May 26, 2011

TOTAL REWARD | Trends in Reward Management

The total reward concept emphasizes the importance of considering all aspects of reward as an integrated and coherent whole. It emerged during the late 1990s as a means of maximizing the combined impact of the whole range of reward initiatives on motivation, commitment and job engagement. It addresses the crucial issues of recruitment, retention and talent management. It has encouraged organizations to consider much more carefully the role of non-financial rewards, including recognition schemes, and to rely less on money as the sole motivator.
This concept encourages organizations to consider their 'employee proposition' in broad terms, taking into account the myriad reasons why people seek to join and stay with them. The traditional elements of reward management such as pay and benefits do, of course, play a part, but total reward considers the impact of other aspects of work too - intangibles such as leadership style and environmental factors such as location and workplace facilities.
In order, therefore, to achieve the much-coveted prize of 'employer of choice', all elements of the employment experience need to be aligned and consistently applied. This requires coordinated management across the organization. For the reward specialist, for example, it means closer understanding and cooperation with colleagues in HR specializing in people development, resourcing and employee relations.
In concert with this more holistic approach to employee motivation is an increasing realization that reward systems must be flexible if they are to motivate effectively the diverse workforce of the 21st century. This may manifest itself at the most basic level through the removal of the bottle of champagne as a universal token of recognition, as it is one that does not take account of the impact on non-drinkers, particularly those who avoid alcohol for religious reasons.

May 23, 2011

Trends in Reward Management

It has often been said that the field of reward management suffers from a tendency to follow the latest fashion - sometimes referred to as 'fad surfing' - without due consideration of organization context or culture. Those who have approached their senior management boards or committees with recommendations to change the reward system will invariably receive the question, 'That sounds sensible enough, but what do others - especially our competitors - do?' If they can be convinced that a recommendation is in line with 'best practice' then approval is likely to be given. There are, however, signs in the first decade of the 21st century that this traditional approach to reward, which can lead to organizations implementing reward systems that are out of line with their business objectives or culture, is finally in decline.
The major recent trends in reward management that we have observed through our consultancy practices, research and study of the latest literature are summarized in this final chapter under the following headings:
  • total reward;
  • engaged performance;
  • the new realism;
  • job evaluation;
  • equal pay for work of equal value;
  • broadbanding;
  • career family structures;
  • contribution-related pay;
  • flexible benefits;
  • line manager capability.

