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The way employees are rewarded is starting to

Aligning rewards to alter rapidly. For many years, pay systems


remained relatively stable while the world
organisational goals ± about them was dramatically changed. These
a multinational's major changes began in the early 1980s, led
by the American motor industry giants who
experience had seen their market share quickly eroded by
Japanese reliability and price advantage. The
John Stredwick motor industry began the West's long march
towards customer orientation, efficiency and
quality, dragging its employees through
successive traumas of re-structuring, re-
engineering, redundancy and revitalisation. It
became clear that, amongst many other
changes, hierarchical structures in predictable
environments altered to fluid organisational
The author forms working in uncertain environments
John Stredwick is Senior Lecturer at Luton Business (Heery, 1996).
School, University of Luton, UK. The evolvement of the concept of Human
Resource Management in the mid-1980s led
Keywords to the recognition that the workforce was one
of the key areas of competitive advantage.
Performance-related pay, Reward, Flexibility,
How that workforce was recruited, trained,
Pay structures
challenged and involved became critical
components in ultimate organisational
Abstract
success. In each of these components, reward
This article examines some of the recent innovations in issues need to play a major part to produce a
rewarding employees arising from the changing needs of well-oiled high-performance people machine,
organisations in a competitive global economy. The focused on organisational objectives.
necessity for reward strategy to be congruent with The key word here is ``alignment''. Reward
business objectives and the consequent movement policies have often been made on an ad hoc
towards greater flexibility and variability are considered basis (Smith, 1992), resulting from
together with the important and growing concept of immediate difficulties in the labour market or
broad-banded basic pay systems. A case study is to pave the way to settle awkward negotiations
described of a multinational pharmaceutical company
with employees. This has led to the collection
which has travelled down some of these routes, changing
of reward practices being out of line with each
from a centralised and over-rigid pay control system to
other and with the overall business needs.
one that more closely meets the requirement of the
One only has to look at many of the 1970s-
European marketplace.
style shopfloor incentive schemes which were
based solely on productivity where good
Electronic access results (often as a result of countless
The current issue and full text archive of this journal is allowances) often led to poor quality, an
available at increase in waste and poor delivery
http://www.emerald-library.com performance. Even today, many schemes of
performance related pay have a built-in
conflict because they have been devised to
reward the achievements of individuals while
other parts of the human resource policy puts
great emphasis on building up teamworking
skills and practice.
In the last ten years, reward policies have
begun to follow the parade, rather than just
watching. Commentators, particularly
European Business Review
Volume 12 . Number 1 . 2000 . pp. 9±18 Schuster and Zingheim (1992) who coined
# MCB University Press . ISSN 0955-534X the phrase ``The new pay'', set out some of the
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Aligning rewards to organisational goals ± a multinational's experience European Business Review
John Stredwick Volume 12 . Number 1 . 2000 . 9±18

