*Reward Management and the Management of Change

*Reward Management and the Management of ChangeA. Case: Reward Management at Midland MainlineB. Strategic Reward Management & the Reward SystemC. Reward Management Values D. Reward Management StructuresE. Reward Management ProcessesF. What has all this got to do with the Management of Change?G. Case: Reward Management at Finbank

*Main messages (1)Old fashioned Reward Management has an image of dullness and inflexibilityReward systems, like business strategy itself, may not flow rationally from the top down, but rather emerge from events, and through negotiation with stakeholders such as Trade Unions

*Main messages (2)Pay systems (e.g. team based rewards) are often introduced after other aspects of HR policy But NEW THINKING means Reward Management has become a tool of change.A NEW CHALLENGE to aim for is to align employee behaviours with business strategy through strategic reward management.

*A1. Reward Management at Midland Main Line (1)A high speed rail service co., set up in 1993, with 900 peopleTough business targets to meet: (66% increase in income, 33% reduction in operating costs, and various service improvements, while restricting price increases to below inflation rate).The pay structure of the old company (British rail) was very complex, covering the whole industry, with 300+ separate components to it. Local managers had no influence.Current pay structure is very different.

*A2. Reward Management at Midland Main Line (2)Now the pay structure covers fewer people and is easier to manage.The old pay system had a low basic wage and to compensate for this, the Unions pressed for various allowances and overtime arrangements. These were counter-productive: staff were actually rewarded when trains ran late!The new pay system pays a higher basic wage, and there is no overtime.Under the new pay system, there are multi-skilled teams, which means less delay in waiting for specialists.

*A3. Reward Management at Midland Main Line (3)There is more flexibilityThe job contract specifies 1680 hours maximum per year (roughly 35 hours per week for 48 weeks). If people get the job done quicker, they go home quicker.Instead of 8 grades of crew staff, there are now just 3 grades, resulting in more flexible customer serviceThese changes have also required extensive training & developmentThe mgt want to move to 80% base pay, 20% variable pay

*B1. Strategic Reward Management: Key Elements of Reward System Design (Midland Main Line e.g.)Business Strategy e.g. higher co. income, lower costs, better qualityRequired Employee Behaviours e.g. flexibility & customer careReward StrategyCo. Core Reward ValuesReward StructureReward SystemProcess

*PerformanceManagementSystemCultureB2. Reward System should be congruent with other systemsBusiness StrategyRequired Employee BehavioursReward StrategyCo. Core Reward ValuesRewardStructureRewardProcessJob DesignTrainingsystemOrgStructureHRM SystemsReward System

*B3. Elements of the Reward SystemCore Reward ValuesFive key values that should be honoured (see next slideReward StructureHow the system is administered; structures that put reward management values into effectReward System ProcessHow the system is communicatedWhether, and how, employees are involved in designing it

*C1a. Reward Management Values - 1 Typical Reward Management values arePaying for performanceindividual performance related payteam based rewardsEquitysometimes a trade-off between external equity (alignment with external market price of the labour) and internal comparisons)also procedural justice issues

*C1b. Reward Management Values - 2 More Typical Reward Management values areEmployees sharing in the organisations successprofit sharing, gainsharing, etc (can be distant)Employee involvement in designing the systema relatively new ideaCombining financial/non-financial rewards (see next slide)achievement & recognition (we all need this)responsibility, influence, personal growth

*C2. Reward Management Values - Reminder on the Limits of MoneyNo one quite understands the link between money and motivation.Money may motivate people to behave in particular ways some of the time, in some circumstancesHerzberg reminds us that it may not be possible to motivate through money, but it is easy to demotivate, by getting the pay system wrong

*D1. Reward Management Structures (1)To relate pay to performance, many orgs are adopting this kind of structure:Base pay reflecting the market rate for the jobPlus a variable element related to one or more of: individual, team & org performance, and skill acquisition

*D2. Reward Management Structures (2)This means a move to as much emphasis on external equity (the market value of the employees labour power) as on internal equity (e.g. how he/she compares with similar colleagues)

*D3. Reward Management Structures (3)Reconciling team based pay with internal equity is difficult, so the authors suggest combining it with individual performance related pay.

*D4. Reward Management Structures (4)Typical imperatives in relation to equity (and building a sense of community) include:To be careful that the directors are not seen to award themselves unfairly large pay increasesEqual pay for work of equal value by men & women

*D5. Reward Management Structures (5)Closing the gap in benefits between blue and white collar workersWider pay bands: room to reward good citizens lateral movement across the organisation without promotionreward for multi-skilling & teamworkcontinual rewards for continual improvement in performance

*D6. Reward Management Structures (6)In order that employees may share in the organisations success, companies may adoptProfit related bonusEmployee share ownership optionsGainsharing (employees get a share of cost savings required by company strategy and arising from productivity +/or quality improvements)

*D7. Reward Management Structures (7) - 1To apply non-financial rewards, the company mayPublish peoples successes in the in-house magazineGive thank you prizes e.g. a weekend trip overseasTrain line managers in appraisal, goal setting, feedback skills

*D8. Reward Management Structures (8) - 2To apply non-financial rewards, the company mayApply job design theory to make jobs more meaningful & responsible, and where people can see the successful outcomes of their workSkill based pay is a financial reward that may have a big impact on organisational change. It can be applied both in manufacturing and service industries

*E1. Reward Management Processes (1) - Employee involvement in developing the system1. Feasibility study: establishes the aims of the scheme2. Task force of around 12 managers, supervisors& employees develops a detailed proposal to top mgt3. Pilot implementation of the scheme: why not piloton the employees who were involved in (2). This pilotscheme is monitored, is it achieving its aims?4. Communication to those effected; plus trainingfor supervisors and line managers5. Implement, and ongoing monitoring& evaluation by task force

*E2. Reward Management Processes (2) - Employee involvement in developing the systemThe process may be preceded by an employee attitude surveyEmployee involvement isnt enough on its own: the system wont work unless it is technically soundWith team based pay, it may be appropriate to award an overall amount to the whole team, and empower the team to determine how this is allocated to individual based on their contribution membersCafeteria benefits systems may allow individuals to choose their own combination of benefits (e.g health benefits, vs. more leave, vs. cash bonus).

*E3. Reward Management Processes (3) - the Issue of SecrecySome companies wont allow their members to talk about payThe reward system may lack transparency This may give management the flexibility they like, but may lead to rumours and lack of trustTransparency versus secrecy about pay is an important reflection of organisational (culture)If the company wishes to create greater openness in communication a good way to start is to be more open and transparent about the reward management system.

*F1. What has All This Got to Do With the Management of Change (1)?As just noted, companies are very secretive about reward systems (invoking confidentiality). More openness about this can lead to more open communication generally.Strategic Reward Management is a tool of organisational change.Adopting appropriate reward management values (see slide 10) can remove blockages to organisational change.

*F2. What has All This Got to Do With the Management of Change (2)?Changing the reward structures (e.g. designing jobs to be intrinsically satisfying, instituting skill based pay, or adopting gainsharing schemes) can have a big impact on employee behaviour and readiness to learn.Developing a new reward system (strategy, values, structures, processes) is itself a major organisational change

*Thank you