May 20, 2011

Reward Management Questions


  1. Is there any substance behind the rhetoric that a strategic approach to reward management is important?
    It is easy to say that a strategic approach to reward management is a good thing. All writers on this subject, including ourselves, do so. But it is much more difficult to be specific about what reward strategies look like, how they are derived from business strategies and, importantly, what impact they make.
    A reward strategy is by definition a broad-brush affair. It indicates intentions without necessarily specifying just how these intentions are to be realized. This comes later when more detailed reward plans are prepared and implemented to achieve strategic aims.
    Ed Lawler1 has made a positive and clear case for linking business and reward strategy. His essential message is that business strategy sets out what businesses have to do - how they must perform and behave - to be effective. Reward management processes help to drive performance by influencing individual and therefore organizational behaviours.
    Reward strategies may be broad but they have to be explicit. They have to state, in effect: this is what the business intends to do, and this, therefore, is how reward policies and processes can help the business to do it. The reward strategy must support the implementation of corporate transformation programmes; help to achieve cultural change; focus attention on the things that matter if the business is to succeed; and do whatever can be done to ensure that the organization has the competent, skilled, well-motivated and committed workforce it needs to achieve its business targets.
    It should always be remembered, however, that a strategy can promise much but deliver little. Strategy is only as good as what it achieves. It is an undertaking about the future but it must lead to action and must therefore spell out:
    • an intention - to do something;
    • a purpose - to achieve something;
    • a measure - to establish what has been achieved.
  2. How can we reconcile the often conflicting needs for our pay structures and levels to be equitable, both internally and externally?
    For employees, a 'felt-fair' pay structure is one in which they believe that they are paid appropriately for what they do in comparison with others. Initial comparisons will be internal and they will be aggrieved if they feel that, without justification, they are being paid less than others who are doing the same or even less demanding work or contributing less effectively. Internal equity also means, of course, paying equal salaries or wages for work of equal value. It is important as a means of achieving both job satisfaction and meeting legal requirements.
    To get and to keep the right people, organizations have to pay competitively. And the 'felt-fair principle' applies just as much to external as internal equity. Employees will be unhappy if they know or think that they are being paid less than the going rate, even if they have no intention of leaving or little chance of getting work elsewhere.
    The importance of being competitive depends partly on the degree to which the organization relies on the external as distinct from the internal labour market. And the need to be competitive may only apply to certain jobs where the demand exceeds the supply. Organizations which have to use the external market in these circumstances may well find that they have to offer people more to join than the job is worth according to their internal job evaluation. This situation is commonly dealt with by paying a market premium on top of the normal rate for the grade in which the job holder is placed, according to the rules of internal equity. When this is a recurring problem for a category of employees, the solution may be to form special market pay groups for the job family concerned, with different pay scales, thus sacrificing the principle of internal equity to the imperative of external competitiveness. The extent to which this approach is adopted depends on the strength of the market forces and of the needs of the organization for an individual or a category of employee. If these are both strong then there may be no alternative but to accept that competitiveness must be given priority.
    Problems can occur if an organization has to respond to market pressures for recruits but fails to increase the pay of those in the same jobs within the organization in line with market rate increases. People will complain if they find that newcomers doing the same work are paid more than those who have been in those jobs for some time. And they will find this out, even when the pay structure is not published. Managements should never underestimate the propensity for employees to exchange information among themselves on what they are paid. Discrepancies can be justified if they result from a decision to pay recruits according to their market worth where this reflects higher levels of competence and experience. The problem would not exist in an ideal situation when internal rates keep pace with market rates. But in the real world this frequently does not happen, either because the organization cannot afford it or because it is unaware that its pay levels are lagging behind market rates.
    The only way to respond to reasonable complaints from employees that newcomers are being paid more than they are is to state, honestly and openly, that the organization needs these people, that they were only available from outside and could not be attracted for less. An undertaking could be made that the problem will be addressed in future pay reviews in line with the company's policy to do its best to maintain a balance between the demands for internal equity and external competitiveness.
    This answer may not satisfy anyone, but it is the only possible one to give if the company has to recruit at a higher rate and if it cannot afford to bring everyone into line with the new rates immediately.
    Employees who are very dissatisfied may threaten to leave if they do not get an immediate increase to restore the balance. This process of 'putting a pistol at an employer's head' can, of course, happen at any time when employees feel that they have a strong case (eg when they have received a firm offer from another employer - people sometimes test the market by applying for jobs) or when they are just trying it on, possibly on the strength of one or two job advertisements.
    The theoretical answer to this sort of approach is to reject it on the grounds that the organization is not going to respond to blackmail - 'if once you start doing this you'll never be able to stop'. Some organizations insist on a policy of refusing to bow to such demands, which is easier when the person concerned is not vital to the business and substitutes can easily be obtained. The decision may be much tougher in the case of someone who is crucial to the organization and cannot readily be replaced, and in exceptional circumstances businesses have been known, reluctantly, to abandon their policy line. Organizations without a clear policy on this issue have to decide on the merits of the case, but this is one decision which should not be left entirely in the hands of line managers. They should be required to seek approval for any action they take from higher authority and/or the HR department. Sometimes, in our experience, it is an issue which requires decision at board level, especially for senior or significant contributor posts.