ways that remuneration systems have altered of ``mystery shoppers''. Building systems of
to match the new style cultures. competence-based pay or incorporating the
reward for improving competencies within a
performance pay system. Volkswagen and
Strategy ICL now have job evaluation schemes based
entirely on competencies while directly paying
First, there must be a reward strategy in place. for achieved competencies takes place at,
It must be derived from and contribute to amongst other major organisations, Scottish
corporate strategy and be based on corporate Equitable, Guinness and Royal Bank of
values and beliefs. Glaxo-Wellcome, for Scotland (Brown and Armstrong, 1997).
example, as a world leader in pharmaceutical
research and knowing that long-term
investment is the only alternative for survival Flexibility
at the top, has a reward strategy of paying
salaries at the upper quartile level to attract, A second feature is the need for rewards to
develop, motivate and retain quality research retain considerable flexibility. This reflects
staff. Dow Chemicals has a strategy to the need of organisations themselves to be
provide compensation that is responsive to, nimble-footed. Each generation of new
and reflective of, the quality of performance of products must be brought to the market
both employees and the business (O'Neill, quicker. New contracts won in the service
1995). Abbey National has used a reward sector must be brought on stream in an ever
strategy to move from a centralised quicker timescale. Reaction must be swift to
bureaucratic structure to one that is competitors in a globalised marketplace.
decentralised with empowered operational Rewards, then, must not be fixed and
units. Textron has recently used rewards to immutable but contingent upon
support the strategy of flexibility by circumstances and performance. Skills based
introducing skills-based pay while Whitbread pay, for example, may be emphasised one
Beer Company and Vauxhalls both use year in one division to support the drive for
rewards to encourage initiative and multi-skilling amongst its production
innovations. employees; at the same time, another division
Even the world of fast food has joined in. will have a two-year gainsharing plan to turn
Burger King has recently announced round a loss-making operation and make it
improved pay and conditions for its staff to profitable. There has been a growth of
help the move to become ``the preferred incentive schemes introduced to last for only a
employer'' in the industry (Walsh, 1998). few months with rewards in the form of
A further development in reward strategy is vouchers or holidays such as at Cable and
related to the development of competencies. Wireless and AEG (Fisher, 1996). These
Organisations have identified specific used to be restricted to the salesforce but they
competencies which can differentiate them are now becoming more widespread amongst
from their competitors. The clearest example administrative, service and even production
is customer service but other examples of employees.
``generic competencies'' have included As more executives move around Europe,
effective communication, teamworking and a due to the effects of the global market, the
focus of quality. It becomes essential for need for more flexible reward packages has
organisations to seek to align these become more apparent. A single
organisational generic competencies to the compensation package which, with minor
behaviour and performance of employees. For adaptions, can suit a transfer to any country in
example, a business that sees its competitive the world, has become outdated. Integration
advantage as superior customer service must with the pay system for the country concerned
focus employees on the benefits of this and a reduction in the emphasis on the
strategy. As an aid to reinforcing this process, division between ``ex-pats'' and ``nationals''
organisations base some of their rewards on has led to a far more flexible and contingent
the individual or team achievement in the area approach to international long- and short-
of customer care. These achievements can be term assignments, as the case study shows.
measured through well developed marketing As a final aspect, to give support to this
methods, such as customer surveys or the use concept of flexibility in the organisation,
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John Stredwick Volume 12 . Number 1 . 2000 . 9±18

employees may be empowered to choose the Table I The changing nature of pay
benefits to suit their own personal situation From To
and needs through a flexible benefits
programme, such as that operating at Price Pay as an expense Pay as a competitive advantage
Waterhouse or ICL. Compensation for having to be at Reward for achieving desired
work results
Fixed pay grades in a rigid job Flexibility within a broad-banded
evaluation scheme structure
Variable pay Fixed weekly or monthly wage Variable pay where bonuses are
added based on successful
A third feature is that pay must become more
performance
variable. Instead of a wage or salary being a
Equity sharing limited to directors Share options for everybody
fixed amount each week, month or year, a
Fixed benefit programme without Flexible benefit programme suiting
growing proportion should become
choice individual requirements
contingent upon performance. Performance
Pay policies based on government Pay determined by organisations to
can be measured on an individual basis, often
control or national agreements meet local conditions
called performance related pay, or through
Compressed differentials Wide variations from the
teams (team based pay), units of operation
boardroom to low-paid part-time
(gainsharing), or whole organisations (profit
staff
related pay). By introducing these schemes,
Paying for length of service Pay for performance, skills or
employees are obliged to take on a greater
competence
burden of the business as their pay rises or
Paying for turning up for work Paying for employees' ideas,
falls contingent upon the performance being
initiative and innovation
measured.
Bonus schemes based on narrow Incentives based on broad
By the same token, the proportion paid to
measures of production measures of organisational success
employees as their basic pay must reduce.
``On target earnings'' must replace ``annual
salary'' as the advertising mantra for all Basic pay
employees, not just the salesforce. A fixed
A final change concerns basic pay itself, which
pensionable basic salary becomes converted
also needs to be more flexible. The first major
into a base salary making up 70-80 percent of
change has been in how levels of basic pay
earnings with the remainder, often non-
have been determined. In the public sector
pensionable, made up of individual or group
and in many large private concerns, basic pay
contingent pay. For senior executives, the
proportion of base pay becomes even smaller levels used to be subject to national
with chief executives of large organisations negotiations between a collection of unions
receiving no more than 20 percent on base and officials from the trade association or
pay and huge incentives paid out as annual government body. In recent years, the volume
bonuses and share options. of such negotiations has drastically declined.
Employees will be encouraged to get more In manufacturing, for instance, the national
involved in the organisation's progress and agreement in the engineering industry has
performance by incentives to, literally, buy been all but abandoned and other industries,
into the organisation. Share option schemes such as shipbuilding, are only a pale shadow
for all employees, usually under the tax- of their former size. National agreements in
approved SAYE arrangement, have become the privatised utilities are now very patchy.
far more widespread and, for employees of Agreements still exist in local governments,
organisations that have seen very rapid growth although not all authorities take part, while
in the value of their organisations, such as the creation of Agencies out of former
Smith-Klein-Beecham, Norwich Union or government departments has served to
many privatised electricity companies, the fragment much of the national bargaining
increased value of the average shareholdings structure in these areas. Even a company such
can be quite substantial, running into as Vauxhall, which only has two sites, has
thousands of pounds in a year. This can also moved back to negotiating separate
act to increase the employee's commitment to agreements for each site with certain pay and
the organisation. conditions reflecting local labour markets and
A summary of some of these changes is set site performance. The outcome is that
out in Table I. organisations have a much freer hand in
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John Stredwick Volume 12 . Number 1 . 2000 . 9±18

