HRM and Remuneration Systems

1. HRM and Remuneration Systems

2. Rewards & methods of reward • The wage-work bargain. • Central to employment relationship & regulation • Offer – Acceptance - Consideration (incentive package) • unilateral or bargained? Buyer-seller power? • Tailored or standardised? Individual or collective? • The Cash Nexus • Enid Mumford’s contracts • Rewards systems vs. Payroll admin.

3. Pay-offs in the Employer-Employee Relationship (Mumford 1972) • Knowledge & skill Er wants know-how, competence, experience. Ee wants to be put to good use & be developed • Efficiency/rewards Er wants performance & quality output. Ee wants equity, felt-fair rewards & opportunity • Ethical - values & commitments in right/wrong behaviour • PsychologicalMgt & co-workers want committed, loyal, motivated people. Individual wants satisfaction • Task structure - work within policy, procedure & technical constraints. Jobs, work arrangements Keep-T

4. Issues in pay policy, package & administration • Integrate Ee. performance with competitive advantage? • Smooth, reliable, low risk, transactions. Handing over the cash: personal or separated? • Traditional methods prevail. Where are the innovations? • Pay policy - closet management? • HRM policy-maker, practitioner & academic interests? • Rewards central to HRM models? • Theory & practice. Partial? Coherent? robust? • Thin, incomplete picture and treatment?

5. Tixylix Prescription (read the label) • Proposition: Reward system X è will benefit organisational efficiency & effectiveness • EmployerOur policy should properly reward & motivate staff to contribute effort, expertise & commitment in line with organisational objectives. Our reward system must be right for the ‘firm’ (pay bill & administration) & employees (attracting, motivating, retaining the right staff). • Employee (felt-fair, equity, expectancy theory)“the reward system should reflect my work & its demands on me, my value (for my kind of work) within ‘labour market’ (internal/xternal). It should satisfy me when comparing my rewards with what others get for the same kind of work”.

6. Context and Pressures • Porter - product innovation + cost leadership • low labour costs vs. recruitment, retention & motivation • "Rate for the job" – job class & work technology • Location in low wage economies • commitment & flexibility • Convergence: white/blue, office/factory – competencies • Team-working, flexibility, harmonisation • Regional market forces (the City, Leeds, Delhi). • Labour mobility (between occupations + Europe) • Salary leagues (MNCs & Euro/global manager)

7. Examining Reward System Concepts and Practices • Patterns and trends in policy & practice? • Propositions and Assumptions? • Tests for the propositions/hypotheses? • Competing concepts and perceptions? • Veracity of the imperatives?

8. Determinism, Rhetoric and Verification Under utilised & sophisticated mechanisms or crude, problematic tools to drive performance? Debate: determinism: • individual performance è pay • Pay è individual/group performance PRP paradigm shift – rhetoric vs. practice • ‘sea change' or traditional 'ad hocery' • extent of change (coverage & operation) • innovation - for the few or the many? • normative assumptions in the use of reward systems • central to or marginal in SHRM?

9. Evidence for • reward system developments reinforcing organisational transformations • Some new, distinctive features in policy & practice. • Do the “claims” - deliver? • Are our concepts of 'appropriate' or 'viable' pay rigorous enough? • What are these perceptions and what "hold" do they have?

10. Payment Systems 1945 – 2000 • Distinctive features? • How have systems changed over the years? • Current trends? • A Holy Grail quest for a ‘perfect' pay system? • Fads, fashions & cycles. • Since 1945 • Traditional systems have evolved slowly • Some innovative and marginal changes • New solutions associated with STEEPLE.

11. Design Features of Pay systems • Monetary • not related to performance - time • performance-linked • Output, %, PRP, merit pay, commission, skill-based • collective-output schemes • Corporate performance related bonuses + profit participation • Monetary-equivalent • Car, phone, holidays, loans, accommodation, fees, vouchers • Deferred (promotion, pension) • Non-monetary - status, recognition, plaques, empowerment • Intrinsic benefits • Negatives pressure, penalties, harassment side-lining, dismissal

12. Sam Eilon on Reward Schemes Eilon, S, 1992, Management practice & mispractice, Routledge. http://sol.brunel.ac.uk/~jarvis/bola/rewards/rewards.html • integral to managerial planning and control processes. • should not be considered in isolation. • Rules guide, but note the contradictions & dilemmas . • Rigid implementation may have awkward consequences. • There is more to a simple carrot & stick, effort-reward relationship.

