HR Professionals by Rosario Longo HRM

Reward: Attraction vs Retention

2015-02-22T16:04:00.001+00:00

Reward definitely is one of the most fascinating HR topics and its significance is the more and more destined to top and firmly remain high on the business leaders’ agenda, especially on that of financial institutions boards.

The growing interest in reward management, however, is not purely scientific or rhetoric-based; employers are typically extremely pragmatic and what interest them the most is their organization gaining competitive edge and being successful in the market they compete in. Reward is important and is regarded as an essential aspect of modern management in that it is believed that appropriate reward management practices can effectually help employers to attain their intended objectives and ultimately strategy.

The debate over the alleged or potential motivating effects of reward can be considered as an ever-lasting, old dispute which has very often caused controversy. Individuals are different one another; yet, individual preferences and wants are also likely to change in the course of time. The exogenous environment and the constant technological advances clearly play a fundamental role in this sense, but also the national and global economic and financial factors have a remarkable impact. Last but not least, the demographic aspect is surely likely to gain a growing relevance on account of the ageing population phenomenon. Individual needs are becoming, by extension, the more and more dynamic. The reward packages designed and developed by reward managers must aim at meeting these needs so that, as it happens with marketing, employers have to offer to their employees not the reward packages they like to offer the most or are most comfortable to offer, but rather the reward packages their employees would like to receive the most.

When designing reward packages reward professionals have to consider what final aim they want to pursue in practice.

There is a rather wide consent to consider financial rewards effective to attract new talents and more in general new staff; but it is also widespread the conviction that this magnetic effect is due to vanish into thin air fairly soon. This entails that, whether an employer needs to recruit an individual from the external environment to fill a new role, this can successfully have recourse to financial reward as an appropriate leverage to attract and lure quality people, safe in the knowledge that this will not be enough to induce the individual to do his/her best over time. Before recruiting a new employee, reward specialists should not just care about the reward package to offer to the most suitable candidate, but should also have clear the plan of action necessary to retain this in the future, namely the design and composition of the financial and non-financial reward package.

Employers necessarily need to be far-sighted; they are aware that in order to attract skilled individuals there is the need to offer these appealing financial reward packages, which they are usually willing to offer, but it has also to be clear from the outset what reward packages they have to offer to retain these individuals in the future and receive their best contribution to the attainment of the business strategy over time.

This is clearly not an exclusive reward matter. Whether, for instance, the person would not fit the organizational culture or has misunderstood the content of his/her role, there will not be reward package worth to retain the individual. In such circumstances, it would be better recognize the recruitment mistake, bear the pointless waste of money associated with it and with the induction process and start back seeking for a genuinely suitable candidate.

The fact that employers should plan for each high-flyer an appropriate reward package enabling them to both attract and retain these, does not mean that reward specialists have to prepare a plan of salary increases for the newcomers. The effect of money would not in any case be long-lasting and, unless there would not be the employer availability to cover individuals with cash, which sooner or later would reveal to be in any case insufficient, the retention objective has to be clearly pursued having recourse to other means.

Inasmuch as there is a wider consent amongst practitioners and academics on the effectiveness of financial reward to attract new staff, there also is a rather widespread agreement on considering non-financial rewards effective and, in any case, much more effective than financial rewards to motivate and engage people. Engaged and motivated people are clearly more likely to genuinely and spontaneously go the extra mile and contribute to organizational success.

In order to retain people employers and reward professionals should not therefore insist on the financial components of rewards, but should rather identify and develop appropriate and sound non-financial, intrinsic forms of rewards. These components of the overall reward package will contribute to individuals working with dedication. Non-financial rewards will also contribute to induce individuals to develop a feeling of involvement and participation on the organizational success and to increase in turn their sense of citizenship.

All in all, it clearly emerges that total reward approaches are the most, or rather, the only suitable approaches employers and reward managers can have recourse to in order to retain and keep employees motivated. Although the role of money may become of secondary importance in order to motivate people during the employment relationship, money will invariably continue to talk. The importance of financial reward, by extension, as to never been neglected or overlooked by employers. Individuals will invariably associate with money a relevant degree of importance and, even though they might not constantly think about financial rewards when performing their day-to-day activities, they could anyway perceive a pay increase as something they deserve or as a need. To this extent two elements play a particularly remarkable role: pay decisions fairness and the individual general financial circumstances.

