Module: 7HR03

Strategic Reward Management

Word count: 4258

Task 1 – Report

The organisation I will focus on in this paper is Tesco PLC, a global retailer of groceries and other goods with its headquarters in the UK. It has more than 4,000 shops operating in 11 countries, making it the third-largest retailer in the world by revenue. About 450,000 diverse workers work at Tesco, which is dedicated to fostering an inclusive workplace environment (Tesco PLC, 2022). An incremental pay scale that compensates workers for their duration of service and fosters internal career advancement is part of the company's pay structure.

Tesco also uses performance evaluation to inform decisions on pay advancement, emphasising adjudicative and developmental goals. Tesco is dedicated to upholding openness, justice, and equity in its incentive systems to encourage employee engagement, motivation, and retention, even if there are some difficulties with these strategies (Tesco PLC, 2022).

AC. 1.2

A reward strategy is the company's long-term plan to develop and implement incentive policies, practices, and procedures that improve the achievement of its business objectives (Armstrong and Brown, 2019). Priorities are outlined in the strategy, which also considers the demands of the organisation's customers and employees. Reward programmes align with business and HR objectives (Arulrajah et al., 2015; Fisher, 2015). It serves as a statement of purpose that directs the creation and execution of successful reward schemes.

The principles of horizontal and vertical fit are crucial for coordinating the many components of a company's strategy. Horizontal fit is the alignment of various departments and activities inside a company to ensure they are working towards the same objectives (Gerhart, 2007). Conversely, vertical fit describes how an organisation's strategy and workforce are compatible (Kehoe, 2021). In the case of Tesco PLC, the vertical fit would entail matching the company's strategy with the skills and capabilities of its employees to ensure that they can successfully carry out the company's plans. The horizontal fit would ensure that various departments, such as marketing, operations, and finance, are aligned towards achieving the company's goals (Gerhart, 2007).

Tesco PLC must ensure that the reward framework is in line with the larger organisational context and strategy to ensure that the company's reward practises and policies align with its overarching strategic goals. The incentive system should complement the organisation's internal and external alignment to achieve horizontal and vertical fit (Kehoe, 2021).

Tesco must internally harmonise its incentive structure with its business and human resource initiatives and its values and culture. The organisation must ensure that its incentive programme aligns with its employee engagement strategy and the performance management framework, which rewards the appropriate behaviours and skills (Fisher, 2015). Tesco can develop a performance-driven culture, increase employee retention and motivation, and foster a feeling of ownership and accountability among its staff by integrating its incentive structure into the larger organisational environment.

On the other hand, Tesco must check that its compensation methods and policies align with industry developments and the level of competition (Milkovich et al., 2014). To do this, the business must undertake market research, compare the effectiveness of its compensation plan to that of its rivals, and comprehend the value proposition of its staff. For instance, Tesco may need to ensure that its perks and compensation plans are attractive enough to entice and keep the greatest number of people in the retail sector (Nastasoiu and Vandenbosch, 2019).

Several internal aspects must be considered when establishing a reward strategy and policy. The organisation's size is among the most crucial factors (Wright, 2004). Due to the size and variety of their workforce, larger firms like Tesco PLC may have more complicated reward systems (Fisher, 2015). Other factors include culture, sector, structure, location, workforce characteristics, trade union recognition, and profitability.

Tesco, for instance, may guarantee horizontal fit in hiring and selection by ensuring that the hiring procedure aligns with the company's culture, values, and goals (Phillips and Gully, 2015). By creating training programmes that align with the company's goals, purpose, and objectives, they may achieve horizontal fit in training and development.

Tesco may also guarantee horizontal fit in performance management by ensuring that performance targets align with the company's goals, purpose, and objectives and using performance information to guide other HR processes, such as training and development (Van Horenbeek and Pintelon, 2014). For example, Tesco continued to work on strengthening the capacities and talents of its managers throughout the year (Tesco PLC, 2022). The company taught 774 managers and 334 managers at Tesco Ireland in the UK, training on inclusive management, flexible thinking, and conversational mastery. Furthermore, 314 store managers and assistant managers from Central Europe took part in our manager competence training (Tesco PLC, 2022).

