Strategy Behind the Strategy: Incentive Rewards and Business Outcomes

Organisations that treat business strategy, people strategy, and reward strategy as separate activities, or as merely compliance-oriented checkboxes, limit their potential. These three core strategies are interdependent: business strategy is delivered through people, and people strategy is supported and enabled through reward. The reward framework translates ambition into behaviour and behaviour into measurable outcomes. As such, accurate and well thought out and intentional incentive schemes are foundational to workforce performance, and their potential impact should not be underestimated.

The mutually reinforcing nature of these three strategies, which is often misunderstood, is illustrated below:

Business Strategy

Business strategy defines an organisation’s overall direction and market positioning. Overall visions of growth, innovation, sustainability, or market leadership are established here alongside the core business values that guide decision-making. This strategy should also reflect market dynamics, threats, opportunities, and external pressures such as technological change. Critically, it codifies how resources are allocated and how success is assessed. Maintaining agility in resource allocation is essential to adapt to market change and sustain competitive advantage.

So, what enables such agility? The ability to adapt and maintain a competitive advantage depends on workforce capability and development. An analysis of business strategy and workforce management alignment found that business strategies which invest in employees as strategic assets, not viewing them as an expense, outperform their counterparts. The central tenets of sustaining competitive advantage through business strategy were performance and innovation, both of which are cultivated through strategic workforce management. Effectively implementing a business strategy, therefore, relies on a robust people strategy.

People Strategy

The people strategy is composed of elements including: recruitment and retention, professional development, performance management and reward, and is supported by projects such as leadership development, increasing diversity, ensuring employee satisfaction, and improving company culture. The People Strategy and the Business Strategy should align and support each other, prioritising the recruitment, retention and training of qualified talent who can support the technological, logistical, and innovative implementation of the business strategy.

The importance of Strategic Human Resource Management (SHRM) has evolved significantly. As they evolve beyond a purely administrative or compliance function, HR teams are becoming more integrated and administratively developed. Technological developments are accelerating such expansion; a 2025 investigation into SHRM found that AI technology is rapidly repositioning SHRM as a key basis of competitive advantage. The composition, measurement, and evaluation of the people strategy should be as well-defined, codified, and thoroughly understood as the financial strategy. This diligent approach to workforce planning is essential in ensuring the maximum return on human capital investment.

Organisations that invest in people development build stronger internal capability. An MDPI Behavioural Sciences investigation found that such investment fuelled employees’ self-efficacy, improving engagement and therefore overall organisational resilience. The 2023 McKinsey report, which investigated the transformation of human capital, found that organisations that excelled in their people development alongside their financial outcomes were four times as likely to outperform peers who did not excel through their SHRM. As such, defining these workforce qualities is not enough; driving and reinforcing these behaviours is crucial in achieving outcomes. This is where reward strategy comes into play.

Reward Strategy

The reward strategy is one of the key mechanisms through which the people strategy is implemented. The core components of a total reward offering include fixed compensation, incentives and variable compensation, benefits, recognition, and career development opportunities linked to pay progression, and are a primary lever for incentivising performance. (Click here to see how sales incentives are changing in 2026).

Technological developments, including the integration of AI, are facilitating more transparent, consistent, and responsive performance management and reward systems, expanding and optimising the business-wide outcomes of SHRM. A Human Resource Management study concluded that these systems successfully encourage employee trust and facilitate engagement, both valuable objectives of SHRM. (Click here to learn more about the integration of AI into reward strategy).

Most importantly, reward strategy directly influences both behaviours and culture and business outcomes. Tailored and personalised reward and incentive structures are fundamental to generating and sustaining competitive advantage. The MDPI investigation into organisational resilience found that alignment between individual goals and company goals was essential when leveraging the self-efficacy of skilled employees. Reward programmes, therefore, are an opportunity to strategically align performance and business outcomes. Commission structures can drive revenue growth, while investment in professional and pay development models supports employee engagement and reduces churn.

Dispelling common myths reveals the reality of how business, people, and reward strategies work together in practice:

These three, inseparable, strategic elements form a system. Business strategy sets direction. People strategy builds capability. Reward strategy drives outcomes and behaviour. Misaligned strategies don’t just fail to drive business outcomes, they actively undermine them.

For organisations looking to move beyond generic approaches, the opportunity lies in designing reward strategies that are explicitly linked to business and people objectives, reinforcing the right behaviours and maximising return on investment. This principle underpins our approach to designing reward strategies. In the next article, we outline our comprehensive Performance Reward Framework, which is built on four key pillars: Alignment, Leverage, Retention, and Cost.

If you would like to discuss how your reward strategy could better support your people strategy, our Principal Consultant, Paul Hunter, would welcome the opportunity to share his perspective. You can reach him at paul@people-performance-reward.co.uk