13. Eilon's Rules of Thumb • Incentives - not confined to monetary - see non-monetary. • Attainments è rewards: levels & rewards should be clear. • The actual effort/responsibility link? • Individual goals/attainment & dept/orgn. Goals • Individual attainment vs. what others must achieve? • Rewards for helping others - support staff. • Re-structuring: jeopardise reward possibilities? • Products & working practices change? Future pay prospects should not undermine what Ee has already achieved. • Benefit in penalising undesirable results or behaviour? • Periodic Reviews - scheme objectives must remain valid.

14. Components in pay by time schemes • simple to administer • defined time – F/T, P/T, mixed-time, casual . • No time, no pay? Hourly, weekly, annual • Premiums – 1.5T, 2T, nights, “door knob syndrome” • Control mechanisms & tools – clocks, supervision, time sheets? • Job evaluation - evaluate the job not the person doing it • Flexi-time schemes • Supervision & performance • “When the cats away”? • Assume trust, confidence, competence & diligence • Off-site working. Is actual presence necessary? • Work for Er in Er time ……versus ……...in your time? • Assume – fidelity, care, good-will, cooperation • Life sentence?

15. Performance measures (tangible & quantifiable) Individual Group output piecework measured time work commission individual target PRP measured time work team bonus profit sharing gain sharing input merit pay skill-based pay employee share ownership Pay for performance systems Job definition, MbO, method & work study. Information and control.

16. PRP, merit pay, skill-based schemes • Information requirements • Manager appraisal and judgement Measurable, targeted PRP (narrowly defined). Pay linked to • concrete individual or group targets. • Individual merit (behavioural) traits: e.g. flexibility, cooperation, punctuality. • Staff appraisal rating criteria. • Skill, physical & mental capabilities. Automatic on qualification? Performance-related? • Annual increments?

17. Collective-output schemes • work group, plant or company performance - bonus (fixed or % of standard pay) • automatic for achievement of targeted output, profit, sales or added value • Generally do not require employee appraisal or managerial discretion (? .... not to pay ….?). • Scheme formula: complexity, visibility of targets achieved.

18. Employee share ownership schemes • Senior manager-owners • Extension of ownership & participation > pay? • Social engineering assumptions • Rewards from capital gains & dividends – long term • The "small print" – share prices can go up or down! • Dependent upon capital being available - to buy shares for employees.

19. Lupton & Gowler: Selecting a payment system (1969) • Analytical framework for “selecting” a payment system • contingency approach (normative & rational framework) Proposition: choices can & should be based upon • recognition of managerial goals • manager appreciation of internal & external circumstances. • BUT radical choice or do P-systems merely evolve? • Traditional schemes …. vs….what alternatives? • Managerial & employee preferences? Prevailing expectations. • What trends are discernable?

20. Pay scheme development - contingency and choice • Proposition: design the P-system to fit the goal/circumstances. True? How? Evidence? • managerial response to internal & external demands. • Why these designs? Reactive or proactive? • How & how frequently? Who is influential in design? Institutional promotion & reform of pay determination. • (informed) prescriptions & recommendationsNBPI, CIR, ACAS, CBI, IoD, IPD, TUs, DfEE. • ACAS on 'appropriateness' 'a payment system has a better chance of success if it is carefully selected & shaped to meet the specific needs of the organization & work group in which it is to apply'.

21. Pay developments piecework schemes 1945-1960 • stimulated by labour & product market pressures. • well suited to high-volume, low-cost production • what were the problems • Itemisation & local bargaining? • Gold-bricking? productivity bargaining 1960s to mid-1980s • search for control & societal justification (incomes policy) • Manning, demarcation & craft flexibility. • Job enlargement & work restructuring. Participation in Equity Performance-related pay 1980s - to date

22. Governmental intervention • Incomes policies – national and public sector controls • Privatisation & deregulation of labour market • Employee share ownership • National minimum wage & 48-hour ruling • Equal pay & equal opportunities • Taxation • Castigation of high executive pay – but no regulation.

23. HRM models? • Proposition: Reward ...... a key policy-making lever to achieve • Commitment • Flexibility • Quality • Strategic integration. • Links between rewards & such goals are not new.But now ..…competitive advantage & the argument for strategic integration. Is there evidence?

24. 'Tight' and 'Loose' Views 'Looser' • responses are more ad hoc, reactive & opportunistic. 'Tight' • coherent, managerial rationale exists - reward system selection • sensitive to business circumstances & needs • rewards underpin broader business plans • diversification & product life cycle strategies • company re-structuring, flexibility & culture change • support other HRM interventions. But • Are the efforts so tightly articulated? • Theory + consistency in application & outcome.

