An Introduction to Human Resource Management

Quizzes

Self-test Questions

What are five difficulties associated with performance-related pay (PRP)?
Name five ways that organisational attitudes towards pay and rewards have changed in recent years.
State five arguments for very high pay rates for top executives.
What is ‘grade drift’?
Name four indirect rewards.
The performance pay scheme introduced at Hewlett-Packard was highly successful. True or false?
Name three non-analytical job evaluation systems.
Name four benefits that are included in the category of ‘personal security’.
Detail five factors that can influence the level of pay in an organisation.
Name four criteria that can be used to authorise the movement of an employee up a pay band with consequential pay increases.

Answers

1. Select five from:

The problems have already been set out in Chapter 5 relating to the effectiveness of the performance management process, including the danger of concentrating on just a few objectives, ignoring the needs of the team and the difficulties in actually defining meaningful objectives.
It is not clear how good a motivator it is. In most schemes, including the example shown in Figures 6.6 and 6.7, the pay difference between the average performer and the high performer is only, at most, 3 or 4 per cent. On an average salary of, say £20,000, this represents an after-tax monthly difference of only £35 or so. Most evaluations find that employees do not regard PRP in financial terms as an effective motivator.
Managers may be tempted to pick out their favourites to award them higher PRP than the rest of the staff, creating a considerable sense of cynicism and unfairness.
Managers, on the other hand, may not want to go through the hassle of differentiation and the difficulties it causes and may put all staff on the same level, which produces, ultimately, the same effect. Distributive justice, as it is called, has not been done or been seen to be done.
Individual PRP can work against team-working. If individuals are assessed entirely on their own performance, they will want to shine, to claim all achievements as their own, rather than a team’s.

2. Select five from:

PAST	PRESENT
Pay regarded as an expense	Reward systems seen as an investment to achieve competitive advantage
Pay policies based on government control or national agreements	Reward determined by the organisation to meet its global, national or local conditions
Fixed pay scales in a rigid job evaluation structure	Reward utilised flexibly within a broad-banded salary structure
Pay seen as compensation for having to be at work	Rewards given for employees achieving the desired results
Pay to compensate for reluctant acceptance of change	Rewards to encourage positive acceptance of cultural changes
Payments made for length of service	Rewards given for performance, skills and competency
Pay differentials compressed	Wide variations in reward from board room to home improvement centre
Incentives based on narrow measures of production or sales	Performance-based systems based on broad measures of unit or organisational success
Paying for attendance	Rewarding employees for ideas, initiative and innovation
Fixed benefits without choice	Flexible benefit programmes to suit individual requirements
Equity sharing limited to directors	Share options for all employees

3. Select five from:

Senior executives are recruited in an international market
There is a shortage of top talent
High pay reflects the level of risk taken
Pay is heavily contingent on performance
Senior executives can easily move to other related careers/sectors
Publishing pay rates causes pay inflation
Senior executives are quite cheap

4. This is where a succession of successful re-grading claims under job evaluation leads to employees gradually ‘drifting’ up the grades, causing additional pay costs to the organisation.

5. Select four from:

Job satisfaction
Cultural satisfaction
Security
Personal growth
Career development opportunities

(You can also consider recognition, without any tangible rewards attached, as an important indirect reward.)

6. False.

7.

Job ranking
Paired comparison
Job classification

8. Select four from:

Sick pay
Life assurance
Private health insurance
Prolonged disability schemes
Pensions

9.

How much the organisation can afford to pay
Government legislation
Shortage of key skills
Geographical location
The state of the economy

10.

Through improved performance
Through increased competency
Through their job developing
Through their experience being enlarged

Annotated Links

See CIPD podcast 34 at http://www.cipd.co.uk/podcasts/_articles/_executiveremuneration34.htm?WBCMODE=PresentationUnpublished

See CIPD podcast 41 at http://www.cipd.co.uk/podcasts/_articles/_rewardpodcast2010.htm?WBCMODE=PresentationUnpublished

See CIPD podcast 68 at http://www.cipd.co.uk/podcasts/_articles/_executive-pay.htm?WBCMODE=PresentationUnpublished

Annotated Further Reading Guide

Chiang, F. and Birtch, T. (2012) Performance Implications of Financial and Non-financial Rewards. Journal of Management Studies, May, 49(3): 538–570.

