CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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be provided wherever possible. By helping redundant employees both to explore the range

of options open to them and their own response real beneﬁ ts have resulted. A study once

carried out by the UK Government’s Manpower Service Commission showed that unem-

ployed executives were more likely to ﬁ nd jobs if they received counselling than if they had

only ‘technical’ help (e.g. preparing a curricula vitae, interview, techniques, etc.).

Employees whose jobs become redundant are entitled in most countries to some com-

pensation (redundancy payments) based on their length of service. These ‘golden hand-

shakes’ do not give most redundant people the ﬁ nancial means to survive for very long

without working. The payments go a little way towards providing compensation for the real

(and sometimes long-term) social, psychological and economic effects of the experience.

For the individual redundancy is normally met by frustration and anger, followed by

diminished self-esteem. If another job cannot be found, long-term unemployment can

damage both physical and mental health, as well as carrying obvious ﬁ nancial penalties.

Redundancy is likely to be unpleasant not only for the individual and for the organisa-

tion. The manager may have a role to play in maintaining the morale and performance of

those employees remaining, as well as dealing with potentially the damaged external image.

One consequence of redundancy may be a loss of some of the valued and most expe-

rienced employees. Management should act as honestly and as sympathetically as it can

throughout (it will have to work with the survivors who have seen their work colleagues

lose their jobs). It is as important for a manager handling redundancies, just as in handling

discipline, to be seen to be fair in the treatment of individuals and adhere to recognised

procedures.

For the individual a threat of redundancy and job insecurity can potentially manifest

itself in stress, lost productivity, conﬂ ict and a lowering of loyalty to the organisation. It

may also lead to individuals rethinking their career development opportunities and aspira-

tions (see later).

5.4 Motivation and incentives

Gratton (2004) addresses both motivation and incentives by synthesising recent research

into the area. She concludes that ﬁ nancial gain is overestimated as a staff motivator, but

that money is still important:

●

not because of what it can purchase, but the status it signiﬁ es in comparison with others

●

there is little evidence that higher rewards or bonuses have an effect on subsequent

performance

●

the process of allocation can be as important as what is actually allocated, people prefer

procedures that involve them.

Note: Motivation – a case in point

A summer heat wave was met with an innovative response by the management

of Volkswagen (VW) Group UK. The 500 plus staff were invited to cool down, both

morning and afternoon, with ice cream, watermelon and anything else restaurant

staff could come up with. This contrasts with a tale of a large ﬁ nancial institution

who had a rule that employees could only remove their jackets if temperatures soared

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5.4.1 Designing reward systems

Armstrong and Murlis (2007) suggest that reward systems consist of two elements:

1. pay ranges, with a method for moving through (progression) or up (promotion)

2. the beneﬁ ts package (pensions, sick pay, medical and other insurance, car schemes, etc.).

Typically, larger organisations have grade structures that put jobs into grades based on

the job value to the organisation. (Small organisations may only pay spot rates for the job

based on market prices.)

Exercise 5.10

What are the managerial aims of a reward system?

Solution

●

recruitment (from the marketplace)

●

retention (keeping up within the market)

●

provide a fair and consistent basis for motivating employees

●

provide a fair and consistent basis for rewarding employees (paying for performance)

●

recognise the various factors apart from performance such as job/role size, contribution,

skill and competence

●

reward performance by progression or promotion via developmental pathways and career

ladders

●

control payroll costs.

The design of reward systems should be appropriate to the characteristics and needs of the

organisation (e.g. size, stability of the environment, competitors’ policies, local pay rates,

and internal culture). It might include one of a number of factors both ﬁ nancial and non

ﬁ nancial.

‘Differentials’ in levels of pay can be methodically deﬁ ned through job evaluation. There

is often a need for different career structures according to the level or category of employ-

ees. A number of organisations have two levels: one for ‘white collar’ staff and one for

manual workers, some have three: one for the managers, one for the professional staff and

above 80 degrees (F) for 3 days or more. By the time the memo granting permission

had got to staff, temperatures had usually gone back down. Volkswagen looked at

what staff needed and someone was able to make the decision right away. Undeniably

an inexpensive treat, it was well received by staff because it showed they were valued

as people. The Head of HR explained: we’re just the organisation in the middle, so all

our value added has to be through our people. This means they have to be as motivated as

possible. People may be still driven by cash rewards, but these are recognised by VW

as not enough. In addition to being a good payer, VW also boasts a good pension

scheme and exceptional maternity beneﬁ ts.