Despite employers could be happy with their financial reward package and their daily activities, these could feel to be treated unfairly by their employer whether this should grant unjustified and unsustainable pay increases to some individuals. The knock-on effect produced by such circumstance can be extremely detrimental for the business and risks seriously and irreversibly jeopardising the relationship of trust established between employer and employees.

Internal fairness clearly represents a critical factor, but the external labour market and the pressures coming from it have to be duly taken into consideration too.

It is also important to clearly explain employees the worth of their overall reward package composition taking also into consideration, for instance, benefits and deferred benefits. Some employers may offer more generous pay, whereas offering very poor benefits and pension contributions. It is crucially important that these aspects are constantly and clearly communicated to staff and to external candidates when offering a job.

Financial rewards will also invariably be in the mind of individuals as long as these have not reached somewhat of a financial comfort zone. As long as individuals will be struggling to pay their monthly bills (utilities, mortgages, children school fees, public transport season tickets, etc.) it is hardly imaginable that these could pay lip service to the importance of their pay. Sometimes, this circumstance can also give rise to undesirable family tensions, which can in turn unconsciously affect employee performance and behaviour at work.

Despite money may not be considered a powerful motivator, its hygiene factor definitely still counts and has to be properly and constantly taken into consideration by employers and reward managers.

Considering financial and non-financial rewards separately the ones from the others, it could be concluded that financial rewards would be the winners of the attraction contest, whereas non-financial rewards would be the winners of the retention tournament. However, both of them clearly play a significant role in both competitions.

The synergetic, multiplicative effect produced by financial and non-financial rewards used in combination, can enable employers to attain in practice their intended objectives, namely to attract and retain quality staff. Total rewards approaches are key in this sense. This does not clearly mean that attracting and retaining quality individuals is a straightforward task. People wants and preferences are subject to change over time. Yet, many other employers strive to recruit high-flyers and quality individuals.

Using fairness, consistency and integrity is of paramount importance, but genuinely considering and taking into account employees needs is of crucial importance too. It is essential first and foremost to know employees and their needs; this is the starting point, differently any employer action and initiative would just reveal to be a waste of energies and resources. It would be like filling stores shelves with products that the manufacturer considers outstanding, but which customers do not like so that these remains and are destined to remain unsold in the stores shelves.

Extract from:

Longo, R., (2014), Rhetoric and Practice of Strategic Reward Management; Milan: HR Professionals.

Embedding innovation into organizational culture

2015-02-11T20:38:00.001+00:00

The significance of human capital is paramount for employers in many respects; it is essentially thanks to the contribution of its employees that organizations attain their intended objectives and ultimately strategy. However, the idea of human capital should not be limited to the business talents and high-flyers. In order to organizations totally benefit of the contribution which can be potentially made by their usually varied and diversified employee population, these should encourage and elicit the participation of staff at all levels. This will in turn show employees that their employer genuinely values their contribution and participation regardless of their rank in the organizational hierarchy.

The world is nowadays subject to a constant process of change whose pace is increasingly accelerating. Yet, organizations have become more and more sensitive to a higher number of exogenous factors, of different nature, which may either provide these great opportunities or pose serious threats. It is therefore evident that the capability to adapt and change strategies accordingly, more often than not at very short notice, has to be considered by employers as a prerequisite for survival at worst and success at best.

Without a doubt, organizations ability to anticipate and introduce new trends, products, services, approaches and procedures would enable these to gain competitive advantage. Notwithstanding, this has not and cannot be intended as an effort or a process limited to any given period of time. In contrast, by reason of the harsh competition existing between organizations of the same industry and sometimes between organizations of different industries, this has to be indeed meant as a never ending process.

To be successful and constantly come up with brilliant, brand new ideas, which can be subsequently developed and transformed into new useful products or services or into more productive and efficient processes, the support, involvement and participation of all of the employees has to be sought and pursued in a stable unwavering way, insofar as being perceived by all of the employees as an activity included into their job descriptions; hence, as something they have to regularly devote time and thoughts as a matter of course.

This unquestionably is a difficult feat to achieve for every employer in that individuals might perceive this activity as an additional task vis-à-vis those typically, directly required by their job. The sole effectual way to instil innovation into individuals and induce these to truly dedicate themselves to the activity of identifying and developing new ideas is to embed innovation into a pervasive organizational component, that is to say culture.

