analyses the judgment of
compensation fairness on three levels; individual, when the employee compares own payment
with those with the similar position in the same organization, internal, when the payment is
compared with different jobs, and external, when the remuneration for the similar position in
other organizations are supposed to be fair. So, the equity theory is mainly concerned with the
employees’ needs for justice, but the proper improvement of this variable evidently increase
the productivity, Flynn adds. Abdul-Halim et al. (2009) note that in the view of equity theory,
the company can lead the job market by providing the higher remunerations and benefits and
career growth opportunities for the same positions as in competitor companies in order to
achieve the business goals via attracting high-class professionals and performers, and
decreasing the level of turnover. However, they warn and exemplify the evidences of poor
introducing the market leading strategies, which had led the companies to the results opposite
to the business goals, such as business losses and swelling labor budget.
The top-management, while proposing reward strategy and incentive plan should also take
into account the different approaches of defining its main goals. Gubman (2004) notes that the
there is a gap and differences between the views of employers and employees on the goals of
reward strategy and exemplifies on given companies, however acknowledging importance of
both companies’ goal alignment and adjusting to the needs of employees, showing their
interrelated nature. To add, Doherty (2010), as well as Armstrong (2001) notes that the main
goals of employers are the communication of company's internal values, attracting and

3. holding well-skilled workers and encouraging their motivation, while employees expect from
proper reward strategy fairness, coherence and, Doherty emphasizes the value of the
transparency of the principles of performance appraisal process, as well as establishing
differences in pay rates for different positions within an organization, which leads to
inequalities in the rewards.
Evidently, every reward strategy tries to give the incentives, for employees to work harder in
order to achieve the company’s goal, such as for example the additional bonuses for the
increase in sales above the averages. However, it is not always easy to trace the contribution
of each employee to the success of entire company, or even separate department (Armstrong
and Murlis, 2000). Managers employ different performance appraisal techniques in order to
evaluate there contributions. WebFinance (2011) defines performance appraisal as a process
when a manager or a consultant assess worker's actions and behavior “comparing it with
preset standards”, then record these comparisons and “provide feedback to the employee to
show where improvements are needed and why”. It also notes that the results of performance
appraisal usually influence the decision on rewarding, promoting and firing.
One of the main purposes of performance appraisal is employee development, as Osman
(2011) cites other sources, when firstly the development needs assessment is done, when the
manager or consultant, helps understand what employee needs to achieve the desired by
company goal. Many organizations, as Mayhew(2011) notes, use the further downsizing of
company's goal to every employee, so that they could develop their own SMART (specific,
measurable, attainable, realistic, and timely or time-sensitive) goals to achieve with the help
and under the assessment of a senior manager. However, he notes that these personal goals
often cannot be achieved without aligning them to employee needs.
Performance appraisal is also considered as widely used by managers to show precisely the
linkage between the performance desired and the possible rewards, since it helps to promote
the improvement of employees performance as both Heathfield (2011) and Jackson and
Mathis (2007) state. However, Jackson and Mathis also note about the way of evaluation of
personnel needs so that the rewards after the performance evaluation would be inspiring and
incentive.
The work of Chen et. al (2010), however, notes that performance appraisal can be a good
opportunity for better achieving business goals only if it is perceived as just and impartial.
Tumlin (2004) studied the full range of performance appraisal errors, from which he

4. especially notes such errors as leniency and severity bias, central tendency, and conflict
avoidance and halo effect, which are then discussed. Both leniency and severity appear to be
the different sides of the same coin, when the assessor, because of the range of reasons, is
over-estimating or underestimating the performance of workers respectively due to personal
bias, as HR Dictionary (2011) notices. The Economist (2009), discussing “The Halo Effect”
book, published in 2007 by Phil Rosenzweig, shows that so-called “Halo effect” is a serious
concern in the range of management areas which ca influence the pace of achieving business
goals, and performance appraisal is not the exemption to the rule: “CEOs, presidents,
executive VPs and other top-level people often fall into the trap of making decisions about
candidates based on lopsided or distorted information … Frequently they fall prey to the halo
effect: overvaluing certain attributes while undervaluing others”. However, Tumlin proposes
the comprehensive system of increasing the effectives of performance appraisal system,
which should comprise the evaluation of proper measurements of performance, providing the
framework for consistency of measuring and its easy application in practice, in addition to
eliminating the bias. Armstrong (2001) notes that there are actually three approaches to
measuring employee’s job performance, which are result, behavior and traits based. Trait-
based is estimating employees via their personal qualities and work profile, evaluating
different skills, such as analytical, leadership or technical. However, this evaluation is often
subjected to bias, as Billikopf (2006) notes. The other approaches are result-based, usually
measuring the quantitative results produced by the employee, he adds. Murphy (2004) also
discusses behavior-oriented measure, which are often evaluated by using behavioral
observation scale and behaviorally anchored rating scales. Patterson (1987) also proposes the
use of management by objectives (mainly for business result-based approach) and
comprehensive 360-degree appraisal, which is based on assessments from the range of the
sources, from managers and customers, to peers and subordinates. Proper performance
appraisal system can satisfy the needs of employees in fair and undisguised performance
appraisal system and increase the performance of the company even in a short run, Tumlin
(2004) adds.
Dutton (1976) notes that one of the main needs and requirement demanded by employees
from the employers is proper job assessment and job evaluation, since it provides with the
sense of justice and intrinsically motivates them to work harder. Gilbert (2005) also notes that
the job evaluation can be used as an effective tool for achievement business goals through
facilitating the need of employees in proper assessment of a job and level of pay. Wilde
defines (1992) job evaluation process as a “practical tool...set aside for enabling trained and