Source: Carrington (2004)

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one for the junior staff and manual workers. In many cases, top management or directors

may be left out of the main structure with their remuneration being agreed individually.

External comparisons made through market rate surveys and decisions on external rela-

tivities tend to follow the organisation’s policy on how its pay levels should relate to the

market rate.

Numerous types of organisational pay structures exist, the most common are identiﬁ ed

in Table 5.16.

Proﬁ t-related pay schemes attempt to produce a sense of shared ownership and commit-

ment. They are not as popular as they once were, for a number of reasons including:

●

the ability of the ﬁ rm to ‘massage’ year end proﬁ ts

●

the tax implications of share purchase and share option schemes, etc.

●

the problem of ‘free-riders’ beneﬁ ting from the scheme

●

the restricted use of the scheme to only a few groups (e.g. directors and senior managers)

in some companies leading to resentment by other groups.

Table 5.16 Types of organisational remuneration structures

Type Description

Graded pay A sequence of job grades against which a payment range is attached.

Broad-banded The range of pay in a band is signiﬁ cantly higher than in a conventional graded

structure. The structure usually covers the whole workforce from the shop ﬂ oor

to senior management.

Individual job ranges Used where the content and size of jobs is widely different throughout the

organisation. This approach avoids jobs being either underpaid and or overpaid.

Job family structures Consists of jobs in a function or discipline such as ﬁ nancial specialists. Jobs

will be related in terms of the fundamental activities carried out and the basic

skills required, but will be differentiated by the level of responsibility, skill or

competence involved.

Spot rates Allocation of a speciﬁ c rate for the job.

Pay spines Consists of a series of incremental points extending from the lowest to the

highest paid jobs covered by the structure. Pay scales or ranges for different job

grades may then be superimposed on the pay spine. This method is favoured

particular within the UK for most NHS and central and local government

employees.

Integrated pay

structures

Cover groups of employees who have traditionally been paid under separate

arrangements. There may be one grading system which includes all employees.

An example of proﬁ t sharing:

In May 2005, Royal Mail announced a record of £537 million proﬁ t on its

operations with quality of service to customers hitting the highest levels in a decade.

As a reward for this turnaround postal workers received a ‘Share in Success’ payment

of £1,074 amounting to £218 million of the company’s proﬁ t. This represented one

of the biggest proﬁ t shares with employees in UK corporate history.

‘Piece rates’: in the early days of industrial mechanisation, the Taylorist philosophy of pay-

ing employers on the basis of output alone was straightforward as output was clear and

easily measurable. Payment was referred to as ‘piece rates’ because employees were remuner-

ated based on the number of manufactured pieces they completed.

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The modern organisation has, however, changed considerably and individual labour

inputs are less likely to be traced as direct outputs. Group and team bonuses have been pio-

neered in some new manufacturing plants and car dealerships in order to recognise staff

co-operating to achieve shared outputs. However new challenges such as rewards shared by

free riders (those who shirk work and unfairly rely on others in the team) have caused ill

feeling and have been counterproductive.

Where direct output data can easily be measured and attributed mainly to one indi-

vidual (e.g. in sales), management have continued to operate individual, quantitative, per-

formance-based rewards ignoring factors that might have contributed to outputs such as

managerial support and advertising outputs.

Performance-related pay (PRP). Appraisal based performance-related pay is a method of

payment where an individual receives increases in pay based wholly or partly on the regu-

lar and systematic assessment of job performance.

It is argued that performance-related pay, in the right context, can be of potential ben-

eﬁ t to both employers and employees. It can, for example, help employers improve the

efﬁ ciency and effectiveness of their workforce by emphasising the need for high standards

of job performance. It is further argued that it can offer the ﬂ exibility to help motivate and

retain valuable employees by targeting higher pay at better performers. Employees in turn

may welcome a system that rewards extra effort by extra pay.