  3. We believe that conventional job evaluation schemes are rigid, bureaucratic and expensive. But what do we put in their place, if anything?
    The way in which job evaluation schemes are operated can be all these things. But this results from how the scheme is being used rather than being a fault in its design.
    Organizations cannot choose whether or not to evaluate jobs. They must make decisions on the rate for jobs and about relativities, and, if they do have a formal pay structure, where jobs are placed in that structure. There is, however, a choice of method and it is inevitable that an analytical scheme will be more complex to administer than a non-analytical one. Exposure to equal value issues must also be considered.
    The recent CIPD and E-Reward surveys have found that the majority of organizations are not abandoning job evaluation, but as Murlis2 comments:
    They are jettisoning old, cumbersome approaches and learning to use the new approaches. Job family models which reflect the levels at which work is done in a specific area, the key elements of work and the corresponding competences, are, for example, often underpinned by some form of measurement of the size of each level - both to inform understanding of the 'shape' of the family and to assist with matching the levels to the market data being used.
    Even organizations with broadbanded structures - which have often been promoted as obviating the need for job evaluation - frequently retain it in the background as a management tool to define the band boundaries and to assist in making borderline decisions on allocating jobs to bands. But this is essentially a support role. Grading decisions are no longer dominated by job evaluation and the expensive panoply of panel procedures becomes a thing of the past.
  4. Must we have an analytical job evaluation scheme to ensure that equal pay for work of equal value requirements are met?
    While analytical job evaluation schemes can never be completely objective, they still provide the most reliable means of making valid comparisons between jobs. This is simply because they are structured and are, or should be, founded on systematic job analysis. The outcome of evaluation using an analytical scheme without built-in gender bias is the best method of defending an equal value claim before an industrial tribunal.
    But many organizations do not have analytical schemes for this purpose, or indeed any other purpose. This may be because they don't care, they can't be bothered, they are satisfied (rightly or wrongly) that they don't have a problem or, as one HR director of a large organization said to us: 'We refuse to be obsessed by equal pay.'
    There is no doubt that equal pay for work of equal value is achievable without the aid of analytical job evaluation, although it might be difficult to prove that this is the case. And some organizations, especially those with broadbanded structures, keep an analytical scheme in reserve to deal with equal value questions as they arise, or to audit pay levels from time to time. This is good, although not essential, practice. But if there is no such scheme, extra care needs to be taken over pay and grading decisions for jobs held by men and women in the interests of justice and equity as well as to avoid legal difficulties.
  5. How can pay relativities be managed when roles are flexible and pay is individual?
    Finely graded pay structures containing carefully defined, fixed jobs are a thing of the past in many organizations. Many organizations never had them to start with. The traditional world of job evaluation and the strict control of conformity was not for them. But most learn that it is still necessary to analyse and monitor the distribution of rates of pay to identify and deal with anomalies.
  6. How can I be satisfied that the market rate data I am getting is valid and reliable?
    The validity and reliability of market rate data depends mainly on three factors:
    • The sample frame - the data collected should be fully representative of the organizations with which comparisons need to be made.
    • Job or role matching - the extent to which good job matching has taken place, so that it can be said with some confidence that like is being compared with like.
    • Timing - the degree to which the information is up to date or can be updated reliably.
    But it is most unlikely that a perfect sample, precise job matching and the complete coincidence of timing will always be achieved. This is why it is usually advisable to obtain data from more than one source. It also underlines the point that, ultimately, a judgement has to be made about the level of pay in the market place, which should be used as the reference point for decisions on rates of pay within the organization.
  7. How can we prevent grade drift?
    Grade drift takes place when unjustifiable upgradings take place, often because of pressure by managers or employees, and sometimes by manipulation of the job evaluation scheme. Manipulation is more likely with decayed job evaluation schemes and when people are allowed to get away with creative job descriptions. Often, the problem is pay, not grading.
    Grade drift is a larger problem in finely graded pay structures, which increase the likelihood of boundary problems. When designing such structures, it is desirable to minimize these problems as far as possible by creating a distinct gap between the highestrated jobs in one grade and the lowest-rated jobs in the grade above.
    In reviewing upgrading proposals in a finebanded structure it is necessary to ensure that a proper case is made, supported by a realistic job analysis.
    Grade drift can also be managed by instituting and maintaining a rigorous pay review and budgeting system which forces managers to control pay movements in their departments and provides the basis for monitoring upgradings.
  8. Broadbanding sounds good in theory, but in practice isn't it a much more difficult system to control than a normal finegraded structure?
    The answer to this question is 'no and yes'. Broadbanding, once established, is easier to run than a multi-graded structure because it can operate more flexibly, grading decisions are easier and it relies less on the continuous application of job evaluation. But it does need more 'hands-on' care than a conventional scheme, which can be controlled more or less mechanically. More data on market rates has to be made available and line managers need careful guidance and training on how to exercise the responsibilities that are likely to be devolved to them to manage pay. They will also need more information. You cannot remove traditional grade structures and leave a vacuum.
    Individual employees will have to be briefed carefully on how broadbanding affects them and the basis upon which they can progress laterally through bands, rather than vertically through a hierarchy. Particular care has to be taken in setting up and managing competence profiles and assessments if, as is likely, competence development is a major factor governing progression. This extra work may or may not be balanced by the savings in effort that broadbanding may provide, but converts to this approach are generally convinced that the effort is worthwhile.
  9. How do I get everyone to buy in to a new contingent pay process?
    To the HR specialist, the case for contingent pay is often irresistible, especially if its developmental purposes are emphasized and it is regarded as a framework for a continuing dialogue between managers and those they manage throughout the year, rather than an annual and threatening (to both parties) event.