Organizational culture is traditionally concerned with the business shared values and beliefs, from which the behaviour, which is thus considered as the business norm, flows. So powerful is nowadays deemed to be the impact of business culture on employee behaviour that it is recently often associated with the distinctive way individuals behave, perform their activities and approach decision-making in the workplace, that is, the “way we do things around here.”

The pervasiveness and penetration of culture through an organization and the strong influence it exerts over individuals leave no doubt to the circumstance that whether employers want to constantly pursue an objective, especially whether this is sorely associated with employee behaviour, aptitude and the way individuals approach decision-making and problems, the means they identify to attain this end has to be embedded into organizational culture.

Firmly and stably including innovation into corporate culture can be also considered as a mandatory step to avert that innovation may be hampered by culture. Organizational culture can in fact make or break any change initiative an employer wishes to introduce and implement within a business. Ensuring that innovation is well understood, that it is genuinely accepted and that it actually inspires every individual action and behaviour acquires hence a particularly remarkable importance.

In order to consistently and effectually introduce and embed innovation into organizational culture, nonetheless, employers should from the outset have clear ideas about what they intend as innovation and why they consider crucially important their business culture being underpinned by this value.

What innovation is

The idea of innovation is habitually associated with the making and development of new products and services: different from the existing ones, capable to meet an increased number of users’ needs, performing better and easier to use, store and carry. The constant technological advances have and are indeed favouring this process so that in many cases the application of the latest technology to the existing products and the provision of services making use of new technologies have enabled employers to essentially introduce in their relevant market innovative products and services. Most importantly, technology can clearly help employers to develop and design unparalleled, completely new products.

Innovation, notwithstanding, is not exclusively concerned with products and services, but also with processes and procedures, which can be designed and developed to the benefit of the person, unit, business or community at large (Farr, 1990). As stressed by Martins (2000), the concept of innovation is also strictly contextual-related; more in particular, a new idea can be actually considered as genuinely innovative whether regarded as such within the specific setting and, it could be added, by the individuals to whom it is directed.

Identified the different extents of innovation and underscored the fact that innovation depends on the circumstances, it is also crucially important to ensure that innovation serves the business cause. New ideas have hence to represent for employers valuable opportunities enabling these to effectually pursue their intended strategy (Gaynor, 2002). Once again, the context and the specific circumstances came to play; what is considered innovative today might become obsolete or unsuitable tomorrow as a consequence of a strategy or environment change, never mind technological advances. To ensure that employers’ expectations in terms of innovation are constantly met, these need hence to be relentlessly monitored and the consequent initiatives and actions adapted and adopted accordingly.

The circumstance innovation strongly supports an employer strategy and essentially enables this to gain competitive edge, has accounted for innovation also being essentially perceived and seen as an, it could be argued innovative, approach to problem solving.

Innovation does not derive from the development and introduction of new technologies only; new ideas can in fact also be identified by creatively adapting, improving and enhancing current and even past technologies.

Why it is necessary to embed innovation into organizational culture

There is indeed a whole range of reasons employers should introduce innovation as a strong element of corporate culture. As suggested by Voelpel et al (2005), an innovation-based organizational culture should first and foremost enable employers to successfully compete in their market in a durable and sustainable way. Albeit innovation is crucially important for all the employers, irrespective of the industry they operate in, in some industries, as for instance it is the case of the high-tech and information technology organizations, innovation plays an even more significant role, insofar as employers need imperatively to innovate, seriously risking otherwise to disappear (Angel, 2006).

Encouraging continuous innovation is essentially important to support the business over time and enable the organization to gain and maintain competitive edge. This unremitting process clearly entails remarkable efforts, which would be pointless to think could be made by a limited number of employees who, by reason of their formal role, may be considered as the only ones suitable to take the challenge up. Including innovation as a founding pillar of culture ensures that every individual takes up the challenge and does his/her utmost to contribute to a constant innovation process (Kenny and Reedy, 2007).

As mentioned earlier, embedding innovation into culture can also help individuals to come up with new, innovative ways to outline problems and identify solutions (Lock and Kirkpatrick, 1995). Employers are in fact increasingly considering embedding innovation into organizational culture to promote and encourage problem solving within their business. One of the main reasons for managers usually complaining about their direct reports relates to employees’ readiness to represent the issues and difficulties associated with their tasks and duties, and their lack of ability and eagerness to come up with, and suggest, appropriate and sound solutions to overcome these. Albeit habitually this is not obviously the sole reason why employers decide to include innovation amongst their organizational values, it cannot be denied that developing and rooting within a firm a strong employee aptitude to problem solving would clearly represent a massive advantage and asset of its own accord. Managers at all levels could thus focus on other issues and employees would find their job and daily activities definitely much more significant and compelling, increasing their self-esteem and deriving from their job a higher value in terms of intrinsic reward.