The introduction or revision of PRP is often linked with other organisational and HR

changes including:

●

greater decentralisation of the responsibility for pay determination

●

the introduction or extension of appraisal schemes

●

moves towards harmonised terms and conditions of all the workforce

●

the greater use of ﬂ exible working arrangements, for example in skills acquisition.

The way in which payment systems are modiﬁ ed to take account of pay for individual per-

formance include:

●

replacing part or, occasionally, all of general pay increases with PRP awards

●

strengthening the link between pay and performance by introducing additional pay-

ments above the scale maximum to recognise high performance

●

introducing PRP in place of incremental pay increases which is based on length of serv-

ice, age or qualiﬁ cations.

PRP should be based on the foundation of a sound payment system and accepted salary

levels. It should not be introduced if what is really required is a general increase in wage

rates. PRP is not an effective substitute for adequate basic rates of pay.

Exercise 5.11

What are the beneﬁ ts of PRP?

Solution

As organisations seek to compete more effectively to meet customer requirements they are

increasingly examining methods of improving workforce ﬂ exibility and engendering a cul-

ture of high performance. By linking rewards more closely to performance in a way that is

properly measured against appropriate criteria, employees may be encouraged to increase

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productivity. Resources can be better targeted to recognise effort and achievement, and

to reward and retain more effective employees. Properly introduced, PRP can be used as a

mechanism for promoting greater employee involvement and commitment to an organisa-

tion. Improved quality and customer service can be additional beneﬁ ts.

There are in practice undeniable difﬁ culties with PRP, whether because of poor design,

inappropriate introduction, the use of subjective measures or secret awards. Under these

conditions PRP may not only fail to motivate but may cause dissatisfaction if:

●

employees are not aware of the levels of performance they need to attain

●

PRP awards are not applied consistently across the eligible participants

●

ﬁ nancial constraints by the use of budgets or ‘quotas’ restrict the amount of awards

●

there is subjectivity in assessment

●

there is divisiveness in operation.

Kent County Council has introduced performance-related pay for its 25,000 staff. The fol-

lowing extract explains something of the detail:

…………….all council employees, other than teaching staff, received an appraisal

rating of between 1 and 5, based on their total contribution.

Each point awarded pushes the employee half a point further up their pay scale.

So a worker receiving a ‘good’ rating of 3 is raised one point further up the pay

scale, while an ‘excellent’ 4 would raise them 1.5 and ‘exceptional’ 5 puts them up 2

points.

The ‘total contribution’ of staff is measured against four criteria: meeting objec-

tives, their behaviour, personal development and any other responsibilities they take

on beyond their job description that add value.

‘What we are trying to do is distinguish between individuals and their perform-

ance levels throughout the council, which wasn’t the case before,’ said Miller (Reward

Manager Colin Miller). ‘While we expect most (rated as “good”) to make steady

progress, the system allows us to reward those who are performing exceptionally well.’

There should be few surprises at the bottom end since those rated at less than 3

should have their performance addressed in the normal course of the year, he added.

Miller has also introduced an initiative whereby managers can pay £500 one-off

bonuses to high-performing staff, providing the chief ofﬁ cer gives approval. ‘That

met with some resistance, along the lines that the money would be better off given

to services,’ said Miller. ‘But if we are rewarding top performance and, as a conse-

quence, top performance is more likely to happen in future, then that’s money well

spent.’

Source: Brockett, J. (2007) Kent council reviews reward system. People Management, 26 July.

Non-ﬁ nancial rewards. Findings from one retention initiatives report claims that employees

are more likely to look for a new job when their needs for career advancement or training

are not being met, or when their relationship with their manager is poor (Anon, 2005).

The report concludes that employers looking for ways to hold on to workers should con-

sider training managers and implement more ﬂ exibility in pay and conditions.

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The past few years have seen organisations put a name to the whole range of beneﬁ ts

they have offered for a while, cash and non-cash, and for the ﬁ rst time publicise the fact

more fully. ‘Total reward packages’ originated in the US and represents a bundling together

of all cash and non-cash motivators an organisation has to offer.