ensuring that basic pay is now much closer (see Figure 2). The structure is seen to
related to the needs of the organisation in its motivate by encouraging employees to bid for
own location rather than having to fit in with promotion to a higher job through a
the dictates of a national pay agreement. permanent, fair and transparent system.
It was not uncommon for national A higher job, a higher grade, a bigger salary ±
agreements to incorporate a pay structure nothing could be simpler or fairer. The first
based on a national job evaluation scheme. major grading system like this was set up by
As organisations look to their own local the US Government in 1923 and operated,
needs, there has been a hard look at the with some amendments, for 60 years
benefits of retaining such schemes. Rather (Barringer and Milkovich, 1995).
than being determined by the traditional job Today, the external environment has
evaluation system with its emphasis on a changed considerably. Promotions are now far
multi-graded structure together with internal fewer as organisations have de-layered,
equity, fairness and bureaucratic application reducing greatly the number of management
of a complex system of rules, the movement is and supervisory positions. Employees need to
towards the collapse of grades into a small be far more flexible, willing to change their
number of pay bands (maximum of five) roles and learn more skills to meet the needs of
where movement within the band is the quickly changing national and
determined by the individual's performance international marketplace. The stiff,
and external pay comparisons. These have hierarchical grading structure is far less likely
been called ``Broad-banded'' schemes and to match the quick-moving, responsive culture
this subject makes up the main part of the required in both manufacturing and service
case study in question (see Figure 1). industries (Armstrong and Ryden, 1996).
A further criticism of the multi-grade
system is that it can encourage the employee
What is broad-banding? to adopt a rigid approach to the job.
``My job has been described closely, it has
At the end of a conventional job evaluation been fixed at a particular grade; therefore that
exercise, all the jobs studied have been is the job I am paid for. I am not prepared to
awarded a total of points for all the job factors do anything new or extra outside of the job
that have been examined. The next phase is to description unless I am paid more for it.''
lay out all those jobs in numerical points order In this situation, employees would apply for
and create a set of grades by fixing boundaries re-grading which can often be an adversarial
at particular points scores. contest. If the employee wins, it can well
In the past, it has been common to create at upset other colleagues and lead to further
least five and sometimes as many as 15 claims. This can lead to grade drift, which, in
grades, such as still exist in the Employment turn, causes salary drift and headaches for the
Service scheme. The aim has been to create remuneration specialist. If the employee loses
equity by highlighting the differences between then the extra work will only be carried out
the sets of jobs and giving greater rewards to grudgingly, if at all. Too often, employees
those whose jobs are rated higher than others think of themselves, or describe others, in