    Line managers who carry out performance reviews and the same line managers or employees who are on the receiving end may, however, see things differently. Line managers frequently don't want to do it because they believe it is unnecessary, time consuming or both. They may feel that they have other, much stronger priorities. Even when they conduct a review, they may do it badly, either because they are going through the motions or because they have not been given essential and thorough training in such skills as providing feedback.
    Employees may react defensively against performance reviews for all sorts of reasons, for example: they don't like negative feedback, even when it is justified; they are dubious about performance rating; they see them as perfunctory affairs; or they are concerned that the performance data will be used as a stick to beat them with in subsequent disciplinary procedures.
    Getting people to buy in to performance management is a matter of:
    • Ownership - both parties must feel that this is their process, not something which has been forced upon them by the HR department.
    • Understanding - of how they can both benefit from it, which means emphasizing the positive developmental aspect of performance management. If it is just seen as a means of generating ratings for PRP purposes, it is more likely to be rejected by those concerned.
    • Skill - developed by training managers and other employees in conducting performance management processes. These skills include: agreeing objectives; defining competence profiles; reviewing performance and competence levels; giving and receiving feedback; coaching; and preparing and implementing personal development plans.
  10. What are the implications for reward management of the delayered or lean organization?
    The reduction of hierarchies after delayering means that multigraded pay structures are no longer appropriate. This is one of the main reasons for broadbanding.
    Lean organizations offer fewer opportunities for promotion or upgrading. This is another reason for broadbanding, which facilitates rewards for lateral career moves within wider pay ranges and for the development and effective use of competences. This is an environment which fosters self-managed career progression and requires the provision of tools such as competency models and career maps to enable the process.
  11. What are the implications for reward management of the 'flexible firm'?
    The two main characteristics of the flexible firm are role flexibility and the 'core/periphery' approach to resourcing the organization.
    Role flexibility arises because, in a constantly changing business environment, jobs also change. People have to expand their roles by taking on new responsibilities and roles can develop in line with the capability of the person carrying them out. In other words, both roles and the people in them grow. To keep pace with change and the varied demands made on people individually or in teams, workers have to become multiskilled. Flexible roles require flexible pay processes. Traditional grade structures, which constrain people into narrowly defined jobs, and job evaluation and pay schemes which result in people being rewarded for non-adaptive behaviour, are no longer appropriate.
    The focus has increasingly to be on competence and skill development and rewards for growing roles (lateral growth) and flexibility. Both for individual roles in broadbanded structures and job families, templates and role profiles can be produced jointly with employees, which help to clarify expectations of what is required while not constraining flexibility when it is needed.
    Core structures retain a relatively small number of key workers on continuous and long-term contracts, while relying on a peripheral workforce of part timers and temporary or contract workers to enable the firm to adapt rapidly to increases or decreases in activity levels. Special care has to be taken over the reward packages and development of the key core workers. But tension may be created if the differences between the ways in which core and peripheral workers are treated become too large. Peripheral workers are an important part of the firm and should not be neglected or taken for granted. As far as possible, values and practices should be shared with the core.
  12. How can we motivate the bulk of our employees on whose efforts we depend when there is not much money available in the pay-for-performance kitty?
    Much of the thinking that went into the early performance-related pay schemes centred on rewarding 'key players' and ensuring that high performance produced significant rewards.
    In some organizations the overall results achieved depend crucially on the effective performance of a small number of people, who are directing the enterprise or who are responsible for innovation, marketing and sales. In such cases, it makes business sense to reward these people highly and put a large proportion of pay at risk. Most organizations, however, depend on the efficient performance of employees at all levels. In these circumstances, a pay system that siphons off resources to a few 'star' performers would be at best irrelevant and at worst counter-productive in motivating the 'engine room' of the organization.
    But when performance pay budgets are tight, the range of performance awards on offer is limited. A few high performers may get one-off bonuses of 10 per cent or so. However, the majority of employees have recently been getting overall increases in pay covering both individual performance pay and across-the-board awards of 3 to 5 per cent. This is in line with the general movement in earnings or what they would expect in any case.
    A performance-related increase of, in effect, 1 or 2 per cent is not going to provide much of an incentive at all. PRP in these circumstances will not directly motivate. But this does not destroy the validity of the concept that people should be valued according to their contribution.
    The good, reliable 'core' performers should be rewarded according to their market worth and this should increase as they gain experience. Even if they cannot be given large performance-related increases, they should at least be eligible for an achievement bonus if they make a special contribution, or for a special sustained performance bonus if they consistently deliver a fully competent level of performance. There may be scope for including them in team bonus schemes and there is certainly much merit in their participating in organization-wide gainsharing, profit sharing or share schemes.
    Motivating the 'engine room' - the good, reliable core performers - is not just a matter of pay. There are other ways of ensuring that employees feel valued, including scope to demonstrate their growing competence, recognition through performance management processes, and opportunities to increase their employability.
  13. Performance-related pay has had a bad press over the last few years. Why is this so?
    The concept of performance-related pay (PRP) suffered from over-marketing and crude approaches in the 1980s. That was the decade in which most private sector organizations got rid of their expensive fixed incremental pay systems and, under the influence of the entrepreneurial/finance/economic/transactional ethos of the time, believed that PRP could be a major lever for culture change as well as a powerful motivator. The government of the day joined in and fervently believed in the miracle-working powers of PRP as a means of converting its own departments/agencies, etc, into commercial enterprises overnight.