The concept recognises that money is not the only motivator and that employees, pro-

spective employees and other stakeholders might ﬁ nd the organisation more attractive

because of its total reward package. The package might include non-cash beneﬁ ts, such as

ﬂ exible working, ﬂ exible hours, training, career progression and a pursuit of green policies

but must not be seen as a way of keeping pay rates down.

Carrington (2004) explains that a range of factors have driven the initiative including

‘talent wars’ amongst recruiters for staff with scarce skills and a way of developing organi-

sational vision and culture. Carrington believes the total rewards approach has the advan-

tage of:

●

making positive statements to stakeholders about the organisation and its culture

●

helping employer branding so that retention and recruitment is enhanced

●

eroding the ‘us and them’ attitude in the workforce.

The following short extract is from an article that explores approaches to rewarding and

motivating employees at a time when it seems more difﬁ cult than ever. In purely ﬁ nan-

cial terms the factors cited are low cost, but in outcome terms they are apparently high-

impact:

Andrew Sellers, corporate business manager at John Lewis Direct, agrees that compa-

nies are using incentives in a broader way. ‘In the call centre environment, where call-

handlers are employed at roughly the same salary across the industry, it’s the small

things that make a difference to the workforce.’

Vodafone used John Lewis Direct to send a bottle of champagne to a team that

had achieved a project ahead of time and on budget. Such a discretionary approach

allows employers to target incentives more widely to reward attendance, productivity,

customer service and good ideas.

The key to reward and recognition in this environment is to make awards as

instant as possible. This spontaneity is hampered when rewards have to be ratiﬁ ed

and paperwork completed, risking resentment rather than goodwill.

John Lewis relaunched its vouchers last year with an online redemption element.

The innovation addresses two issues, says Sellers. ‘We want to grow our online busi-

ness and when people are in front of a screen all day, the PC is their interface with

the world, so they can spend their reward there and then.’

Successful schemes are not prescriptive, so despite a sometimes dull reputation,

vouchers are the most popular choice of reward after cash.

‘The problem with cash is that no one ever remembers what they did with it, so

its motivation effect is lost’, says Sellers. ‘With vouchers, people will treat themselves

and tell their colleagues about it.’

Source: Extracted from Incentives: The rewards of work by Stuart Derrick, Marketing, 13 July 2005

p. 37, Haymarket Business Publications Ltd.

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Sherman’s (2005) research into female business owners concludes that they may not

offer more perks to the workplace than men, but the perks they offer employees ‘often

have a decidedly feminine touch’. She cites Hillary Kelbick, president of a medium-sized

New York marketing and consulting ﬁ rm. Flexible working and telecommuting is com-

monplace, additionally staff are allowed to bring their young children to work when day

care is difﬁ cult. Kelbick also funds staff to purchase new outﬁ ts for important client meet-

ings. The reasoning is faultless: perks’ such as these enabled the company to compete with

larger, more established companies in hiring and keeping the ‘right’ people.

Prickett (2006) explores the fact that ﬁ rms are realising that ﬂ exible beneﬁ ts are a practi-

cal and affordable way to reward their staff, and in so doing identiﬁ es what incentives she

feels are growing in importance and those that are not are summarised in Table 5.17.

5.5 Improving the opportunities for employees

contribution

This section considers practices aimed at creating opportunities for employees to contrib-

ute to the organisation whether through job design, communications, involvement proce-

dures or engaging in formal negotiating and bargaining.

A relatively recent concept of organisational citizenship behaviour (OCB) has grown up

to describe the efforts of those who voluntarily undertake innovative, spontaneous tasks

that go beyond their normal job role. Organ (1988) describes such behaviour as

…discretionary, not directly or explicitly recognized by the formal rewards system and that in aggregate pro-

mote effective functioning of an organization.