5. experienced staff to judge the size of one job relative to others”. He also notes that it is not
directly determining the pay levels, however setting the principles on which something
depends the internal ranking of jobs. Heathfield (2003) lists the range of the factors according
to which the job evaluators’ asses the job, including such factors as qualifications, knowledge
and skills requirements, decision-making and problem-solving demanded, working conditions
and its complexity, in addition to the responsibility and degree of supervision required. He
notes that these factors should be carefully analyzed for each position, so different position
would not impede in achieving the general business goals for the whole company. Heathfield
also notes the importance of proper choosing of the methods of job evaluations, or its proper
combining, closely discussing such methods as ranking, classification jobs, factor
comparison, point evaluation, and market comparison.
Ferguson and Reio Jr (2010) and York and McCarthy (2011) note that that proper modeling
and implementation job evaluation and the opportunely change of job evaluation system may
play an enormous role in increasing staff satisfactions, increasing their loyalty and therefore
increasing productivity.
So, after investigating into the range of reward and human resource - related issues, it was
found that the question of whether the reward strategy should be aligned to business goals or
employee needs is not correct, since unsatisfied employees do not provide the company with
high level of performance, as the huge range of academic sources has emphasized. Of course,
the main purpose of reward strategy is prioritizing the business goals. For example increasing
the sales revenues is given as a business goal (by, for instance, $100,000 per salesperson) and
health insurance plan is proposed in the strategy as the reward for achieving this goal.
Anyway, the rewards that employee would receive for achieving the particular goal should be
aligned with their needs. So, if the increase of the sales of revenues is taken as an example,
and if the HR managers find out that such benefit as car provided by the employer is
considered as more important by employees, than the initial proposal should be altered.
Therefore, during the design of total reward strategy, the management should find the critical
requirements of employees needs, and the way if their satisfaction, so that the employers of
the company could effectively manage the people resources in order to achieve their business
goals, as Wilson Group (2010), Nguyen and Mohamed (2011) and Jose and Jabbour (2011)
note. However, Wilson Group also emphasizes the importance of guidelining a “meaningful
strategy” for “various reward programs” to be “designed and managed”. Gilbert (2010) lists
all the important aspects of the total reward strategy and incetive plant; such as salaries,

6. variable cash compensation plans and benefits, additional payments, long-term or equity
based plans, employee benefits and services, recognition programs and the range of other
programs, in addition to the operations and actions that influence the actions of the
employees, and this is also should be included into final consideration. Gross and Friedman
(2004) lists the number of important features of total rewards strategy that would be helpful
for integrating the total reward strategy with both the company goals and employees need to
increase their efficiency and output to achieve the goals of entire organization; which are
integrality, integrity, harmonization with the aims and practices of an organization,
measurability of and effective delivery of the main aspects of the strategy. So, the integral
reward strategy is meant to be addressing the whole employment "value proposition" of the
remuneration, benefits and careers, and integrated is considered as when the components must
"fit and complement" each other. Besides the alignment with company’s goals, Gross and
Friedman describe the importance of measurability based on the quantitative measures,
because "intuition, anecdotes and best practices are no longer enough", it also should be
effectively communicated to all the levels of the company, without any distortion creating
what was written on the paper.
In conclusion, this work, as the result of critical analyzing of the range of the sources, has
effectively demonstrated that aligning the reward strategy with business goals is very
important for the increase of effectiveness and performance of the employees, but it cannot be
effectively developed without fitting it to the employees needs. Therefore, it was proved that
the question of fitting the rewards strategy with business goals rather than employees needs is
considered to be discrepant and contradictory, since it should be aligned with both of them to
achieve better performance.

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