Figure 1 Broad-banded structure ± 150 percent band width

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Figure 2 Traditional graded structure ± 50 percent grade width

terms of their grades. To be called a ``grade party judgments, such as in 360-degree


four'' rather than a senior clerk, is still not appraisal.
unusual in organisations where the grading (2) An informal system of job development
structure is deeply ingrained. zones, where employees move from a
Under a broad-banded scheme, the probational role through to being an
artificial divisions, which normally distinguish experienced employee and finally to being
between grades, are ignored. What normally an expert performer. There are very clear
happens is that a set of generic job titles, such guidelines on how that should be judged
as ``manager'', ``supervisor'', ``operative'', and how long that may take. Such
movements are often anchored to market
``clerk'' are gathered into one large band
rates, analysed on a regular and
containing all jobs with this title. This allows
consistent basis by the human resources
all of the employees in an organisation to fit
department (see Figure 3).
into a salary structure which may have as few
(3) Enlarging experience approach, where
as five broad bands.
employees move between jobs and
Being broad, there is a large difference
between departments, gaining extra skills
between the top of the band and the bottom. and generally becoming more useful and
Sometimes the top of the band can be 250 knowledgeable employees.
percent higher than the bottom (i.e. a range (4) By performance, where the outcomes of
for the ``managers'' band from £16,000 to the performance management scheme
£40,000). indicate a movement up the band due to
Moving up the band is the key to the whole enhanced and proven performance.
concept. First of all, the decision process is in
the hands of the departmental manager to act
within guidelines and in line with their Benefits of broad-banding
budget. This replaces the formalised and
personnel controlled re-grading process Advocates of the scheme put forward the
(Hewitt Associates, 1994). The criteria for following advantages:
authorising movement falls into four main . Employees have a much greater incentive
areas: to achieve results for the organisation. If
(1) A competence approach where clear they become more competent, have a
guidelines are laid down on the Figure 3 Broad-banding zones
acquisition of important competencies,
such as operates with General Electric
(Milkovich and Newman, 1996).
Measuring them is not easy and will be a
mix of subjective analysis, the attainment
of NVQs or equivalent, or through third
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John Stredwick Volume 12 . Number 1 . 2000 . 9±18

higher performance or enlarge their skills . Employees may be de-motivated if they


and experience, then they can be paid meet the criteria but the manager's
more. This encourages the type of values budget restrictions stop the increase.
that organisations want to promote. They Under traditional job evaluation schemes,
do not have to wait to apply for grading or budget restrictions could not stop a re-
a promotion. grading.
. Given the lack of managerial and Making sure that managers act in a consistent
supervisory jobs, employees can still make fashion across the whole salary structure is not
progress with the organisation. By easy. The role of the human resources
employees improving and being department here is crucial in acting as an
motivated to improve, the job of the over- auditor, an advisor, mentor and informal
stretched manager becomes easier. adjudicator. Without such a fallback, the
. The system is far more flexible. New jobs wage structure is more than likely to fall into
and processes can be introduced easily chaos.
without worrying about employees'
narrowly defined jobs.
. By putting the decisions in the hands of
Multidrug's move to broad-banding
the manager they will act realistically and
responsibly towards their staff and their Multidrug Ltd is a wholly-owned subsidiary
total salary bill. of the US based company which is one of the
Managers view broad bands as creating a world's leading pharmaceutical companies
operating in every major market throughout
more flexible environment in terms of
the world with a very strong market position
directing their own careers because the system
in Europe. There are around 1,500 UK
links earnings potential to performance rather
employees in a number of sites with the head
than advancement (Abosch, 1995).
office based in the Home counties. It is not
unionised, although joint consultative
committees discuss points of mutual interest.
The downside In view of the huge sums invested in
research and development, centralised control
. It can be seen that broad-banding could
is more common in the pharmaceutical
be regarded as much more than a
industry and this has been reflected in
sophisticated version of the salary
company policy on reward management.
structure in a small, informal organisation
Together with training/development,
that has not yet found the necessity for
Multidrug has always regarded reward
job evaluation. In fact, broad-banding
systems as key areas of human resources and
can be so flexible that there is actually no
has put them at the heart of their integrated
need for job evaluation. This informality corporate systems. Employee appraisal, job
can lead to all the accusations of evaluation and pay determination
subjectivity and favouritism that led to mechanisms are established at the US
job evaluated wage structures in the first headquarters and cascaded through the
place. Unless the criteria for salary various subsidiaries world-wide. Therefore,
progress are robust, really understood managers operating in, say, France will be
and operated fairly, then the system will appraised and rewarded under the same
not be seen as fair itself. system as in the UK.
. There can also be a tendency for it to be The Hay job evaluation scheme had played
expensive. Under narrow grades, a central and successful part in the overall pay
employees came to the top of their grade system for over 20 years for managerial and
and realised they may have to stay there senior technical staff. Each and every position
unless promoted. Under broad bands, has been carefully evaluated, Hay points
most employees see an almost unlimited allocated and the employee's basic salary
opportunity to make continuing progress determined by the Hay system on a range of
and managers may find difficulty in 80 percent to 125 percent around the salary
holding salary increases back, particularly control point. This control point was carefully
if employees meet the criteria. researched in relation to the marketplace
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through extensive and continuing market offered alternative jobs. More commonly,
surveys and generally represented a point employees developing their careers were
around the upper quartile of market rates. considering, and being offered, jobs seen as
The responsibility for determining the Hay ``lateral'' moves by the company. In a number
points lay with the HR department who were of cases, employees were refusing jobs that
extensively trained in the Hay process and carried fewer Hay points (say, from 588 to
kept very close liaison with Hay staff on 571) even though the salary and other
market developments. Most managers knew benefits were identical or even better. The
how many Hay points had been allocated to rigidity of the Hay scheme became a barrier.
their job although they generally knew little of Problems with international transfers between
the scheme details and were unsure of how the USA and Europe or within Europe came
the precise points total had resulted. This was into the same category. When the market
less well-known at lower levels. pressures were added to these problems then
it became impossible to operate an efficient
salary structure inside a narrow banded
Pointers for change scheme.