Clearly such behaviour is most apparent in organisations that have positive inclusive cultures

that value team work and adopt supportive management approaches. The approach adopted

by a particular manager can in many situations have a signiﬁ cant effect on efﬁ ciency, effective-

ness and motivation. The potential impact of work groups on individual motivation has long

been recognised and was famously illustrated by the Hawthorne Studies. Elton Mayo’s research

over a 5-year period at the Hawthorne Works of the Western Electric Company in Chicago

indicated that work satisfaction depends to a large extent upon the social relationships. These

Table 5.17 Popularity of incentives

Growing Static Declining

Schemes such as home PCs,

bicycles and childcare vouchers.

(all are tax-efﬁ cient)

Concierge services, (e.g. shopping

and dry-cleaning) These are

mainly conﬁ ned to large City

ﬁ rms.

Final-salary pension schemes

More ﬂ exible pension schemes

that offer choice

Store cards/vouchers

Gym membership

Health insurance

Optional extras such as dental

insurance and pet cover

Golden parachutes

Bonuses

Share schemes, (stock prices,

which are easily affected by

external events, do not accurately

reﬂ ect the performance of an

individual or team)

Source: Prickett (2006)

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are both informal between workers in a group and between workers and their bosses. The

effects of the group proved more powerful than altered working conditions, new payment sys-

tems, rest breaks, varying the length of the working day, and offering food and refreshments.

This thinking naturally goes to the heart of job design and the methods by which team

working is encouraged. Traditionally, jobs have been designed on the basis of the scien-

tiﬁ c management approach with a high degree of specialisation and strict controls. This is

highly effective for bringing about conformity in many situations, but is hardly conducive

to commitment. A number of other approaches to job design attempt to build more inter-

est, variety, challenge and collaborative working into jobs.

Self-directed work teams have emerged from group technology developed by motor manu-

facturer Volvo. The initiative arose as a result of recruitment and retention problems for

production line jobs which involved repetitive working procedures. Under cellular manu-

facturing methods, teams form a cell that jointly make a substantial proportion of the ﬁ n-

ished product rather than singly assemble one component of it. Cellular production often

forms part of programmes of quality improvement. Indeed ‘Total Quality Management’,

which seeks to move the emphasis away from detecting faults to preventing them, stresses

employee involvement and team working as important ways of achieving this.

Job redesign can therefore be used to help develop individuals and groups within the

workplace.

The job characteristics model (as shown in Figure 5.3) sets out the links between char-

acteristics of jobs, the individual’s experience of those characteristics, and the resultant

IMPLEMENTING

CONCEPTS

Experienced

meaningfulness

of the work

Experienced

responsibility

for outcome

of the work

Knowledge of the

actual results of

the work activities

EMPLOYEE GROWTH

NEED STRENGTH

CORE JOB

DIMENSIONS

CRITICAL

PSYCHOLOGICAL

STATES

Combining tasks

Forming natural

work units

Establishing

client

relationships

Vertical loading

Feedback

Task significance

Task identity

High internal

work motivation

High-quality

work performance

High satisfaction

with the work

Low absenteeism

and turnover

Skill variety

Opening feedback

channels

PERSONAL AND

WORK OUTCOMES

Autonomy

Figure 5.3 Job characteristics model

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outcomes in terms of motivation, satisfaction and performance. The model also takes into

account individual differences in the desire for personal growth and development (what

Maslow called ‘self-actualisation’). The heart of the model is the proposition that jobs can

be analysed in terms of ﬁ ve core dimensions as follows:

●

Skill variety: the extent to which a job makes use of different skills and abilities.

●

Task identity: the extent to which a job involves a ‘whole’ and meaningful piece of work.

●

Task signiﬁ cance: the extent to which a job affects the work of other organisation mem-

bers or others in society.

●

Autonomy: the extent to which a job gives the individual freedom, independence and

discretion in carrying it out.

●

Feedback: the extent to which information about the level of performance attained is

related back to the individual.

These ﬁ ve core dimensions induce the three psychological states critical to high work moti-

vation, job satisfaction and performance. These three states are deﬁ ned as follows:

●

Experienced meaningfulness: the extent to which the individual considers the work to be

meaningful, valuable and worthwhile.

●

Experienced responsibility: the extent to which the individual feels accountable for the

work output.