AC. 1.4

Organisational reward strategies are crucial in attracting, motivating, and retaining talent by recognising and reinforcing a desired behaviour. Reward systems, including financial benefits, bonuses, promotions, and recognition, incentivise and provide employees with a sense of accomplishment and satisfaction (Hoole and Hotz, 2016; Fisher, 2015). Employee voice in reward can create a sense of ownership, empowerment, and value of contributions. However, an improperly thought out and implemented reward approach may have unfavourable effects, such as disengagement and a high staff turnover rate (Shin et al., 2017).

Attract

Rewards may be an important factor in luring fresh talent to a company. Pay is typically the main incentive for accepting a post, so it can be a significant element in luring candidates. Potential employees may be drawn to other benefits, such as flexible working hours (De Menezes and Kelliher, 2017). For instance, financial incentives like salary, bonuses, and stock options are frequently utilised to entice and keep talent since they are a concrete form of payment and provide workers with financial stability (Hoole and Hotz, 2016). For example, paying for a person or role in the organisation can effectively attract and retain top talent.

Even so, if they are updated with the market rate, they can be affordable for organisations and cause employee unhappiness (Carbery and Cross, 2018). To entice talent, competitive remuneration is crucial. High pay is one of the techniques to deal with the issues of employee recruitment, retention, and excessive turnover, according to Al Mamun and Hasan (2017). Nevertheless, focusing less on individual performance-based compensation can result in a competitive and demanding workplace, which may lower overall productivity and employee engagement.

Motivate

Rewards are an important component of employee motivation. They support encouraging people to pursue excellence and promote excellent behaviours (Fisher, 2015). Financial incentives, such as bonuses and pay raises, are frequently used to inspire employees. Non-monetary incentives like praise, more time off, and flexible scheduling can boost employee morale and be less expensive for businesses to adopt (Jyothi, 2016). These incentives show workers that their labour is appreciated and can increase morale, loyalty, and dedication to the company.

A centralised compensation approach can help consistency and equity in pay and benefits across the organisation. A decentralised strategy, however, can offer more flexibility and let managers customise rewards for their teams (Fisher, 2015). The organisation's size, structure, and culture affect the decision between centralising and decentralising procedures. The degree to which non-monetary incentives are prioritised is important. For example, employees can be highly motivated by non-monetary incentives, including work-life balance, chances for training and development, and recognition (Bhende et al., 2020).

Retain

Incentives are crucial for keeping staff on board. For an organisation to retain its personnel, competitive remuneration is crucial (Lyons and Bandura, 2020). Competitive awards can assist the organisation in recruiting great people and offer them a reason to stick around. Non-monetary benefits, such as chances for professional advancement, can also contribute to keeping staff (Haider et al., 2015). Furthermore, promoting a healthy work-life balance might aid in keeping staff. A sense of belonging is facilitated by intangible benefits, which can boost motivation and loyalty. Pay positioning is how an organisation promotes its pay scales compared to its rivals.

Paying in the bottom quartile may entice entry-level workers, but more is needed to keep top talent (Woodhams and Perkins, 2022). Paying in the middle or upper quartiles may be required to draw in and keep top performers. Also, employee engagement and motivation may be raised by giving employees a voice and allowing them to participate in developing and implementing the incentive system (Woodhams and Perkins, 2022). Unfortunately, this cannot be easy, especially in large organisations with intricate reward systems.

Recommendations

Tesco PLC should prioritise understanding what its employees want regarding rewards and use data analysis to tailor its rewards strategy accordingly. One way to do this would be to use data from the PeopleValue reward point system to assess employee preferences (Yang and Hung, 2017). Communication of the rewards strategy is also crucial, as research shows that only a small percentage of employees feel that their company has a transparent pay communication strategy (Deloitte, 2019). Therefore, Tesco PLC should communicate its rewards strategy through various channels such as handouts, posters, and newsletters to reach out to its employees (Goodman and Truss, 2004).

Rewards can also improve employee relationships as a response to good performance (Perkins and Jones, 2020) and as a means of creating and embedding an employee experience (Edirisooriya, 2014). To avoid future disputes with the trade union, Tesco PLC should conduct a job evaluation (Bourguignon and Chiapello, 2005). Finally, while Tesco PLC offers training and development initiatives for management, it should consider implementing company-wide training and development initiatives for all its employees (Balwant et al., 2022).