As part of their close relationship, Hay carried


out a regular audit of the scheme's operation Designing a new scheme
on an international basis. In 1992 their audit
showed that difficulties related to the It took two years of deliberation from the
application of the scheme had begun to 1992 Audit to the launching of the revised
surface. There were two main problems. system as part of a world-wide compensation
First, it was becoming increasingly difficult to re-design programme sponsored by the US
align the scheme successfully across America corporate head office.
and Europe. During the 1990s, the economic The principal feature was the establishment
circumstances in America had been markedly of revised broad-banded salary structures.
different from Europe. Their recession had The first global system was for professional
been earlier and was not so deep as that staff and had five grades in total from
occurring in Europe. Even within Europe at graduate entry to senior management, a total
that time, economic circumstances varied of over 2,000 staff worldwide. The second
greatly between, say the UK, where was for administrative and operative staff and
unemployment had been rising steeply for was specific to the UK. An extensive mapping
two years, and Germany where their steep rise operation took place to fit the existing jobs
had yet to begin. These differences, into the Hay grades. The know-how element
accentuated by currency fluctuations, were of Hay evaluation was retained as the
reflected in the job market and the salaries principal measure and the grades fell roughly
required to attract the right calibre into line with one step of know-how.
individuals. It was becoming impossible to The salaries established against the grades
encompass all of these varying cases in one were a more tricky problem. The intention
all-embracing scheme. was to establish a grade range that
Allied with this problem in the operational encompassed all of the jobs and the current
and administrative grades was the problem of job-holders' salaries. As in all salary re-
work flexibility. As employees' jobs were organisations, not everybody fitted into the
increasingly being stretched due to reduced structure. Moreover, the US head office
headcount, team working, mechanisation and preferred bands that were not too wide,
computerisation, the rigidity of the Hay probably within a range of 50 percent from
evaluation scheme was placing strains on bottom to top. This was felt to be too narrow
work patterns. There was also a growing by the UK HR department and lengthy
demand for re-evaluation of jobs which was persuasion was necessary to allow the scheme
proving unsettling. to have bands of around 75 percent for grades
The final problem was the growing one to five and 125 percent for the senior
difficulties of switching jobs. The era of de- management grade five. The new salary bands
layering had started (although on a low-key at that time are set out in Table II.
basis) and some employees, whose jobs had The process of slotting employees into grades
been redefined or re-engineered, were being was achieved by the normal process of
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Table II Broad-banded salary structure ± management follow up particular areas of interest on an


