The previous chapter examined the range of reward plans associated with the recognition and reward of individual behaviour and/or results. This chapter focuses on plans where reward outcomes are contingent on measures of collective results; that is, on collective incentive plans. Because such plans are generally geared to measures of group results over a relatively brief time frame – typically monthly, quarterly or annually – they are also known as collective or group short-term incentive plans, or ‘STIs’.

We begin our exploration of collective STIs by outlining the general rationale for such plans and by overviewing the four main plan types: profit-sharing, gainsharing, goal-sharing and team incentives. Subsequent sections explore each of these four plan types in more detail, noting the advantages and disadvantages of each. Consistent with the approach taken in earlier chapters, a final section considers the strategic priorities to which each plan type would be most and least appropriate.

Chapter 1 introduced the basic ‘tools’ of performance and reward management, including key aspects of purpose and practice. In this chapter we introduce two overarching concepts of alignment that recur throughout this book: ‘strategic alignment’ and ‘psychological engagement’. The design, implementation and maintenance of effective performance and reward management systems requires simultaneous, systematic and constant attention to both of these dimensions of alignment.

‘Strategic alignment’ refers to the plans, processes and actions involved in establishing and maintaining an alignment between an organisation’s overarching purpose or intent and how it manages employee performance and reward, as well as all other aspects of people management.

A remuneration system typically comprises three main elements: base pay, benefits and performance-related pay. In designing any remuneration system careful attention should be paid to three key considerations: first, the relative role that each of these three components will play in total remuneration; second, the practices that will be drawn on to configure each component; and third, the target level of total remuneration for each position. Any discussion of remuneration practice must consider what, for most employees, is the primary component of their total remuneration, namely base pay.

This is a book about two of the core activities integral in the field of human resource management: managing employee performance and managing how employees are rewarded. As we shall see throughout the book, there is a close and complex inter-dependence between these two activities; so much so that it makes little sense to consider them in isolation from each other. Equally, while the book’s central concerns are with performance and reward practices and processes, attention is also paid throughout to recognising and analysing the interconnectedness of these and other aspects of human resource management. Performance management systems provide inputs into other HR functions such as training and employee development, as well as evaluating HR decisions such as recruitment and selection.

The concept of ‘total reward management’, which was canvassed in chapter 1, acknowledges the growing importance of benefit plans in strategic reward practice, particularly in attracting and retaining high capability employees with specific demographic characteristics, such as women professionals, experienced older workers of both sexes, and younger workers, such as ‘Millennials’ (born between 1985 and 2000) and ‘Generation Z’ (those born since 2000).

Whereas benefits were once the least glamorous of all aspects of reward management – and were literally referred to as ‘fringe’ reward practices – many organisations now consider them to be an important means of gaining a competitive advantage in labour markets where key ‘talent’ is in short supply. As the workforce becomes more diverse and as the level of employee education and reward expectation rises, financial and non-financial benefits are assuming an increasingly critical role in the reward management system’s ability to attract, retain and motivate high-potential and high-performing employees.

Having laid out all the pieces of the performance and reward puzzle, it is time for us to consider how to go about assembling these elements into a coherent whole. In previous chapters, we have offered you some insights as to how the practices referred to in the chapter might support certain strategic priorities rather than others. In this chapter, we detail common approaches to assembling the various concepts, practices and strategies explored previously. In developing an integrated, strategically aligned and psychologically engaging performance and reward system, we need to remember that nothing is ever ‘finished’ and that change is the great constant. Accordingly, we examine the requirements for performance and reward system review, the steps involved in system change and development and challenges that may be encountered along the way. Although our approach here is primarily prescriptive in nature, we also draw on a range of insights from the research literature that has been referred to at various points throughout the book.

In this final chapter, we explore emerging trends – the new horizons – in business, technology and society with a particular focus on how these developments are influencing ideas, practice, employee experience and academic research in the field of performance and reward management. We begin with emerging trends and practices that have already begun to impact the design of performance and reward management systems and academic research in the field. We focus on three interconnected global trends that have already started to change performance and reward management practice; an impact that is very likely to increase in the years ahead. The first of these trends is the technological revolution associated with ‘Industry 4.0’; the second is the economic disruption and employment uncertainty associated with what has come to be called the ‘gig economy’; and the third is the social transformation flowing from generational change around the world.