AC. 2.1

The term "total rewards approach" refers to a thorough method of paying employees that incorporates relational (intangible) advantages in addition to standard transactional (tangible) perks like basic pay, bonuses, and benefits like work-life balance and recognition (Perkins and Jones, 2020). This strategy aims to provide a satisfying working environment that promotes engagement, staff retention, and overall job satisfaction.

The total rewards strategy is made up of some components, such as base pay (Kuvaas et al., 2020), which is the set annual salary or hourly wage an employee receives; contingent pay, which includes bonuses and other performance-based incentives; and benefits like health insurance, retirement plans, and other forms of financial security (Perkins and Jones, 2020), Moreover, variable compensation alternatives like stock options, profit-sharing, or gain-sharing plans may be available. All of these elements play a part in an employee's entire pay package and affect their engagement and motivation at work.

The total rewards approach may be quite advantageous for both companies and employees. A comprehensive and adaptable total incentives strategy may help employers recruit and retain top talent, enhance employee morale, and encourage engagement at work (Shields et al., 2020). Emphasising relational incentives may foster a healthy work atmosphere and make employees feel supported and appreciated. Employers may benefit from a comprehensive incentives strategy for enhanced employee retention, increased productivity, and improved work satisfaction. A complete pay package helps a business establish itself as a desirable employer in its sector.

However, it is crucial to remember that putting a total rewards approach into practice can be difficult and require a substantial commitment of time and money (Alhmoud and Rjoub, 2019). Making sure that the incentives given align with the business's objectives and core values and that the recipients are seen as fair and equitable by the recipients may also take time and effort. To ensure the continued efficacy of a whole rewards programme (Shields et al., 2020), it is crucial to have a well-thought-out implementation that is periodically examined and altered as necessary.

Monetary incentives vs Non-monetary incentives

Rewards closely related to recompense in money are referred to as monetary incentives. Some examples are base salary, extra compensation, commissions, and profit-sharing (Rajapaksa et al., 2019). Employers frequently use financial incentives because they are generally simple to assess and immediately relate to employee performance. Money-based incentives include but are not limited to team and individual performance-related compensation, competence-related pay, and contribution-based pay (Rajapaksa et al., 2019).

Team and individual performance-related pay is a monetary compensation that honours workers for their accomplishments as a team or individually (Park, 2022). Competence-related pay honours workers for acquiring and demonstrating new abilities, and contribution-based pay honours workers for their contributions to the organisation that goes above and beyond the call of duty. All these forms of compensation are monetary incentives since each includes a direct monetary benefit in the form of a cash bonus, salary raise, or other financial incentives (Bawa, 2017). In contrast, non-monetary incentives are benefits that are unrelated to monetary recompense.

Flexible work schedules, more vacation time, recognition initiatives, and chances for professional advancement are a few examples of what falls under this category (Srna and Dinc, 2017). Employee efforts and contributions to the company are frequently acknowledged and appreciated without financial compensation.

Effective non-monetary incentives organisations such as Tesco can use include recognition and praise, which can be given through a formal statement, a personal message of gratitude, or just a kind remark. Offering employees the chance to advance their careers, flexible work schedules, meaningful work, a healthy workplace culture, and work-life balance are other non-cash rewards that inspire workers to provide their best efforts. These rewards can boost employee retention, job happiness, and work-life balance, boosting output and making the company more successful (Shields et al., 2020).

Employee engagement and motivation may be achieved using both monetary and non-monetary incentives. There are, however, some significant distinctions between the two. Non-monetary rewards are frequently more long-term and emotional, whereas monetary incentives are sometimes perceived as more immediate and concrete (Shields et al., 2020). However, monetary incentives are sometimes simpler to define and monitor than non-financial ones, which can influence employee engagement and happiness more.

In conclusion, the optimal strategy for a company like Tesco PLC will rely on its particular goals and the requirements and preferences of its staff. A whole rewards strategy incorporating monetary and non-monetary incentives can assist in developing a thorough and efficient rewards programme that satisfies the requirements of the company and its workers.

AC.3.2

Pay structures provide a framework for salary advancement and can aid in promoting proper behaviours and performance (CIPD, 2022). Every organisation has a pay rise plan in place. Therefore, pay structures are the framework for deciding how people are paid in a business. There are several pay structure types, including flat pay structures, step pay structures, and variable pay structures (Bender, 2004). Depending on the organisational environment in which they are utilised, these structures may or may not be appropriate.

