the institute for employment studies

Workforce Segmentation: Back to the Future?

Duncan BrownDirector, Reward Services

Segmentation: what do we mean?

●Decentralisation?●Differentiation? ●Discrimination?

the institute for employment studies

Segmentation: a brief personal history

• By rank/class

• By business unit/department

• By geography

• By performance

• By job family

• By generation

Some segmentation dilemmas

Local authority: department head says he can’t afford to offer Council’s flexible working policies.

Local authority: should we remain within national agreements?

Local authority: should we remove market supplements in the current economic climate?

Uk plc: should we bring our IT function back into the corporate pay and grading structure?

Foundation NHS Trust: should we come out of AfC for hard-to-recruit staff groups, or for all staff?

PLC: should we offer corporate car and benefits policies to a new joint venture in a different labour market?

Major Bank: Decentralise

Start with a grand plan • Adopted a ‘classical’ approach to strategy development• Top down, heavily planned and very rational• Ordered and rigid

The centre has all the answers • What the offer should comprise• Who should get what• What individuals’ pay adjustments should be

Focus on pay • Pay to get people in• Pay to keep people• Pay to increase performance

Result sheep dip package design reward done to you broad brush decision-making

Resulting reward strategy

Design

● Spend much more time talking to people

● Plan for initiatives to adapt in their implementation

● Incorporate inherent flexibility

● Aim for locally owned change

● Introduce comprehensive flexible benefits package

Decision making

● Pay decisions made where the information is

● No centrally dictated pay adjustments or matrices

● Local decisions, central framework

• Initially carried out an EPR and found:

starting salaries tended to be higher for men

part-timers got lower performance scores than full-timers

and men tended to be more likely to receive ad-hoc payments.

• Actions in response:

Training recruiters and line managers to ensure only pay higher starting salaries when objectively justified.

Starting salaries signed off by divisional directors, candidates’ previous salaries checked with their employers.

Ensuring contribution, not service-related pay progression

Improving/extending EPR data and analysis

Or maybe re-centralise: UK FS company

Changes in base pay structures

0% 10% 20% 30% 40% 50% 60% 70%

Mix of broadbands/job families

Career grades

Job families

Pay spines

Narrow graded structures

Broadbands

Individual/spot rates

2008 2006

Emphasis on high performance

Differentiated market pressures

Job flexibility

Emphasis on costsLow inflation

Equal pay

Job family approaches are increasingly common Around a quarter of organisations use them for evaluation/pay/career

management purposes Range is from 2-40; average is 5-8 Complete mixture in terms of basis of definition Key Issue 1: The design reflects the main purpose in using them:

● clarify career progression● reflect market pay variations

Key Issue 2: Managing the balance

Key Issue 3: Balancing the number of “vertical” levels/grades with the number of horizontal levels/families

Key issue 4: equal pay

insufficient market flexibility

lack of local ownership why do it?

expensive to set up complex to

administer/maintain greater internal

barriers/walls

Too Few Too Many

The mix in reward policies and practices in one firm

Policy issues e.g. market stance.

LTI Senior manager arrangements. Pension

Job evaluation system. Pay structure. Performance appraisal.

Recognition awards

Pay rates for all staff recruited locally.

Bonus schemes below grade x

Designed at Centre Designed Locally/ Unit

Operated at Centre

Operated Locally/Unit

Where are the different aspects of reward managed in your organisation?

Operated at centre

Developed at centre Developed

locally

Operated locally

Reward Area• Pay strategy and policy goals;• Job evaluation;• Market definition and stance;• Grade structure;• Pay budgets;• Pay increases;• Bonus;• Pay administration;• Training/support processes;• Pensions;• Performance appraisal;• Salary surveys.

Rewards need to match the organisation structure

Centralised, ‘Tight’

Business Strategy based on integration

and synergies. Predominantly internal growth.

Structure Centralised

HR All managers/staff on corporate

contracts. Generally long service. Career orientation. Career and succession planning

emphasis

Diversified ‘Loose’

Financially-oriented growth strategy.

Growth by acquisition.

Decentralised, small corporate office.

Business-based contracts. Greater emphasis on external

recruitment. Business-based HR and

development.

Countervailing pressures to segment and to unify

Technology Globalisation

Equal pay Cost

Diverse workforce External market pressures Local business/customer ‘fit’ The Choice society

The pros and cons

Common SegmentedGoods

Reinforces ‘one emloyer’Supports mobilityEfficient

Good market/business fitLocal ownershipFlexible

Bads InflexibleLack local ownershipLacks market fit

DivisiveLack of local capabilityExpensive/complex

Building the balance

Achieving the right balance

● At the organisational level and in business strategy: “An appropriate balance lies at the heart of effective

management” . Prof Kets de Vries, ‘The Neurotic Organisation’

“We want to be big and small, global and local” HSBC “Organisations need to be ambidextrous”

Prof O’Reilly & Tushman

“The successful organisations combine the hard and soft, the support and the stretch, the yin and the yang”.