The concept of innovation intended as a means to foster problem solving within a business is actually much more powerful than it might apparently seem. Whether employers are keen and long to come up with new ideas, products, services, processes and procedures this is indeed invariably associated with their need to solve current problems or anticipate and avoid likely future ones. Regularly introducing in the relevant market new products and services would enable organizations to stay ahead of the competition, whereas developing more efficient and effective processes and procedures can enable these to control variable and fixed costs and to resist and insist thus in the market.

Employers, those who strive for innovation included, unfortunately also constantly wait in ambush in order to be ready to copy and replicate the innovative ideas developed by their direct and indirect competitors as quickly as possible. This actually is one of the main reasons, arguably the main reason, for innovation being all too often fairly short-lived. This is indeed also the motive why innovating is an everything but straightforward process and should be as far as possible invariably coupled with the concept of “difficult to replicate” (it can hardly be used the term “impossible”). Notwithstanding, all of that should not deter employers from struggling for innovation. Copying and replicating also require time and some efforts and sometimes also be the cause for dismal failure. Yet, introducing in the market innovative and original products and services definitely contributes to the employer brand image, in addition to the consumer brand image. Findings of an investigation carried out in the health sector, for instance, revealed that technological innovation is considered by many hospitals’ directors as an effective means to increase both “hospitals reputation and brand image” and improve the institutions marketing efforts credibility (Tuan and Venkatesh, 2010).

Innovation and change

Whereas change does not necessarily imply innovation, things in fact changes but not necessarily in an innovative and creative fashion, innovation clearly entails change. Before fostering innovation, organizational culture should hence first and foremost support and ensure individual readiness to change. This aspect is indeed not of negligible importance; by contrast, it is indeed of pivotal importance and it is based on the same reasons why innovation, in order to become part of everyday employee behaviour, has to be embedded into culture. Whether in fact an employer should attempt to embed innovation into the corporate culture of an organization where change is habitually resisted by employees, innovation would never ever be embraced in practice by individuals. Culture, rather than make, would in this case break the change initiative bid. Employees are instinctively wary about change and use to oppose and resist it in that perceived as threatening their current status quo and forcing them to leave their comfort zone. Innovation can potentially be perceived as a dimension of change in the extreme so that whether individuals are not acquainted with change these may be likely to a fortiori resist innovation.

Employers and HR professionals need to pay extra care to this aspect and, before making plans to firmly introduce innovation amongst the founding pillars of the business culture, should previously ensure that individuals are supportive of and open to change.

The innovation continuum

Embedding innovation into organizational culture means openly recognize and communicate that this value has a central and special meaning for the employer. In order to foster innovation the support and encouragement of managers is clearly paramount, but the most important features of an organizational culture inspired by innovation are focus and constancy, which have to never ever fade or weaken.

Since innovation requires a continuous investment in terms of efforts and resources, employers should decide from the very beginning how they want to support the process, safe in the knowledge that promoting innovation by means of organizational culture entails the involvement of the overall employee population and not, for example, the empowerment of the research and development unit only.

The first decision employers need to make concerns hence the pace they want to keep in terms of investments over time. Employers may for instance decide to devote a constant level of resources (Table 1), slowly increase (Table 2) or decrease this over time, or to have recourse to a combination of all of these approaches. This decision should be indeed influenced by the return the organization is expected its investment to yield. It is hardly imaginable that the higher the investment necessarily the higher the return. It clearly also depends on the circumstances; whether no substantial changes have been implemented within the business in terms of products, services, processes and procedures during the last few years, which may account for the employer believing that there are many areas which could benefit in the short to mid run of the overall employee population involvement in the quest for innovation, the investment could be initially higher and subsequently decrease and stay constant over time. This may also depend on the level of the employee response and on how this varies over time. Employers may also decide to occasionally increase their investment to reinvigorate and boast employee participation whether and whenever this should weaken.