An incremental pay scale is a progressive pay scale where an employee's rank is often based on age, experience, and length of service. The employee often receives an increase after each year of service (Chemmanur et al., 2013). Incremental pay schedules are typical in many industries, including retail, and Tesco PLC, a major international supermarket retailer with headquarters in the UK, would be a good candidate.

According to CIPD (2022), organisations that want to promote desirable behaviours, maintain compensation competitiveness, and offer a fair and open method for deciding individual wage increases may consider paying progression a beneficial tool. Organisations may develop a high-performance and engagement culture while successfully managing their budgets by establishing a well-designed pay progression system.

Advantages of Tesco PLC using incremental pay

First, by rewarding tenure and loyalty, incremental pay scales can aid Tesco PLC in keeping experienced and devoted workers (Shields et al., 2020). This may lower staff turnover and related expenses like hiring and training. Second, since they provide clear career progression pathways and incentives for achievement, incremental pay scales can encourage workers to work hard and develop their careers within the organisation (Carter et al., 2013). Also, as incremental pay scales give predictable and progressive increases in labour expenses rather than jarring and significant compensation hikes, Tesco PLC may find them cost-effective

Disadvantages of Tesco PLC using incremental pay

Despite its benefits, as wage increments depend on fixed characteristics like work seniority rather than performance or market conditions, incremental pay scales may need to be more flexible than other pay systems (Makoff, 2014). Due to this, it could be challenging to adapt to shifting company requirements or to find and keep top-performing staff. Moreover, after an individual reaches the top of their pay range, incremental pay scales may promote complacency and lower motivation to perform effectively (Makoff, 2014). Employees who feel they are not fairly compensated for their performance or organisational contributions may view incremental pay scales as unfair.

AC. 3.3

Performance appraisal regularly evaluates an employee's job performance based on the organisation's competency expectations (Valamis, 2018). Its main purpose is to identify employee strengths, weaknesses, potential, and training and development needs. However, it also serves a judgmental purpose: to evaluate employee performance in a challenging-to-manage sector. Various methods of performance appraisal are available, such as the 360-degree Feedback Method, Management by Objectives (MBO), Behaviourally Anchored Rating Scale (BARS) Method, HR Accounting Method, and Assessment Center Method (Lunenburg, 2012).

The advantages and disadvantages of performance appraisal are listed below:

Advantages

Improves performance Promotes employee development Career growth Acts as a motivator Improves employment relationships through feedback Prone to bias or incorrect rating Disadvantages

Time-consuming process Open to contract errors, e.g. assessing current performance based on past performance

Although performance appraisal has advantages, such as increasing motivation and improving performance, Singh (2015) highlights that faulty rewards can decrease motivation and productivity. The line manager is responsible for ensuring the appraisal process is done accurately and fairly. The appraisee's role is to discuss their work progress, goals and needs with their manager or employer (Abu-Doleh and Weir, 2007). Line managers' responsibilities in conducting performance reviews can be difficult since they might need to gain the knowledge, expertise, or training to evaluate an employee's performance fairly and objectively.

The primary disadvantage of using performance appraisal for pay determination is bias, whether favourable or negative, towards a particular type of person, which impairs judgment and prevents a fair evaluation of the employee's performance. Therefore, a performance appraisal should be about developing people and rewarding them in the broader sense rather than being used to guide pay progression decisions (Shields et al., 2020).

Additionally, it would be challenging to determine executive pay within the organisation if performance appraisal were adopted for pay progression (Abu-Doleh and Weir, 2007). Executive pay is affected by overall financial performance. If executives receive higher salaries, other employees should also be rewarded with higher salaries because they worked hard to achieve those financial results and should be encouraged to work hard to achieve similar results.

Conclusion

Tesco PLC should evaluate the potential benefits and drawbacks of incremental pay scales in light of its business strategy and culture and consider alternative pay structures that may better align with its goals and values. Performance appraisal can be a useful tool for influencing choices on pay advancement. It is crucial to understand the difficulties and restrictions related to this procedure in any case.

Companies such as Tesco should employ legitimate and trustworthy procedures for performance evaluation, train line managers, and make sure the procedure is open and equitable.

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