    Performance-related pay was viewed simplistically as an instrument for producing high levels of individual and organizational performance. This asks too much and there has been no evidence that PRP is guaranteed to deliver this result. Research has also shown that PRP can demotivate people if it is managed badly and, consequently, is felt to be unfair. Vicky Wright3 has pointed out that: 'Even the most ardent supporters of performance-related pay recognize that it is extraordinarily difficult to manage well  it is a part of managing people which requires constant attention and improvement.'
    In spite of the perceived problems of managing PRP effectively, most people still believe that it is right to reward employees according to their contribution and competence and that, directly or indirectly, this will motivate them to improve their performance and develop their competences. But some are seeking alternatives to the crude model of output-based schemes for individuals and many are reconsidering how they measure contribution and competence.
  14. Is competence-related pay no more than a 'flavour of the month'?
    Interest in competence-related pay was generated by writers such as Ed Lawler,4 who advocated people-based as distinct from job-based pay - paying people according to their value in the market and in relation to their knowledge, skills and competence. Interest was also created by the drive for organizational and role flexibility resulting in moves from narrowly defined jobs and job standards to broader generic roles, where the importance of competence development and continuous improvement is fully recognized. Other factors have been dissatisfaction with conventional performance-related pay and a belief that, having established competence frameworks and profiles for recruiting and developmental purposes, it is logical to extend this to reward, thus providing an integrated approach to human resource management.
    However, pay schemes based purely on competence have never really caught on. Only 6 per cent of the respondents to the 2003 CIPD reward survey had such schemes. The three main reasons for this lack of enthusiasm have been 1) the difficulty of measuring competency levels in the form of behaviour, 2) the problem of converting impressionistic assessments into hard pay figures and 3) importantly, the reluctance of managers and others to accept that levels of competency are all that matters. Surely they say, with some reason, it's no use people behaving well unless it results in high performance. But the need to consider competence as well as performance has not been ignored on the grounds that if performance management is about improving performance it is necessary to consider how the results were achieved as well as the results themselves. This need has been more generally recognized in contribution-related pay schemes where both inputs in the form of competence and outputs in the form of results are considered.
  15. Is the use of forced distribution to control the distribution of pay increases a good idea?
    Forced distribution means that the distribution of ratings by managers and therefore the distribution of pay increases is 'forced' to conform to a predetermined pattern, which may follow the normal distribution curve. For example, managers could be required to distribute their ratings as follows:
    • A (excellent) 10 per cent
    • B (above average) 20 per cent
    • C (average) 40 per cent
    • D (below average) 20 per cent
    • E (poor) 10 per cent
    This pattern could be varied to skew the distribution positively so that, for example, 50 per cent must be rated C and 10 per cent rated D, the other proportions remaining the same.
    Forced distribution may appeal to managements that want to exercise complete, albeit arbitrary, control over pay distribution. But line managers hate it. They feel that it shows lack of trust by senior management and, reasonably enough, they refuse to accept that the distribution of performance is identical in each part of the organization. Staff also dislike being forced into categories without, seemingly, any proper consideration being given to their individual characteristics and the variations in performance in different areas that they know to exist. Because of these objections a very small proportion of organizations use it - only 8 per cent of the respondents to the survey of performance management carried out by the CIPD in 2004.
    A variation of the use of forced distribution was given a lot of publicity recently. This was at GE, where Jack Welch in effect used it as a means of identifying and removing under-performers so that the bottom 10 per cent in the distribution of assessments were liable to be dismissed. However, he pointed out that: 'Our vitality curve [the GE forced choice distribution] works because we spent over a decade building a performance culture that has candid feedback at every level. Candour and openness are the foundations of such a culture. I wouldn't want to inject a vitality curve cold turkey into an organization without a performance culture already in place.'
    Even if forced distribution were desirable, which it isn't, it could never work unless such a performance culture already exists.
  16. Why should we move to variable pay?
    Variable pay is pay that varies with performance. It is 'at risk' pay, in the sense that people may receive a lump sum bonus one year but risk not getting it next year if their performance, or that of their team or organization, does not justify it. The argument for variable pay is that, because it is not consolidated into base pay, people will not go on receiving the benefit of a previous increase which is not justified by their present performance. In addition, awards can be more focused on specific attainments and can be made at any time as a spot bonus to recognize a major achievement. The acceptability of variable pay depends on a number of factors, including a reasonable level of base pay, shared values regarding risk, and clarity on the relationship between risk and reward.
  17. How can we introduce a more flexible and performance or contribution-related pay scheme to replace our present fixed incremental system?
    The decision to move to performance-or competence-related pay is often made as part of a cultural change programme - moving from an environment in which people are rewarded just for being there and carrying out the same old job to one in which they have to earn their increases. Another reason is simply to save money. In an organization with low staff turnover there is nothing to stop staff moving inexorably to the top of the scale, with the likelihood that a proportion of them will be paid more than they are worth.
    The first thing to recognize is the need to think very hard about how the change is to be managed. Clearly, a proposal to abolish a deeply embedded fixed incremental system will be resisted by any people who think they are going to lose by it or who believe that to adjust pay on the basis of managerial judgement is likely to be intrinsically unfair. Trade unions are often vociferously against performance-related pay.
    This means paying attention to the following guidelines on change management.