25. Have organisations changed their approach to pay? • individual performance-related or merit-based pay schemes • 'individualisation' of pay - public & private - filters down the hierarchy.ACAS (1985-88)40% modify P-systems è closer pay-performance link. By end 19924,000 approved profit-related pay schemes (1 million employees)2000 employee share ownership (3 million)WIRS 1990merit pay more prevalent at senior manager levelevidence in admin. (33%) + skilled manual (25%) Are these deep, structural, qualitative, strategic changes?

26. Pay and HRM goals: commitment, flexibility & quality. • features and contexts? • potential tensions in the linkages ? • the dynamics for change?

27. Reward & commitment • long history, on-going management concern • motivation & performance, incentives to strengthen identification & loyalty –Taylor, McGregor & Herzberg • weaken competing (often collective) interests • Halt the dilution of managerial prerogatives. • PEST conditions help managerial recovery • New £ participation e.g. share ownership & profit-sharing • statutory support

28. But are the schemes effective? • Research into £ participation & staff attitudes returns ambiguous results. Some positive impact …. with doubts • Problem: Isolating the £ participation variable & corporate performance. Other involvement techniques in the change programmes. Blinder (USA study)‘the way workers are treated may boost productivity more than the way they are paid'.

29. Visible, meaningful ways to lock-in the individual. • Dialogue & bonding. • Performance appraisal “forces” direct communication • Strengthen line manager – employee relationship • Individualise the effort-reward bargain • No external 3rd party. Undermine collective bargaining? • Profit & share initiatives reduce TU orientation. • PRP schemes - less in evidence where TUs are strong. • De-recognition?

30. Reports on • British Rail & TSSA - 10,000 middle & junior managers • PRP & individual senior manager contracts - a hint of TU de-recognition (Thames Water, Amersham & BT). • NUT & PRP-related teacher appraisal • Some TU say in PRP operation. • agree performance criteria • negotiate size of "kitty" vs. its distribution • representing appeals against appraisal & pay judgements • disclosure of information via Central Arbitration Committee & monitor system 'fairness' • A few unfair discrimination cases (sex/race & merit-pay)

31. PRP vs. Commitment - compatibility in practice Individual PRP rewards • narrow & short-term achievement? • undermine group cooperation & longer-term goals? Corporate financial constraints + evidence • weak results may limit profit-sharing pay-outs & bonuses • Disappointment - disaffection • Procedural injustice – subjectivity & inconsistency è disaffection individual PRP: more in tune with 'hard' HRM. • employee appraisal - a judgmental process • penalties from failure to meet standards. • management control over the pay bill? • Individual deals > across-the-board, cost-of-living increases. Compare with 'soft’ developmental HRM

32. Reward & employee flexibility in tasks/duties • perennial managerial goal. • Manager prerogative to distribute work “rationally & flexibility”? • Countervailing employee pressure to structure the use of labour • Reasonableness under contract (not in my job description) • the Union • custom & practice, (worker culture) Job-evaluated grading structures facilitate flexibility in the performance of tasks. True or false?

33. Job-evaluated grading structures Large mechanistic, bureaucracies. Principles • establish a internally consistent set of job rates • evaluate the job not the person doing it. • ensure relativities: internal equity. Systematically compare & measure different jobs within the same organization If individual performance merits it - PROMOTE. JE grading structures lack sensitivity to external market pressures. • STEEPLE pressures • flexibility imperatives intensify

34. Reward structure ossification • Civil Service & local authorities - pay supplements for shortage jobs (response to labour market).Can unwieldy grading structures & demarcations cope with • job redesign, technological change & new production methods? • team or cellular working & flexibility across skills & tasks? • changing organizations - lean, flexible structures • dynamic circumstances - stress adaptive performance beyond rigid, ossified job descriptions & evaluated grades.

35. Grow, develop, perform! Out-grow job & be promoted! Job evaluation not abandoned. • WIRS 1980-90 - workplaces with J.Eval schemes rise from 21 - 26% • Countervailing pressure - equal pay legislation (evaluated structures) Incompatibility of job-evaluation with PRP? • Modify the structures. How? • Base grades on generic job descriptions & broad bands (flexibility of task performance). • Move from grades & fixed increments, to min-max ranges & give scope for individual performance.