Band 1 £14,500-£27,000 informal one-to-one or small group basis.
Band 2 £20,000-£40,000 A major consultants' salary club established
Band 3 £33,000-£64,000 the pharmaceutical pay survey more than 15
Band 4 £47,000-£95,000 years ago and now has 100 participating
Band 5 £61,000-£130,000 pharmaceutical companies in the UK. The
company has around 1,000 client companies
in over 40 surveys covering particular
employment sections, including one for
establishing a series of benchmark positions
secretarial and clerical staff in the South East.
and then comparing all other jobs with those
A conference is organised once a year for the
benchmarks. With only five grades in total
pharmaceutical group to consider the findings
this presented few problems. The HR staff
in their surveys and discuss wider issues. The
carried out this exercise, liaising with line
information is important for monitoring pay
management to confirm straightforward
decisions and consulting over the 5 percent or across the full range of professional roles and
so that did not naturally fit. It provided the to consider any areas where special skills
opportunity to remedy perceived distortions shortages are developing, demonstrated by
where the Hay system had not adequately exceptional pay inflation.
recognised a complex and sometimes unique Hay survey ± this is a very substantial and
role. wide-ranging survey of organisations that
For the UK administrative grades, similar regularly use the Hay evaluation scheme. It
principles applied, although the number of provides very useful checking information to
bands was restricted to three and the band confirm Exchange group data and to compare
width was smaller at around 70 percent pharmaceutical management and technical
(Table III). salary data with other industries.
Local surveys ± Multidrug takes part in local
salary surveys for locally recruited jobs such as
accounting and clerical staff, storekeepers and
Market information
security staff. This is, in effect, a local
As is common with large multinationals, exchange group and is free, with the
decisions on salary movements within the information very focused.
broad-banding system have always been Figure 4 provides an example of
heavily influenced by the market information information on market trends provided to line
provided by the HR department (Sable, management and a Salary Guide Matrix for
1990). This information is generated from management grades based on market data
four main sources, predominantly from terciles. In total, the budget set aside for
within the pharmaceutical industry. gaining market information works out at
Exchange groups ± Multidrug has joined about £4.00 per employee plus the cost of
together with other top companies in the half a person to collate and process the
industry to exchange information on information into regular internal reports.
compensation and benefits. These groups
meet at least twice a year and provide detailed
breakdowns of crucial salary movements and Figure 4 Example of market information for line managers
any innovations in benefits or incentives.
They have a high value to participants in that
the information is focused, the service is free,
up-to-date and is accurate. Participants can

Table III UK administrative bands


Band 1 £8,000-£13,000
Band 2 £12,000-£19,000
Band 3 £17,000-£27,000

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Salary determination decisions on bonuses taken in February and