    • 'People support what they help to create' - commitment to change, or at least its acceptance, is improved if those affected by change participate in planning and implementing it.
    • Hard evidence and data on the need for change are the most powerful tools for its achievement, eg attitude survey findings.
    • Identify people who can act as champions of change.
    • Remember that resistance to change is inevitable if the individuals concerned feel that they are going to be worse off. Therefore take steps to remove or at least diminish those fears by explaining how the change will work and how it will affect them.
    Tinkering with a pay spine by allowing extra increments to be earned on the basis of the ratings produced by an existing performance appraisal scheme is generally doomed to failure, as the Inland Revenue found. It could be adopted as a transitional policy but this needs to be explicit. PRP will only work and will only be acceptable if it is based on a fully developed performance management process, as described in Chapters 18 and 19. And it is essential to provide training in face-to-face briefing for all concerned in how the process works and the part they play. Reliance should not be placed on written material alone.
    It is also necessary to monitor the introduction of PRP very carefully to ensure that it is operating fairly. Attitude surveys and focus groups can be used to obtain reactions from managers and other employees and action taken to deal with any weaknesses these identify.
  18. To what extent, if at all, should we provide rewards for individual performance or competence to those taking part in a team-based pay scheme?
    A few team-based pay purists assert that the whole ethos underpinning team pay will be destroyed if there is any variation in the rewards paid to individual members of the team. But team pay enthusiasts are more likely to concede that team bonuses should be a percentage of the basic pay of team members which, they assume, will reflect the value of the individual to the team.
    Others point out that the difficulties of managing the performance of individuals within a team cannot be ignored. Vicky Wright and Liz Brading5 comment that:
    Leaving team dynamics to manage performance by such things as team pressure can be dangerous and unfair. Managing team performance is important, but it is not a substitute for managing individual performance.
    This suggests that there might be a case for providing individual rewards to team members, but how can this be done in a cohesive work team in which there is a high degree of interdependence among team members? Would it not be invidious to single out individuals?
    An answer to this dilemma can be provided by the use of competence-related pay. This is necessarily always orientated to individuals and it is reasonable to assume that as competence increases (including competence as a team worker) the contribution of the individual to team results will increase correspondingly.
  19. Flexible benefits sound a good idea, but aren't they very complicated to operate in practice?
    Flexible benefits schemes can be relatively simple, with a choice among only two or three benefits; or they can cover the whole range of benefits apart from core pensions, sick pay and holiday benefit entitlements.
    There may be some fairly complex analytical processes in designing a flexible benefits scheme, eg costing the various benefits and considering entitlement and tax implications. Having designed the scheme, it is not difficult, even when it is a fairly complex scheme, to drive it through a computerized payroll system which has been adjusted to take account of flexible benefits. Such a system is described in Chapter 32. With this in place, the administrative burden is unlikely to be much more than the work required to run the existing benefits scheme.
  20. How can we reconcile the pressure to devolve more responsibility for pay decisions to line managers with the need to achieve a reasonable degree of equity, fairness and consistency in managing rewards?
    While it is highly desirable for line managers to be given the maximum scope to manage pay within their departments, this does not mean that the HR department can abdicate its responsibility for monitoring pay decisions.
    But the HR department is not there to police line managers in order to impose total uniformity. There has to be some scope for diversity, because of the range of factors which have to be taken into account at departmental level. What the HR function must do is provide guidelines and information to line managers, which will help them to be equitable, fair and consistent. This will include the basis for progressing pay; the relationship between the level of competence required in a role and the payment for someone in that role; the distribution of the pay of people carrying out similar roles; and the market rates of pay for those roles.
    In addition, it is still necessary for the HR department to monitor proposed pay increases or gradings and question either the pattern of increases generally or unusual individual awards. But the members of the HR department carrying out this role must be prepared to recognize that there will be differences between departments and accept those differences as long as they are justified. They must also be prepared to act as coaches and consultants who are focused on building pay literacy and sound judgements.
  21. How can we improve line management capability in dealing with reward matters?
    We have frequently mentioned the issue of line management capability. If, rightly, more responsibility for managing pay should be devolved to them, how can we be sure that they will do it properly? Some will be excellent, some very poor (which would make their position as line managers questionable) and the majority will do the work fairly well but not well enough.
    Training and the availability of good guidance notes are important but they are not enough. The personal touch is what counts.
    We spoke to one senior reward manager about introducing a new reward system and he told us that he had to spend a lot of time 'holding the hands of line managers'. By this he meant sitting down with them and going through what they had to think about and say to their people about the annual individual pay review, and giving them on-the-spot help and guidance. It is a common story in public and private sectors and essential to ensuring that the right messages get across. Line managers still do not think ahead enough about how individuals will feel and respond and how to give effective recognition, the context for the pay review, or indeed confirmation in the pay award that performance needs to improve.
    Dealing direct with line managers is an important part of the role of reward specialists, indeed anyone in HR. Those concerned with reward should not spend their time in their offices manipulating figures, issuing instructions and checking up on people. They should be out there, talking to line managers, as informally and regularly as possible. The aim should be to see each manager accountable for pay decisions before the pay review, to discuss the guidelines and processes involved and to deal with queries and problems. Managers who are responsible for operating the performance management process should be seen regularly to review how they are getting on and coach them on any issues they are facing. This is a time-consuming but essential process.