Organizations should better decide the investment approach they want to use to sustain innovation from the outset, but this does not clearly mean that plans cannot be changed accordingly depending on the results yielded and the return on the investment generated in practice. In theory, it is likely that more significant results are produced initially, whereas subsequently the frequency results are yielded might occur every so often. This is clearly an area which would deserve a specific empirical investigation. Nevertheless, irrespective of the frequency successes are attained, employers should be well-aware that these feats can only be achieved by means of a constant, unrelenting process and thanks to the constant efforts and dedication of all the employees. What matters the most is therefore keeping constant staff focus on innovation and create excitement about the topic. Needless to say, accomplishments and successes have to be properly celebrated and contributors rewarded.

Longo, R., (2015), Embedding innovation into organizational culture; Milan: HR Professionals.

Sometimes employees leave their employers not their managers

2015-01-31T16:51:00.000+00:00

The development of effectual employee retention and most of all of talent retention practices, definitely represents one of the subjects firmly high at the top of business leaders’ and HR directors’ agenda. The process is virtually invariably the same: individuals very keenly and enthusiastically join the new employer and later on disillusioned leave this.

Employees leave their employers for a whole range of reasons which can be broadly grouped into two different categories: endogenous-environment- and exogenous-environment-related.

Internal-environment-related reasons

One of the reasons, arguably the most recurring reason, for employees leaving their organization is the business management, more specifically their line manager.

The role played by managers

Once candidates have been identified as the best fit for the role and officially appointed to the job, the employer representative with whom these establish the stronger and most frequent contact within the organization unquestionably is their line manager. The establishment of a good relationship between managers and employees, however, does not invariably reveal to be smooth sailing. Whenever managers do not succeed in building and developing good relationships with their direct reports in fact the latter tend to become the more and more ill at ease with the former in particular and within the workplace in general. Consequently, disappointed employees start making plans to leave the organization as soon as they can. This circumstance has been properly summarized by Buckingham and Coffman (2005): “Employees leave their managers and not their employers”, and rephrased by MacLeod and Clarke (2009) who suggested that in actual fact individuals join organisations, but leave later on their managers.

It doesn’t go unnoticed that all of that clearly occurs at the expenses of employers and to the detriment of the regular unfolding of their business activity. It is in fact very likely that employers have carefully and arguably not effortlessly put in place all the resources deemed necessary to attract and recruit the right individuals. Albeit different from employer to employer, it is an axiomatic fact that the cost of the recruitment and selection process is invariably high.

The sub-factors accounting for individuals deciding to leave their employer by reason of their manager may be in turn associated with different circumstances. Also in this case these may be grouped into two main different categories: on the one hand can be included the causes associated with managers’ leadership style; whereas on the other hand those linked to managers’ inability to improve job design and “give individual a good job.”

Leadership style

Increasingly, individuals pay attention to the way they are treated by their managers and tend to associate with this aspect a growing importance. The leadership style adopted by managers needs hence to be appropriate and has to fit both the circumstances and the business culture. The most undesirable situation, however, is when managers adopt no leadership style whatsoever and, even worse, when these totally lack of style when interacting with their direct reports.

Employee involvement and participation

With some exceptions, employees by and large aim at performing interesting and fulfilling jobs. It should really be unlikely that individuals may decide to leave an organization whether their managers organize and design their staff work in a way that makes it significant, compelling and varied and involve employees in this process stimulating and favouring their active participation. As Herzberg (1987) used to say: “if you want people motivated to do a good job, give them a good job to do.”

Not really an easy task

The role of managers however is everything but straightforward. Constantly finding new and more effective ways to improve processes and the way the job can be performed is clearly easier to say than to achieve in practice. Even more so when as it usually occurs managers also strongly contribute with their practical work to the final outcome produced by their unit.

Indeed, individual involvement can reveal to be the ultimate means to the end. Whether employees are involved and made aware of the overall process which leads to the production of the final outcome, these can actually help managers to identify effectual options and sounder and more appropriate solutions.

Forced to move out of the comfort zone

Albeit managers represent the most common cause for employees leaving an organization, this is not clearly the only one motive for employees making such a decision.

Individuals may also decide to leave their employer by reason of some undesired changes which they perceive as forcing them to leave their comfort zone or, more in general, because they feel that organizational climate has drastically changed, or rather, worsened, insofar as to perceive as irreversibly altered their appreciation of the working environment. Such new circumstances may actually sometimes be the fruit of line managers’ initiative, but most of the times these changes are introduced on request of the company top-management and board.

In such circumstances individuals perceive the workplace somewhat of hostile and no longer enjoyable as it was previously used to be perceived. The damage suffered is at this stage considered irreversible and the action of leaving the organization necessary.

