Académique Documents
Professionnel Documents
Culture Documents
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
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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
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.
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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'',
the current period of general high profitability
Compensation and Benefits Review, January-
aligned to the business cycle. Should the February, pp. 54-8.
business cycle turn to one of recession, then Armstrong, M. and Ryden, O. (1996), The IPD Guide to
the variability of the rewards would work in Broad-banding, IPD, London.
the opposite direction. Barringer, M. and Milkovich, G. (1995), Changing
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
degree appraisal, both of which are currently Centre for Advanced Human Resource Studies,
being evaluated but, like any new Working Paper 95-14.
pharmaceutical product, they need to be Brown, D. and Armstrong, M. (1997), ``Terms of
tested with extreme care before being enrichment'', People Management, 11 September,
pp. 36-8.
marketed to employees.
Fisher, J. (1996), A Manager's Guide to Staff Incentives,
Kogan Page, London.
Can we conclude that there is no ``best Heery, E. (1996), ``Risk, representation and the new pay'',
practice'' any more? Personnel Review, Vol. 25 No. 6, pp. 54-65.
The earlier part of this paper emphasised the Hewitt Associates (1994), Broad-Banding ± The Challenge
need for strategy, flexibility and variability of a New Approach, St Albans.
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
direction. As reward structures and systems Resources, Vol. 33 No. 2, pp. 103-17.
need to be aligned to the specific Sable, R. (1990), ``Job content salary surveys design and
requirements of the organisation, then it selection features'', Compensation and Benefits
Review, May/June, pp. 14-18.
follows that there is unlikely to be a ``best
Schuster, J. and Zingheim, P. (1992), The New Pay,
practice'' that will work in all environments. Lexington, New York, NY.
For example, Conservative government Smith, I. (1992), ``Reward management and HRM'', in
enthusiastically embraced performance Blyton, P. and Turnbull, E. (Eds), Reassessing
related pay, demanding its implementation Human Resource Management, Sage, London.
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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