Pay Strategy: Relevance and Effectiveness


For a pay strategy to be effective, it must be integrated with the company’s overall business strategy. Achieving this integration can be difficult. This is because a business strategy can be hard to specify. 

This makes it difficult to design a pay strategy, with the overall business strategy in mind. If the company has a diverse range of activities, as well as different types of employees and roles, then this integration is even more difficult to achieve. Nevertheless, this integration is vital for the success of the pay strategy as reward and recognition are what will support and drive the company’s organisational goals. The pay strategy plays a big part of what is going to keep employees motivated. We all know that motivated employees will go that “extra mile” and this has become even so more important in such unprecedented times. Using the right and attractive pay, benefits, allowances, and bonuses, companies can also encourage employee loyalty. With this type of culture and environment, companies will attract and retain the right talent.

Relevance of pay strategy

Whatever type of reward a company chooses, it is very much going to reflect what the company wants its employees to achieve.

When choosing which type of rewards will be offered, the company must clearly define why the different elements of reward (such as the pay, benefits, allowances, and bonuses) are being given. They must understand what message, or the perceived value, such rewards are communicating to employees. The pay strategy communicates how the company manages and values its employees, contributing to the ‘employer brand’.

Most importantly, the different elements of the pay strategy must fit and reflect the company’s values. This is a vital building block of any pay strategy. This is why, prior to setting any strategy, companies must have a clear understanding of what their values are.

The effect of COVID-19 on pay strategy

The virus has had an impact in the pay strategy area too and companies are looking at changing their reward practices to ensure that there is successful business continuity. Companies and employees have seen bonuses being unpaid and salary-cuts being implemented.  This created extra pressure on companies (and HR) to revamp their pay and reward programmes to ensure that employees are being appreciated. The pandemic has also brought about an increase in remote working practices, which also makes it difficult for companies to evaluate the value of work done, and thus, how to reward for that.

Variable pay (such as long- and short-term incentives) have also been affected. Companies can no longer rely on previous assumptions and budgets to make projections and this has had an overall effect on the variable element of employees’ total package.

Companies that conduct annual pay reviews will no longer be looking at cost-efficiency, but also at cost-savings while also balancing the message and perceived value of the entire remuneration package mentioned earlier.

During this challenging time, it is important for HR to continue to focus both on the financial and non-financial wellbeing of its employees by exploring all different options – ensuring that it is providing the right amount of rewards, which are valued by employees while avoiding drastic short-term reactions in terms of pay and reward.

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