Reward Audits – How can they make a difference?

The annual auditing of financial accounts is a fact of life for companies across the globe. As a mandatory process carried out by external auditors, there are high stakes associated with ‘getting it wrong’. While there is not a requirement for Reward or HR audits, why do some employers decide to carry them out?

• Provides overview on the effectiveness of reward policies and practices
• Highlights reward and people management issues including compliance
• Identifies reward opportunities that could benefit the organisation
• Prepares organisations who enter new country locations
• Supports due diligence on Mergers & Acquisitions and Initial Public Offering (IPO)
• Promotes reward function effectiveness and raises employee credibility

To put it in context, Reward and HR audits make a lot of sense when an organisation’s total reward spend can sometimes account for up to 75% of the overall budget.

Take a look at the Tips section below to see what factors need to be on your reward audit checklist?

Tips:  What Factors Need To Be Included In Your Reward Audit?

Agree clear purpose and scope

Defining purpose and scope is arguably the no.1 golden rule for all reward audits. As an example, a due diligence audit to ascertain the relative risks and benefits of an acquisition will differ greatly from an audit of reward policies and practices.

Plan ahead

Reward audits involve a systematic review from initial pre-audit to the final report. Plan ahead to ensure each phase delivers timely outputs to give an effective set of conclusions. Remember the basics such as ensuring that reports, data and other key information are available at the right time. Wherever possible, use a pre-audit self assessment from the outset to help highlight and address issues that need attention.

Appoint auditors with relevant skills and expertise

This applies to internal or external auditors by ensuring they have relevant skills and up to date knowledge to make informed judgements. This is critical where complexity, for example multi country reward practices are ‘in scope’. On selection criteria, objectivity and the ability to command credibility are essential as well as functional expertise. Remember that internal resources need training in auditing skills.

Involve key stakeholders

Involving stakeholders from the outset makes sense. At a strategic level, decision makers need to agree the overall purpose and approach on how the potential outcomes and their implications are handled. Remember to involve stakeholders on a tactical level too such as analysts and administrators who may hold the data.

Establish evidence base

The principle of ‘quality in - quality out’ applies. Strong evidence is essential to produce a credible reward audit that is capable of generating improvement.

Prioritise: Red Amber Green

Reward audits help evaluate how current practices, principles and controls operate to determine scope for improvement going forward.  If an audit results in multiple recommendations, prioritise these using criteria relating to importance and timescales.

Communicate carefully

Unlike financial audits which may generate negative responses Reward and HR audits can help answer the perennial ‘what’s in it for me’ question. Firstly, they are not mandatory. So employees may perceive the company as willing to identify issues and act upon them. However since reward and HR audits may also be linked to outsourcing assessments this needs to be managed carefully.

Website of the Month – National Audit Office ( UK)

This month we look at the Good Practice Guides on the National Audit Office (NAO) website National Audit Office UK

Why look at the site? – As well as being relevant to this month’s topic, the NAO reports on value for money in relation to public sector spending. Since employee pay and benefits represents a significant % of total public sector spend, this focus makes it a good reason to visit the site.

What works well? – The topics section has high quality information and reports on good practice across disciplines including change management and performance measurement. 

Take a look at the NAO publications for articles relevant to reward.

What could be improved? – The website is brim full of lengthy evaluation reports which raises the inevitable question – to what extent are the NAO recommendations put into practice.

Readers’ question – Tell us what topics you want to see in 2009

The Just Rewards newsletter has been running since July 2006 and thanks to your recommendations and referrals, it grows every month. Most of the topics we cover come as a direct result of your recommendations. As we’re planning the newsletters for 2009, tell us your no. 1 reward topic you would like to see by clicking here to e-mail by 17^th November. We’ll publish the top 3 recommendations in next month’s newsletter.

And if you participate in the CIPD Reward Special Interest Group meetings this is a reminder that presentation slides for the latest event are held on the Reward First news page

If you have a question for the November issue, let us know by clicking here to e-mail or look at the Just Rewards Blog.

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