Lack of opportunities for growth and development

The content of the unwritten psychological contract has changed over time; nowadays, individuals want to perform significant and fulfilling jobs and are hence thirsty for growth and development. Whether an individual should realize that s/he is performing a dead-end job and that s/he will never be offered opportunities for growth or development, it is very likely that this leaves.

External-environment-related reasons

Albeit all too often the main reasons for employees deciding to leave their current employer are associated with the endogenous context, there are indeed some other additional causes prompting individuals to leave a company.

In some cases, employees can be lured by the objectively captivating and challenging employment offers coming from the external environment, which can actually provide these real opportunities for development and growth that could not even potentially be offered by the current employer.

Especially in the case of a tight labour market, it should not really come as a surprise learning that a talented employee has received an irresistible offer from a different employer. What worse, in such circumstances individuals may also decide to leave very quickly the organization in order to avert to miss the boat.

It is not a matter, or rather, not exclusively a matter of value proposition, that is, of worthiness of the reward package offered; the chance to take a genuine new challenge up, usually associated with a growing level of responsibility and autonomy or with the immediate involvement in a prestigious or ambitious project, can definitely and objectively justify an individual decision to leave an organization; albeit not triggered by any endogenous-related reason.

The international perspective

Sometimes the decision to leave an employer can also be based on the employee desire to move and work abroad. Individuals are the more and more willing and even eager to relocate in a foreign country and experience new lifestyles. Furthermore, whereas for centuries the only attractive places where to move internationally were mainly located in North-America, Australia and Europe, nowadays the appeal and seduction of other areas, especially of those located in the South-East Asia, are remarkably helping big corporations to expand their “offering” and contributing to make it more attractive relocating abroad to a constantly increasing number of people.

Also in this case, an individual decision to leave his/her current employer is not triggered by any bad feeling toward this. It goes without saying that whether an employer should be aware that some of their staff would be eager to relocate and work in a different country where the employer has a branch, should an opportunity arise, this should be better previously discussed and eventually offered to an internal employee, rather than being offered directly to an external applicant.

Finally

It can be concluded that when an individual leaves his/her employer for internal-environment-related reasons this is due to causes which are actually under the employer direct or indirect control. This clearly entails that the employer could have averted this type of undesired event to occur.

It is however hardly believable that once an individual has decided to leave, the employer might actually persuade this to stay so that organizational climate and in some cases individual attitude toward the employer should be investigate and monitored as a matter of course in order to prevent unwanted occurrences to happen: prevention is invariably better than cure.

By contrast, whenever individuals, for talented and significant these may be for the organization, decide to leave the business by reason of objectively justified grounds, that is, a genuine challenging opportunity coming from the external environment, the employer has nothing to regret and to reproach itself. The only exception being whether this could have actually offered a new challenging role to the individual but didn’t.

When reward comes to play

The worthiness of the reward package received by individuals can, in some circumstances, causes, reinforces or supports individual decision to leave an organization. Also in this case, this drastic decision can be justified or be based on endogenous-context-related or exogenous-context-related grounds.

Internal context

As the equity theory teaches us (Adams, 1963 – 1965), individuals build and develop expectations in terms of reward in the workplace. These expectations are essentially based on the assumption that reward is commensurate with the output yielded by each individual and as such equitable. The tenets at the basis of the equity theory are in turn reinforced by the “distributive justice” theory (Leventhal, 1980), which lays great emphasis on the role of managers and more particularly to the fairness they should use when making decisions about their direct reports pay.

Essentially, endogenous-environment-related pay issues are strictly linked to bias and unfairness. Habitually, individuals do not accept discrepancies in pay levels whenever these are not justified by any means, whereas employees are habitually totally willing to accept these whether the individuals receiving higher levels of pay are objectively contributing more to the organizational success and yielding better results.

Employers and managers should hence pay particular attention to this aspect. These theories clearly apply not only to talents but also and to some extent mostly to the overall organization human capital. Whether employees are performing and behaving as expected by the employer, losing them would just represent a waste of time to replace these and of money to select and train the newcomers.

External context

Ensuring internal equity, and hence not equality, can help employers to retain the existing staff, but can hardly help these to contrast the pressure eventually coming from the exogenous environment.

Whether in fact the internal pay rates would not be in line with the rates characterizing the relevant labour market, retaining current employees could just reveal a sorely tricky feat to attain, never mind attracting new quality individuals.

