(Solution) CIPD 5HR03 business context of the reward environment. (AC 2.1)


A PESTLE analysis tool seeks to understand various external environment factors that impact reward practices. These factors include economic change, sociological and technological development.

Economic factors

The economy of a country is characterised with economic growth/decline, interest rates, inflation and unemployment rates (Battista, 2021). Changes in economy has influence on the ability of organisations to generate revenue and make profits. For example declining economic growth and higher unemployment means people do not have money to buy products and services and this can bring loss to organisations. The purchasing power parity theory suggest that trends in economy and interrelated with rewards. When employee purchasing power decline, they will tend to look for more rewards to fulfil their needs. Extant literature shows that economic changes are analogous to pay structure and it depicts the economic structure. CIPD (2023) labour market outlook report found that the labour market is tight creating high competition for talents. As a result, Body Image could respond by increasing pay and benefits to attract and retain talents.

Sociological factors

Sociological factors such as cultural norms and expectations, age distribution and population growth in different regions have impact on reward decisions (Battista, 2021). In a highly competitive business environment, Body Image could consider going into oversea markets to expand its operations and achieve a competitive advantage. However, Body Image will need to hire local employees who have differences in culture and expectations. Cultural differences may affect how the company will reward employees. For example, some cultures beliefs in power distance within the workplace. This means rewards may not be distributed equally to everyone. Age distribution will also affect Body Image minimum hourly pay for different ages of employees. It is importance for Body Image to analyse all sociological factors before making reward decisions.

Technology COVID 19 pandemic accelerated the use of technologies to support needs and desires for all employees (Hyland et al., 2020). As organisations adopt remote and hybrid working, use of technology is a viable solution to target employees with rewards depending of their needs. Body Image can adopt cloud-based Software as a Service platforms to reach both remote and hybrid workers. This platform can be used by Body Image to reach employees no matter where they are working from. Body Image can now target remote workers with bespoke benefits that suit their unique needs and situations. Artificial Intelligence can also be used to track employees’ needs and these use this data to design benefits and rewards that can fulfil their needs.

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