A comparison of practice in Hong Kong and Finland’s banking sectors.

Leaf, M. and Ryan, R. (2012) Beyond Compensation: How Employees Prioritise Total Reward at Various Life Stages. WorldatWork Journal, 19(4): 6–21.

More evidence that the reward–motivation link is a complex subject.

Robertson, J. (2011) Total Reward, Incomes Data Services report.

Identifies issues and practice in total reward.

Yanh, C. (2011) Maximise Employee Retention through Total Rewards Programmes. Workspan, June, 54(6): 24–28.

A case of how an American company integrated two international units’ reward systems.

For publications covering the whole of reward issues, see:

Armstrong, M. and Brown, D. (2006) Strategic Reward. Kogan Page.

Brown, D. (2001) Reward Strategies – From Intent to Impact. CIPD.

Holman, G. and Thorpe, R. (eds) (1999) Strategic Reward Systems. Financial Times Management.

Milkovich, G. and Newman, J. (2008) Compensation, 9th ed. McGraw-Hill.

Perkins, S. and White, G. (2010) Employee Reward. CIPD.

Shields, J. (2007) Managing Employee Performance and Reward. Cambridge University Press.

Stredwick, J. (2008) Cases in Reward Management. Lulu Publishing.

Wright, A. (2004) Reward Management in Context. CIPD.

For publications covering specific areas of rewards, see:

ACCA (2005) Executive Pay Policy Briefing Paper, June.

Anderson, S. and Cavanagh, J. (2007) Executive Excess 2007: The Staggering Social Cost of US Business Leadership. 14th Annual CEO Compensation Survey. Institute for Policy Studies.

Armstrong, M. (2000) Team Rewards. CIPD.

Brown, D. and Armstrong, M. (1999) Paying for Contribution. Kogan Page. (This is an extensive coverage of performance-related pay.)

CIPD (2011) Excellence through Technology. People Management, November, 42.

Corby, S. Palmer, S. and Lindop, E. (2009) (eds) Re-thinking Reward (Palgrave Macmillan) has detailed articles on equal pay and executive rewards.

Perkins, S. (2008) Executive Reward: Complexity, Controversy and Contradiction, in White, G. and Druker, J. (eds) Reward Management: A Critical Text, 2nd ed. Routledge.

Income Data Services and Industrial Relations Services have numerous articles and reports on pay issues.

Extra Case Studies

Case 1

The business

Busy Bees is the fifth largest nursery chain in the UK, with 47 facilities providing just over 4,000 childcare places. The company was set up in 1984 when three couples needing childcare for their own children pooled the proceeds from the sale of their houses to finance the first nursery in Lichfield, Staffordshire.

The company is also the UK’s biggest supplier of childcare vouchers – enabling employees to obtain some tax and national insurance relief on childcare costs – with 55 per cent of market share according to HM Revenue & Customs. Both Busy Bees businesses, which employ a total of 1,600 staff, were bought for £71m in December 2006 by Australian-based ABC Learning Centres – the largest childcare company in the world.

The challenge

HR director Clare Phizacklea says the introduction of the national minimum wage means that nurseries are increasingly competing for ‘non-academically qualified’ employees with call centres and the retail sector. As a result, demand for staff outstrips supply, and private childcare providers also face a challenge from government-funded Sure Start programmes, which are able to offer higher wages.

In 2004, staff turnover at Busy Bees was 37 per cent and it remained stuck at that level the following year.

In such a labour-intensive industry, staff pay amounts to at least 45 or 50 per cent of the running costs of a nursery, and Phizacklea says privately owned nurseries increasingly have to balance the need to pay enough to recruit and retain staff, while not jeopardising their viability by passing on large fee increases to parents.

The solution

In 2006, the company launched an action plan to reduce staff turnover. Following a staff survey, it introduced a new pay mechanism that allied its traditional annual cost-of-living wage increases with a payment based on performance. Phizacklea says that staff were asked to grade themselves according to certain levels of competence. For example, a qualified nursery nurse was judged on issues such as timekeeping, attendance, uniform, ability to respond to children’s needs, communication with parents and knowledge of childcare practices. Nursery managers then verified the responses.