May 16, 2011

USING CONSULTANTS | Developing and Introducing Reward Management Processes

A responsible firm of management consultants will work in partnership with clients and stick to its brief, but it is natural for people with enquiring minds - and if consultants don't have those, they are in the wrong business - to identify new problems and to offer solutions to them. It is up to you to make sure that these really do add value and that no extra time is spent on the assignment unless you agree that it is worthwhile and unless the costs are also agreed.
You should expect consultants to complete their programme within their own estimate of time and costs. They could take longer if they come up against unforeseen snags and this is a joint problem if the delay has adverse effects on your business. But unless you have caused delays or misled the consultants in your brief, it is their responsibility to overcome the problems and to carry the burden of any extra costs they may have incurred.
Ensure that working arrangements with consultants are agreed at the outset. There should be regular progress or 'milestone' meetings when you can check how the assignment is going and deal with any problems as they arise. You should expect the consultants to discuss their preliminary findings with you and to present their interim conclusions and initial recommendations. It is in everyone's interest that alternative proposals should be evaluated jointly and that the feasibility of the implementation programme should be reviewed.
The final report and presentation (where these are involved) should include a convincing analysis of the situation and any problems that have been identified. Recommendations should be derived logically from this analysis and they should include an assessment of costs and benefits and a plan for implementation which sets out precisely who does what and when to achieve specific outcomes.
Working effectively with consultants is about building good working relationships, based on confidence and trust. Often this boils down to 'chemistry' - whether you believe and observe that the consultants who work with you are in sympathy with your organization and understanding what change it is able to achieve.
The best consultants rapidly build partnerships with their clients so that they can test the validity of what they are doing at several levels - from technical experts to the HR director, and as far as the chief executive and board when major change appears necessary. Their concern will be the overall 'health' of the organization and enabling it, and the people within it, to achieve their potential. In the reward area this will mean that technical excellence must be matched by an understanding of the business and HR strategy implications of proposed changes or improvements. Strong process consulting skills are almost always required. Reward consultants increasingly need to be able to:
  • have highly developed interviewing skills, especially at the diagnostic stage of strategy/policy development work;
  • be able to run effective focus groups with staff of all kinds/levels;
  • be able to present their diagnosis and recommendations to audiences of many kinds;
  • recognize when the presenting issue is more about, for example, performance management than reward, and have skills in that area too;
  • undertake thorough 'technology transfer' to ensure that any solutions they help develop are fully understood and owned by their clients;
  • work in partnership with internal or other consultant project teams working, for example, on major change initiatives.

May 13, 2011

HOW TO CHOOSE A CONSULTANT | Developing and Introducing Reward Management Processes