●

Knowledge of results: the extent to which individuals know and understand how well they

are performing.

Jobs that have high scores are more likely to lead their incumbents to the experience of

these critical psychological states than jobs that have low scores.

In order to improve employees contributions the following approaches might legiti-

mately be considered:

●

Job enlargement: horizontally expanding a job role with tasks at a similar level of difﬁ culty.

●

Job rotation: arranging for individuals to swop roles periodically in order that they do

not become stale and so that new approaches are tried out.

●

Job enrichment: adding to a post tasks that might normally be carried out by someone on

a superior grade so as to increase employee control, responsibility or experience .

5.6 Line managers and human resource

practices

Organisational HR practices inevitably vary dependent upon the individual size and cul-

ture of the organisation and availability of specialist HR or personnel managers to support

management in carrying out their duties. The need to respond to a fast moving environ-

ment has led to organisations moving from traditional hierarchies to adopting more ﬂ ex-

ible organisational structures including ﬂ uid matrix or project-based ﬁ rms. Alongside these

virtual or networked ﬁ rms have grown up. Inevitably these non-traditional structures have

presented new HR challenges and required managers to adapt traditional approaches to

these local contexts. Clearly HR thinking and practice needs to evolve in responses to these

challenges of ﬂ exibility and environmental uncertainty, speciﬁ cally in the areas of:

●

planning horizons

●

staff appraisal where there may be no formal supervisor/subordinate reporting relations

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●

remuneration strategies where outputs are not easily attributable to individuals alone

●

the structure of the workforce and the use of consultants and contractors

●

development, promotion and succession planning.

Exercise 5.12

What are the main organisational disadvantages of employment ﬂ exibility?

Solution

●

Potentially reduced commitment and/or quality

●

Potential loss of stability

●

Problems with continuity and team working

●

Training expenditure. Flexibility implies a necessity to signiﬁ cantly increase expenditure

on training and yet temporary working implies minimal training commitment

●

Conﬂ ict with the workforce and trade union opposition

●

Resistance, especially from crafts people who are unlikely to willingly give up time-hon-

oured job deﬁ nitions

●

A redeﬁ nition of the role and focus of managers

Charles Handy’s (1999) concept of the shamrock organisation depicts an organisation with

‘core’ and ‘periphery’ workers as well as a contractual fringe. (Core employees possess key and

scarce skills and enjoy relatively high status positions with good prospects of security and pro-

motion. Periphery workers on temporary or part-time contracts act as a buffer against changes

in demand.) The use of these distinctions may be challenged as some industries rely almost

exclusively on ‘periphery’ workers and these groups become more central rather than periph-

eral. In addition, groups of employees who might be classiﬁ ed as ‘core’ do not necessarily

enjoy the status that is suggested by the framework (e.g. skilled manual workers). Nevertheless,

these concepts provide a background against which consideration can be given to the different

forms of ﬂ exibility, namely task, numerical and ﬁ nancial (Atkinson, 1984).

●

Task or functional ﬂ exibility. There is evidence that traditional demarcations between jobs

are being eroded and employees are being required to undertake a wider range of tasks.

In white-collar employment functional ﬂ exibility has been facilitated by IT develop-

ments that cut across previous job classiﬁ cations. There is also considerable evidence of

organisations signiﬁ cantly reducing the number of job grades and this, of course, implies

that individuals are undertaking a broader range of tasks. The integration of tasks can

be viewed both horizontally, involving employees undertaking a broader range of tasks

at the same level as their original task(s), and vertically, involving undertaking tasks that

were previously carried out by employees at higher or lower levels.

●

Numerical ﬂ exibility. Temporary, part-time, short-term contract working and sub-con-

tracting have been in the ascendant in recent years and have been adopted by organi-

sations as a means of responding to demand ﬂ uctuations. The evidence of increasing

sub-contracting is relatively widespread but the trends in temporary working are more

ambivalent. Numerical ﬂ exibility can be achieved by using both contractors and agency

staff. There is some research evidence of a general trend in some sectors towards greater

use of agency staff mostly in ancillary services such as maintenance, cleaning, transport,

catering, computer services and security.