The terms ‘best fit’ and ‘best practice’ are used in strategic human resource management literature and are applied to the specific policy area of reward systems. Each approach attempts to explain the way that HR policies in general and reward policies in particular can lead to greater organisational effectiveness. Some commentators believe that the development of the best fit model is derived from the Harvard, Michigan and New York models. Sparrow and Hiltrop (1994) claim that these models could be classified as ‘matching models’ because of their common aim is to match the human resources strategy with that of the corporation. Thorpe and Homan (2000), argue that previous developments in the design of pay systems did not directly relate to the real priorities and problems faced by organisations. Thus, the need to devise pay systems linked to business strategy arose. The underlying premise of best fit is that a close alignment between organisational strategy and other systems, including reward, can improve organisational effectiveness. Although the idea that pay should be linked strategy is not new, it received impetus in the 1990s with works by Schuster and Zingheim (1992, 1993) and Lawler (1995) discussing the merits of ‘new pay’.
Lawler (1995, p. 14) states that all organisational systems must start with business strategy because “…it specifies what the company wants to accomplish, how it wants to behave, and the kinds of performance and performance levels it must demonstrate to be effective.” Business strategy, driving individual and organisational behaviours, is the touchstone for the development of the reward strategy
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