paid in March before the end of the tax year,
The authority for determining initial basic while salary changes are implemented from
salaries and for movement within the salary 1 April.
band still lies with line management. The
comprehensive market information provides
them with a more precise tool with which to Incentive arrangements
make these decisions. Rather than the rigid
Hay progression system of moving steadily On top of the flexibility that the broad-
between 80 percent to 125 percent of the banding scheme brings to employee rewards,
control point, employees are now recruited the company also operates two separate
into what is seen as a reasonable market salary incentive packages which has led to the
and then they may progress to the upper rewards being more variable. The first is a
quartile at an appropriate speed. This is annual award, arising from a ``pot of gold'',
justified through their manager's perception determined by the overall organisational
of their performance, acquisition of market- performance, cascaded down the operating
valued skills and their value to the company, companies and units and distributed
not simply how long they have worked for the according to the individual's performance.
organisation. The width of the bands provides The employee guide to this scheme makes it
a greater flexibility than before. clear that the criteria for bonus distribution
A second advantage is the flexibility within one unit may be different from another
provided for changing organisation structures. unit because each will have different business
For example, the sales force structure was requirements.
fundamentally structured two years ago with The second payment, based on the same
significant changes to job roles and many new criteria as for the annual award, is in stock
roles established. Slotting existing employees options and has a more limited application
into their new roles and managing many but with the clear intention of increasing the
salary adjustments arising was a much easier employees' commitment to the organisation.
process under the grading structure where
there was no issue of total Hay points, just a
consensus on the know-how factor and a Summing up the total package
continuing discussion on individual
progression through the grade. The degree of In moving towards the broad-banding system,
precision necessary has been much reduced. Multidrug has not regarded the change as
revolutionary, more an evolutionary process
reflecting the faster nature of the changing
Performance management world and the need for a greater degree of
flexibility. The operation of the incentive
The final part of the basic salary schemes encourages that degree of flexibility
determination jigsaw is the PM system. as set out in the ``Employee guide'':
Currently, this is a corporation-wide system Your manager might decide to:
with a fixed distribution of designations in . Provide more of your total reward by
particular groups depending on divisional increasing your base salary (if you are
performance. The first group is ``TF'' (in the paid low in your defined job range), and
top 5 percent), the next TQ (top quintile) and provide you with only a modest annual
the next group has ``Outstanding'' with ``Very bonus.
good'' and ``Good'' as categories. LF (lower 5 . Limit your salary increase because your
percent) brings up the rear and this category base salary is where it should be, relative
leads usually to no pay rise, bonus or stock to the market, but provide a larger annual
option for the recipient. As with all other PM bonus because you have made an
systems, difficulties arise when employees outstanding contribution in the last year.
drop a notch, being TQ one year and only . Combine an annual bonus, which
``Outstanding'' the next. rewards current contribution and
The PM system, which is also the basis for performance, with a stock option grant,
the payment of incentives and stock options, which can have future value and
takes place in December/January with emphasises long-term reward, to deliver
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John Stredwick Volume 12 . Number 1 . 2000 . 9±18

total compensation that reflects the strategies can assist in guiding and changing
nature of your contribution. employee behaviours which will lead to long-
term performance improvement. Strategies
The scheme has been well received by
that do not merely follow political agendas or
employees to date. The somewhat tortuous
attempts to follow the ``best practice''
process of appeals against total Hay points has
procession but those that meet their own
been abolished and the new arrangements
organisation's unique requirements.
have led to no formal appeals under the
company grievance procedure. The rewards,
though more variable, have proved very References
beneficial to date for employees in line with
Abosch, K. (1995), ``The promise of broad-banding'',
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Employment Contracts: the Relative Effects of
Further evolutionary progress may come
Proposed Changes in Compensation, Benefits and
through systems of team-based pay and 360- Job Security on Employment Outcomes, Cornell
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Milkovich, G. and Newman (1996).
and the case study has shown how one O'Neill, G. (1995), ``Framework for developing a total
particular organisation has moved in this reward strategy'', Asia Pacific Journal of Human
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need to be aligned to the specific Sable, R. (1990), ``Job content salary surveys design and
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Schuster, J. and Zingheim, P. (1992), The New Pay,
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through the Citizen's Charter and through Taylor, S. (1997), ``Piloting appraisal-based pay in the
police service'', in Stredwick, J. (Ed.), Cases in
integrating its introduction with the creation Reward Management, Kogan Page, London.
of numerous agencies. The outcome has been Walsh, J. (1998), ```McJob' image first target in burger
far from successful in many situations, recruitment war'', People Management, 22 January.
including universities, the health service and
(John Stredwick joined Luton Business
the Inland Revenue. The failure of pilot
School as Senior Lecturer in 1992, following
schemes in the Police Service ensured that its
20 years as an HRM practitioner. His
general introduction has been put on the back experience has included union negotiating in
boiler (Taylor, 1997). The reason for these shipbuilding and printing, human resource
failures is not hard to find. Individual planning in service industries and, more
performance related pay does not align with recently ten years as Head of Personnel in an
the general organisational strategy of co- RTZ subsidiary.
operation and intrinsic rewards that are often Publications have included Cases in Reward
at the heart of human resources in the public Management (Kogan Page, 1997) and Flexible
sector. Working Practices (IPD, 1998) and he has
For HRM practitioners, therefore, it delivered papers at conferences in the UK and
becomes essential to look at the overall Singapore. He is currently completing his
business needs and to identify how reward PhD on Team-Based Pay.)

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