Reward Management and the Management of Change

1. Reward Management and the Management of Change EMBA 642 Management of Change Thornhill et al Chapter 7 Robin Snell

2. Reward Management and the Management of Change - Chapter 7 Coverage A. Case: Reward Management at Midland Mainline B. Strategic Reward Management & the Reward System C. Reward Management Values D. Reward Management Structures E. Reward Management Processes F. What has all this got to do with the Management of Change? G. Case: Reward Management at Finbank

3. Main messages (1) • Old fashioned Reward Management has an image of dullness and inflexibility • Reward 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

4. 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.

5. A1. Reward Management at Midland Main Line (1) • A high speed rail service co., set up in 1993, with 900 people • Tough 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.

6. 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.

7. A3. Reward Management at Midland Main Line (3) There is more flexibility • The 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 service • These changes have also required extensive training & development • The mgt want to move to 80% base pay, 20% variable pay

8. 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 quality Required Employee Behaviours e.g. flexibility & customer care Reward Strategy Co. Core Reward Values Reward System Process Reward Structure

9. B2. Reward System should be congruent with other systems Business Strategy Required Employee Behaviours Training system Performance Management System HRM Systems Reward Strategy Job Design Co. Core Reward Values Reward Structure Reward Process Org Structure Culture Reward System

10. B3. Elements of the Reward System Core Reward Values • Five key values that should be honoured (see next slide Reward Structure • How the system is administered; structures that put reward management values into effect • Reward System Process • How the system is communicated • Whether, and how, employees are involved in designing it

11. C1a. Reward Management Values - 1 Typical Reward Management values are • Paying for performance • individual performance related pay • team based rewards • Equity • sometimes a trade-off between external equity (alignment with external market price of the labour) and internal comparisons) • also procedural justice issues

12. C1b. Reward Management Values - 2 More Typical Reward Management values are • Employees sharing in the organisations’ success • profit sharing, gainsharing, etc (can be ‘distant’) • Employee involvement in designing the system • a relatively new idea • Combining financial/non-financial rewards (see next slide) • achievement & recognition (we all need this) • responsibility, influence, personal growth

13. C2. Reward Management Values - Reminder on the Limits of Money • No one quite understands the link between money and motivation. • Money may motivate people to behave in particular ways some of the time, in some circumstances • Herzberg reminds us that it may not be possible to motivate through money, but it is easy to demotivate, by getting the pay system wrong

14. 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 job • Plus a variable element related to one or more of: individual, team & org performance, and skill acquisition

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

16. 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.

17. 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 increases • Equal pay for work of equal value by men & women

18. D5. Reward Management Structures (5) • Closing the ‘gap’ in benefits between blue and white collar workers • Wider pay bands: room to reward ‘good citizens’ • lateral movement across the organisation without promotion • reward for multi-skilling & teamwork • continual rewards for continual improvement in performance

19. D6. Reward Management Structures (6) In order that employees may share in the organisations’ success, companies may adopt • Profit related bonus • Employee share ownership options • Gainsharing (employees get a share of cost savings required by company strategy and arising from productivity +/or quality improvements)

20. D7. Reward Management Structures (7) - 1 To apply non-financial rewards, the company may • Publish people’s successes in the in-house magazine • Give ‘thank you prizes’ e.g. a weekend trip overseas • Train line managers in appraisal, goal setting, feedback skills

21. D8. Reward Management Structures (8) - 2 To apply non-financial rewards, the company may • Apply job design theory to make jobs more meaningful & responsible, and where people can see the successful outcomes of their work • Skill 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

22. E1. Reward Management Processes (1) - Employee involvement in developing the system 5. Implement, and ongoing monitoring & evaluation by task force 4. Communication to those effected; plus training for supervisors and line managers 3. Pilot implementation of the scheme: why not pilot on the employees who were involved in (2). This pilot scheme is monitored, is it achieving its aims? 2. Task force of around 12 managers, supervisors & employees develops a detailed proposal to top mgt 1. Feasibility study: establishes the aims of the scheme

23. E2. Reward Management Processes (2) - Employee involvement in developing the system • The process may be preceded by an employee attitude survey • Employee involvement isn’t enough on its own: the system won’t work unless it is ‘technically sound’ • With 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 members • ‘Cafeteria benefits systems may allow individuals to choose their own combination of benefits (e.g health benefits, vs. more leave, vs. cash bonus).

24. E3. Reward Management Processes (3) - the Issue of Secrecy • Some companies won’t allow their members to talk about pay • The reward system may lack transparency • This may give management the flexibility they like, but may lead to rumours and lack of trust • Transparency 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.

25. 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.

26. 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

27. Reward Management and the Management of Change - We Have Covered A. Case: Reward Management at Midland Mainline B. Strategic Reward Management & the Reward System C. Reward Management Values D. Reward Management Structures E. Reward Management Processes F. What has all this got to do with the Management of Change?

28. Case: Reward Management at Finbank • Please read the case on pp. 209-212 of Thornhill et al and answer the 4 questions on p. 212.