Article: Dysfunctions of rewards programs

Compensation & Benefits

Dysfunctions of rewards programs

Dysfunctions of the rewards programs cause employee dissatisfaction, but more importantly, they make organizations lose their competitive edge in the marketplace. Can these dysfunctions be overcome?
Dysfunctions of rewards programs

The value of total rewards is high, and it is an important factor both for the organizations and the external/internal talent pool. An effective rewards program helps in attracting, retaining, and developing talent along with institutionalizing the desired changes by an organization, and also helps in optimizing the dollars invested towards employees. But because of certain unwarranted practices (dysfunctions of total rewards programs), total rewards programs do not meet with much success in many organizations. These dysfunctions cause employee dissatisfaction and inappropriate hiring among many other challenges, but more importantly, they make organizations lose their competitive edge in the marketplace. These dysfunctions are: 

Core dysfunctions

Negligent job analysis: Job analysis is a systematic way of understanding and knowing the main characteristics of a job (task variety, task identity, task significance, autonomy, feedback1). If job analysis is faulty, all subsequent steps like job evaluation, benchmarking etc. become futile. In most organizations, this activity is largely ignored and carried out once in many years. It is also observed that job descriptions are not regularly updated and rewards professionals deal with outdated JDs. The negligence in updating or understanding job analysis leads to the identification of incorrect or inappropriate job characteristics which in turn causes misaligned job mapping, misaligned rewards linkages and employee and employer dissatisfaction.  

Weak job evaluation: Job evaluation is a formal way of knowing the relative worth of jobs and ranking them to ascertain job hierarchies within an organization. This is the backbone of an organization’s internal structure as many of the processes depend on it, for example, market pricing, hiring, promotions or lateral movements, increases, variable pay etc. Not many organizations evaluate jobs frequently or invest in job evaluation training for the internal HR professionals. In absence of trained HR professionals, many organizations follow inconsistent approaches to job evaluation, which leads to ineffective job movements, inequitable allocation of money and unfair work allocation that in turn creates misalignment between skills, abilities, and competencies required for the job. 

Inappropriate job-matching & benchmarking: Job matching is a way to align internal jobs with external/market jobs for benchmarking purposes. It is needless to say that not many organizations have robust mechanisms or practices that ensure good job matching exercises and not many rewards or HR professionals are trained in this area. This causes parity issues as benchmarking is used in defining and refining pay-positioning. Faulty benchmarking leads to uncompetitive positioning and ineffective salary bands that can be detrimental to organizations.  

Unfair and inequitable distribution of rewards: If increment and incentive models are not robust enough to ensure fair distribution of organization’s dollars, it will neither help organizations nor employees. It is very important that rewards professionals understand theories, models, and techniques to align and formulate models in line with business and people strategies. Rewards professional should be able to identify right parity gaps, high demand skills related market data, high attrition areas (grades, skills etc.) and other pain points and then design their interventions to address those pain areas and align rewards strategy with overall people and business strategies. If you look at benefits side, in many organizations, it is a one-size-fits-all approach. Such an approach does not create much value for employees and add to the gap between the assumed value from organization’s perspective and perceived value from the employee perspective. Insufficient knowledge of theories, tools, models, and lack of skills to understand the pain areas leads to unfair and inequitable rewards treatment that also devalue the investments made towards the employees. 

Advance dysfunctions 

Lack of support from upstream or downstream processes: In order to increase the perceived value of the rewards strategy, it is crucial that HR sub-functions do not work in silos. However good, fair or equitable the rewards practices are if upstream functions like performance management function are not effective, they will defuse the impact of standalone rewards architecture. Events like unfair ratings, delayed or insufficient communication on appraisals or delayed or incorrect output to rewards team damages the overall effectiveness of rewards function and spoils employee experiences. Similarly, if the downstream functions like payroll or shared services are not supporting effectively and making errors in increment effective dates, incorrect arrears, rude or inappropriate communication etc., it will surely lead to employee dissatisfaction and trust deficit. The irony is that in most organizations these departments work in silos and are bureaucratic, which hampers the implementation of effective reward programs.  

Misalignment of rewards with culture: If the rewards framework is not in line with the organization culture, it creates confusion and ineffective rewards practices. It is also commonplace that organizations focus and endorse high performing and teamwork culture but rewards programs do not necessarily reward high performers or teamwork. An organization may warrant a culture of appreciation but it could totally be missing from the rewards programs. For effective rewards programs, it is imperative to understand an organization’s culture and develop programs that promote or endorse cultural alignment across the spectrum.

Ineffective Communication: Communication is critical to any rewards program. Many organizations still struggle to know the extent to which they should be transparent in communicating their rewards communication strategy to employees. On the one hand, organizations take extra precautions to not commit to anything that cannot be fulfilled in the long-term and avoid tough conversations regarding parity, increment processes, budgeting or bonus payouts; on the other hand, employees want to know what happens to their peers, the market rate for their roles, how the organization is utilizing the compensation budget and many more compensation-related things. It is imperative for organizations to communicate a rewards calendar, rewards framework, policies, philosophy, communication regarding various employee-friendly benefits, wellness programs etc. that would help in bridging the gap between the real and perceived values of rewards.

Misconception: Total compensation = Total Rewards: For many organizations, the rewards function is basically compensation and benefits function. In some organizations, even compensation and benefits are two different departments and they do not relate to each other. In order to offer holistic rewards to employees, it is imperative for organizations to integrate their rewards offerings and also cater to the employee value proposition. For example, if employees care about intangible rewards like flexi-hours and work from home, talking only about compensation will not strike to them. 

It is important for rewards professionals to understand the Total Rewards concept and design the programs in coordination with other HR sub-function to enhance the overall offering. If, as rewards professionals or HR leaders, we consciously put in our efforts to deal with the above dysfunctions, our rewards programs will certainly bring in the desired results and help contribute to the overall people and business strategies. 



1 Hackman & Oldham’s Job Characteristics Model

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Topics: Compensation & Benefits, #Jobs

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