36. 'Growth structures' - formal career paths & criteria. • professional and technical job families • achievement of qualifications & competence standards (cf. promotion only when vacancies arise). • harmonise manual & white-collar terms & conditions • multi-skilling • Promotion route for the 'good' technician, nurse, scientist or engineer – not because you are a manager. The "nursing consultant" The technical consultant (programmer)

37. A surfeit of riches • higher Ee expectations – not all can be fulfilled. • pay for unwanted skills? Flexibility we don’t need. • extended grades, growth & skills acquisition structures. Managers over-estimate & don't use. • Pirelli – Aberdare • Low staff turnover & local unemployment • Suspend the skill acquisition scheme

38. PRP may inhibit > encourage flexibility. • personalized targets can encourage a rigid, narrow focus on short-term objectives. • Less attention to daily tasks than target sheets • Ee as a 'labour contractor', performance judged on "contract measures" vs. wider performance criteria (future & potential). • if targets are uncertain, fixed pay contracts restrict the scope for flexibility & discretion.

39. Reward & quality • quality > cost or volume – today's imperative • 'leaner' production - combine speed + quality maintenance • TQM initiatives raise questions about the structure & administration of reward systems. • Schonberger (1992) 'Once reward & recognition were reducible to little more than two monetary numbers, wages & benefits.... Since TQM is a continuous push for improvement, the management system must itself continuously shift, prod, encourage, praise & reward' (p.21). • Implications for • the range of rewards available • frequency of application – the need to reward continually • management skills.

40. Rewarding continuously? New management skills. • Establishing valid & viable performance criteria • Judging if targets have been met - assessing the relationship between assessed performance & rewards • Interpersonal skills: coaching, counselling & interviewing.

41. Piecework • Simple, direct , mechanistic pay-output link. • Controls motivation & productivity. • Criticism of piecework schemes but was there a positive link between piecework & productivity? • Premature rejection of "economic" man?

42. A performance management backlash Proposition: Managers can ensure high performance by assessing an employee for pay purposes once a year, versus Proposition: A closer, ongoing management-employee relationship is more capable of “motivating performance”. • A shift from M-by control to M-by leadership.

43. Leaders must • ensure that the broad picture is known, understood • relate this to measurable personal & team objectives • aid job satisfaction through feedback - performance & objectives. • discriminate in the reward given – standard vs. exceptional • understand their accountability for people. • send out clear quality & performance messages. Based on Storey's report of NatWest

44. Warning • without requisite skills, P-system may become discredited. • HRM guidance to line managers on scheme operation • tight definitions of performance objectives • assessed performance levels • the distribution of markings • stimulates resentment over personnel intrusion

45. Pay and the pursuit of quality • "we take quality seriously by setting quality-related targets and creating a pay-quality link" • Symbolism and credibility. • US Car company case: Employees unconvinced of company commitment to quality. Dept. managers set targets (with bonuses) for Q-related group activities. • Rank Xerox: European executive performance partly linked to customer satisfaction & loyalty targets. Bonuses: up to 30% of salary.

46. Linking pay to behaviour traits related to quality. • Pay tied to treatment of internal & external consumers - behaviours which satisfy consumer needs. Hay Consultancy 3-category rating system • individuals evaluated for base pay on such variables as • ability to communicate • customer focus – critical to TQM effort • ability to work in a team. • Managers rated on • employee development • group productivity & leadership. • Variable pay based on • not meeting customer expectations • meeting them • exceeding them

47. Co-wide indicators of Q-performance linked to bonuses. • Elida Gibbs (non-management employees) Bonus related to sales turnover & customer service targets. • difficult to establish viable Q-measures. • resource hungry QA administration and surveyingMany organizations have selected systems relating pay to indicators of individual group or company performance

48. Rewards & Strategic Integration: Distinctive Approach? • Proposition: UK rewards systems have been selected by rationale analysis è systematic evaluation of pay alternatives. • An over-simplification? • complexities & 'irrationalities' of managerial decision-making How do we test this? • Little research into evolution of rewards systems & related decision-making processes. • Suspicion: management rarely considers P-system as a whole • changes driven by short-term reaction to local labour market pressures.

49. Case reports of rewards - business & culture change. • Selectivity of case studies: post hoc, rationalization & justification • down-play difficulties & exaggerate benefits. But • Finance sector & privatisation (Post Office, BT, public utilities) • Deregulation & competition • wider services - more marketing and product innovation • Success depends on • changing employee attitudes & values • shift in traditional, managerial cultures • Rewards (esp. PRP) are central – to reinforce performance culture • not just revised remuneration but cultural change • break down paternalism & bureaucratic centralism