The golden rule in selecting consultants is to be absolutely clear in advance about what you want them to do. Objectives and terms of reference need to be defined as a basis for briefing any firms pitching for the assignment and, later, for monitoring progress. If there is a need but objectives need clarifying, commission a small 'scoping' project to set the direction more clearly.
To identify possible consultancies, look at professional registers (eg the Management Consultancies Association, CIPD, the Institute of Management Consultants) and talk to recent clients if you can. The comparative advantages of large or small firms needs to be considered. A large firm will have ample resources and back-up facilities. It will be able to tap a reservoir of experience and expertise. A smaller firm may be able to provide exactly the type of advice you need because it specializes in a particular area. It may also provide you with more individual attention.
Unless you are absolutely certain from personal knowledge that one firm is exactly right for you, it is always advisable to approach three or four different consultancies and get them to pitch for the job. Select firms on the basis of recommendations you can trust.
Give the consultants your terms of reference and any further information they need to prepare a proposal. Meet them to discuss the brief - you can get some measure of their ability by the speed and accuracy with which they size up your situation and the quality of the questions they ask. 'Chemistry' is also important; you can begin to assess whether you could work with them at this stage.
Always ask them to submit a written proposal which should set out:
  1. the terms of reference;
  2. their understanding of your situation and requirements;
  3. how they would carry out the assignment;
  4. what they would achieve: the benefits for your organization;
  5. how the assignment would be staffed;
  6. the proposed programme of work and who would do it;
  7. the cost of their fees quoted as daily or hourly rates and as a total based on their estimate of the length of the assignment. Make sure that this specifically includes or excludes fee increases in the pipeline and ask for an estimate of expenses.
In coming to your decision on which firm to select, the following points should be taken into account:
  1. The reputation of the firm - methodologies, ability to innovate.
  2. The initial impression they made, ie quality of consultants and 'chemistry'.
  3. The quality of their proposal with particular reference to:
    • the relevance of their proposed solutions;
    • the practicality of their proposals from the view of implementation;
    • the realism of the programme.
  4. The cost of the proposals in relation to their value.
When you have made your choice, confirm it in writing by reference to the proposal, subject to any modifications that have been agreed. If you want to be certain about the costs of the assignment and if you believe that the length of time estimated for completing it is reasonable, it may be worth agreeing a fixed price.

May 10, 2011

Developing and Introducing Reward Management Processes - The Use of Consultants


In reward management, the areas in which management consultants can help are:
  • advising on reward strategy, eg following a merger or change in corporate direction;
  • helping build 'reward literacy' at senior management level at times of strategic change;
  • developing improved links between reward and performance management and career development;
  • developing/implementing improved approaches to job evaluation;
  • designing and reviewing pay structures to fit business needs;
  • conducting salary surveys and employee opinion surveys;
  • advising on salary levels for individual jobs; for example, non-executive directors seeking information on the right remuneration for a managing director or newly appointed board members;
  • designing incentive/bonus schemes;
  • developing gainsharing or profit-sharing plans, including share ownership schemes;
  • advising on pension schemes;
  • developing total reward packages covering the whole range of benefits and non-cash rewards;
  • advising on the personal tax implications of remuneration policies.

May 5, 2011


Bearing these in mind (and some of the cynical, if realistic, perceptions they contain), the following means of communications media can be used to draw from, together with some of their more appropriate uses:
  • poster campaigns - for creating expectations for, say, a new pay or performance management system;
  • staff newsletters - for explaining new policies or providing updates on how a new policy (job evaluation for instance) is being implemented;
  • E-mail - to alert staff to policy changes and new reward options, which they can then discuss with their manager or HR;
  • personal letters - to explain the personal impact of policy developments;
  • brochures/intranet entries - where a major policy has to be explained, eg a PRP contribution-related pay system or a new pension scheme;
  • individual meetings - where a personal, confidential or difficult message has to be got across and maximum impact is needed;
  • videos - where a large number of staff in distributed sites have to be reached - good if a charismatic chief executive can convey his or her commitment to policy changes or development;
  • team briefings - to inform groups of employees, consult with them and ensure they properly understand change (eg to an incentive scheme).
Whatever the chosen media, the presentation should be as professional as possible. Ill-conceived, hasty and scruffy presentations will always give employees the impression that the organization does not really care about them and that it is doing as little as it can get away with. This is not the area for penny pinching - the price in terms of justifiable resistance and cynicism is too high.

May 3, 2011

RULES FOR COMMUNICATION | Communicating the Benefits

In the 1985 IDS/IPM publication 'The Merit Factor - Rewarding Individual Performance', 12 rules for internal communications were reproduced. As background to any communication plans we believe they have enduring value and list them below:
  1. There is no such thing as a stone-cold certainty in business decisions and it is important everyone in a business realizes this.
  2. If a board cannot or will not clearly spell out its business strategy, employees are entitled to assume it does not have one.
  3. Assume that in an information vacuum, people will believe the worst.
  4. Never take it for granted that people know what you are talking about.
  5. Always take it for granted that people doing a job know more about it than you do.
  6. Telling people something once is not much better than not telling them at all.
  7. Never assume that people will tell you anything that reflects unfavourably upon themselves.
  8. Remember that employees read newspapers, magazines and books, listen to the radio, watch television, and surf the Internet.
  9. Do not be afraid to admit you were wrong; it gives people confidence that you know what you are doing.
  10. Asking for help, taking advice, consulting and listening to others are signs of great strength.
  11. Communicating good news is easy but even this is not often done by management; bad news is all too often left to rumours and the grapevine.
  12. Changing attitudes in order to change behaviour takes years - changing behaviour changes attitudes in weeks.
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