Prof Sumantra Ghoshal

• Marketing: the McRice Burger, Intel and HSBC – tailored global campaigns

• “Advertisers are simultaneously exhibiting both the global reach and the local resonance of the brand…globalisation is associated with the new dynamism of relocalisation”

Jackson and Andrews• In HR and rewards.

Trying to get the best of both worlds in reward

Highly uniform rewards

-Reinforces one firm behaviour

-Supports mobility

-Efficient to run

-Fair for similar jobs

-Inflexible

-Lacks market fit

-Loss of ownership

Unit specific rewards

-Good market alignment

-Local ownership

-Flexible

-Restricts mobility

-Limited local expertise

-Less efficient to administer

Intermediate

-Flexible and efficient

-Best of both worlds

-Overly complex and confusing

-Loss of responsibility/control

Reward Principles in one firm

Strategy-driven - Use rewards more effectively to create strategic differentiation

Pay-for-performance - Provide incentive- Reward high performance- Variable cost flexibility

Market-aligned - Recruit- Retain

Total rewards - Create engagement- Enhance appeal and value- Provide personal choice

One firm - Fair, non-discriminatory treatment- Prevent internal barriers

Open and honest - Adult/adult relationships- Promote understanding

The one-firm principle

• We use a one-firm approach, wherever possible: • We have a firm-wide benefits package• We will work towards common terms and conditions such as

overtime and TOIL.• We will consider and manage the relationships of the rewards

for people with common skills and roles across the firm, such as support staff.

• We will have consistent eligibility criteria for variable pay across the firm and some consistency in its structuring.

• We recognise that we operate in some very distinct and divergent labour markets, and also the value of reinforcing team and business unit identity.

A “Mid Atlantic” Approach in a Scandinavian multinational

• “Our philosophy is to provide market competitive rewards to our employees worldwide through a flexible structure, addressing the needs for personalisation, empowerment and commitment”.

• Integrated Compensation Planning and Review System.• Country pay values based on global methodology but local

market data.• Global stock target/values.• Benefits principles eg DC pension, but cognisant of local

practice

Example of the reward policy balance: a major oil company 1. Top 1500

● Common bands, but local market pay ranges;● Common incentive approach (North America and ROW);● Local benefits but common approach for international staff

cadre;● Executive development.

2. Senior Managers (next 4000)● Common bands with job evaluation, local ranges;● Locally designed incentives to meet specific criteria;● Local benefits but common approach for international staff;● Executive development for high potential/international staff.

3. Other Staff● Core principles;● Local management;

The balance in HR roles and responsibilities in one employer

Level of HR Staff

Senior Management

Managers and Professionals

Staff

HR at Corporate HQ

Design, operation and control of pay

Guidance via principles and advice. Agree to and audit actual systems.

Guidance via principles

HR at Regional HQ

Administer pay Design pay systemsOperate for HQ employeesAdvise and audit for country employees

Agree to and audit actual systems

HR at Country Operating

Level

Operate and administer for local staff

Design systems, operate and administer

Types of Employees

Total rewards can contribute to that balance

• Can act as ‘fog’ and ‘glue’

• By providing a common framework within which necessary variations between different parts of the organisation can operate.

• By allowing irrespective of organisation structure for the ultimate level of segmentation:

individual choice.

Conclusions on the common/segmented reward balance

“Organisations are finding it essential to introduce a balance between the standardisation of corporate practice – to communicate a common strategy and provide corporate ‘glue’ – while at the same time being responsive to the needs for differences in terms of cultures, values and market practice”.

Professor Stephen Perkins

Reward strategy is all about managing the balance

Ease of Entry/Change

Ease of Entry/Change

Reward Strategy

Reward Strategy

Business Strategy/

Needs

Business Strategy/

Needs

Long Term Aims

Long Term Aims

Scale of Impact

Scale of Impact

Internal Employee/T

UNeeds/

Expectations

Internal Employee/T

UNeeds/

Expectations

Immediate Demands

Immediate Demands

External Pressures

• Market• Equal Pay• Legislation

External Pressures

• Market• Equal Pay• Legislation

Organisation needs

Organisation needs

Local Needs

Local Needs

… thank you

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