The company developed its own pay scales and, depending on how staff scored against the competency criteria and in the manager assessments, employees could progress up the ladder.

Phizacklea says the company also realised that the largest number of leavers were in the bigger nurseries.

‘In larger nurseries, we have staff teams of 50 people so it is very difficult for one manager to actually spend time with every member of staff and check whether their needs are being met and they are happy,’ she adds.

The company decided to create ‘a new layer of supervisor’ through the appointment of ‘room leaders’ in some of its bigger nurseries as a way of backing up the existing structure of a manager, deputy and third in command.

‘The room leaders are responsible for guiding, mentoring and line-managing staff,’ says Phizacklea. ‘They can tackle absenteeism and timekeeping more easily and they can go to managers with specific issues and quickly deal with any niggles. Where a room leader is in place, employees feel that they are taking ownership.’

Phizacklea acknowledges that in the past the company’s attendance bonus failed to reduce absenteeism, which can undermine staff morale and team building.

‘In childcare, when someone is absent, you have to bring in another person to meet adult-to-child ratios. They may not be familiar with the routines in a nursery, so other staff may have to look after children and show this newcomer the ropes.’

Another element in the recruitment and retention strategy has been the launch of staff induction DVDs and regional induction meetings, so that employees from different nurseries can meet and share their experiences and ideas. The DVD includes a message from the founding directors outlining the history of the company as well as its philosophy.

Discounted childcare places – just over 50 per cent for managers and 20 per cent for other employees – coupled with a range of training courses delivered in partnership with the Learning and Skills Council, including levels 2 and 3 in early years, are also key components in securing staff loyalty.

The outcome

Staff turnover was reduced to 29 per cent in 2006, exceeding a company target of 30 per cent. And a staff survey has shown that 77 per cent of staff prefer to have the performance-related element to their salary rather than simply a cost-of-living rise.

Phizacklea says this greater optimism is matched by excitement about the takeover by ABC, especially news that it could mean opportunities for staff secondments to Australia, the US and New Zealand to experience the childcare giant’s methods of working in these countries. Being part of the largest childcare company in the world has also been a source of pride and ‘tremendous excitement’ for the staff, she adds.

Busy Bees has been acquired as ABC’s UK base, and there are plans for further expansion, either through the development of new provision or the acquisition of existing nursery businesses in the UK and across the rest of Europe.

Phizacklea says the takeover may involve making changes to Busy Bees’ existing reporting systems and may entail implementing a new HR database system so ABC can have the same information provided from all the countries where it has operations. There will also be further opportunities for staff to progress their careers as there will be a need for more operations and area managers.

Employee perspective

Jeanette Healey manages the St Matthews nursery in Burntwood near Lichfield, and has worked for Busy Bees on and off for 20 years. She has also worked for two other major nursery chains – Bright Horizons Family Solutions and Leapfrog, which is now part of the Nord Anglia group.

She says that, while staff undergo an annual appraisal, linking part of the salary to performance has meant that ‘performance review tools’ are used all year round.

‘It means we have a good ongoing dialogue with the team about how they are progressing and really iron out any rough spots as we go along,’ explains Healey. ‘We have really benefited from these measures in the past six months and they have helped us to retain staff.’

Regular meetings with room leaders ensure that issues such as occupancy, parental concerns and staff perspectives can be discussed.

She says: ‘There may be someone with a crisis at home who is not confident talking about it. We will then hold individual meetings to look at the particular problem and find a solution.’

If I could do it again...

Nursery managers have a central role to play in tackling staff turnover and development. Implementing the company’s strategy may have been more swift and effective if employees had been engaged in the process at an earlier stage, concedes HR manager Clare Phizacklea.

‘We started this process in 2005 and now we have tidied up many of the competence criteria and improved them,’ she says. ‘We possibly should have involved the managers at the start and perhaps, with hindsight, we were slow to respond.’

She emphasises that, whatever HR policies and procedures are adopted, they must have ‘a pound sign next to them’ as a recognition that the financial, as well as the human, implications have been taken into account.

Source: Vevers, S. (2007) Performance-related Pay: Creating a Buzz. Personnel Today, 11 September.