Market pricing and, where applicable, market forces have to be hence invariably kept into due consideration. Whether individuals should realize that, irrespective of the fairness applied internally, their pay levels are sensibly lower than those offered in the market, is it is very likely that, especially whether the labour market is tight, these will leave the organization.

In order to avert this undesired event to occur employers, by means of reward professionals, should constantly monitor the external labour market and the trends characterizing it. Whether during this activity a gap should be identified, this should be properly investigated and the pay of the people filling the relevant positions eventually reassessed.

To identify what the real reasons for employees leaving an organization are, is paramount to gather and collect the necessary data. Exit interviews are definitely the best tool to gather this information and help employers to identify appropriate and effective solutions to contrast the phenomenon.

Rhetoric and Practice of Strategic Reward Management

Longo, R., (2014), Sometimes employees leave their employers not their managers; HR Professionals, Milan [online].

Posting, delegation or secondment: is it invariably necessary?

2015-01-11T12:43:00.001+00:00

Posting, delegation and secondment are the terms habitually used, according to the different geographical areas and regulations, to refer to the process of temporarily transferring an employee (or several employees) from an organization – posting organization entity – to a different business – hosting organization.

The prime objective employers intend to pursue having recourse to this means is to regularize and to some extent justify the circumstance that an individual employed by a different organization, the delegating company, may perform his/her working activity for any given period of time in an organization, the hosting company, of which this is not an employee. Employers can have recourse to this approach for a variety of reasons. The delegating company can assign one or a number of employees to the hosting company in order to these, for instance:

- design, develop and implement specific projects,

- provide the training necessary to enable the staff of a purchasing company to properly use a particularly complex machinery or device,

- execute some temporary tasks requiring a degree of expertise and professionalism unavailable within the hosting organization entity.

This solution is revealing increasingly appealing to multinational companies and big corporations to support the setting and development of new operations in different geographical areas and the implementation of global-wide change projects. The recourse to this option is also particularly frequent amongst employers of the same group to implement internal and global mobility practices, provide individuals opportunities for professional growth and development and to ensure the required expertise to be in the right place at the right time.

Traditional model

The secondment of an employee typically entails this to physically perform his/her working activities in the premises of the hosting organization. Notwithstanding, the posted person invariably remains an employee of the delegating organization, is thus this which continues to be in charge of the seconded individual payroll, carrying on paying the related social security contributions and National Insurance costs, and which continues to exercise the disciplinary control upon the posted employee.

The labour costs and the additional expenses eventually faced by the delegating employer (travels, accommodations, meals, etc.) can be rebilled by this to the hosting company whether the two parties, as usually happens, previously sign a service level agreement (SLA). In some cases, a written service agreement is considered by the legislation as a necessary prerequisite for the transferor being able to rebill the costs incurred by this to the transferee. Yet, with particular reference to this aspect, it is crucially important to acquire full knowledge of the local legislation in order to find out whether these costs have to be rigorously rebilled to the hosting employer without adding any mark-up on top of the costs actually incurred by the delegating employer.

Posting represents by definition a temporary arrangement whose duration typically depends upon the reasons for the employee having been posted and hence on the scope of the assignment. Whether the motive for posting an employee is represented by the completion of a particular project, for example, the employee will continue to perform his/her work at the hosting employer premises until the project has been completed. Nonetheless, some regulations may provide for posting not to exceed a given time limit.

Since posting has to be intended as a temporary arrangement, some rules (as, for instance, in the case of Europe, Regulation – EU – No 465/2012 of the European Parliament and of the Council of 22 May 2012, amending Regulation No. 883/2004) may provide for this option not to be used to replace a previously posted person whether this was filling the same position, for the same intended purpose. In order to avert undesired issues, before taking any initiative employers and their employment law specialists should hence ascertain whether such limitations are provided for by the local legislation, whenever the assignment has to be executed in a foreign country.

The employer and the posted employee invariably sign a written agreement in which are detailed the main terms and conditions of the assignment. This implies that it has to be shown in the agreement the term of the assignment (or its estimated duration), the travel and eventually the living away from home allowances, the reason for the individual secondment and the activities the posted employee is expected to perform.

This document has to be clearly prepared with extra care. According to the circumstances and whether considered functional and advantageous by the employee, this could use the written document to support his/her right to permanently stay on the new post and be employed by the hosting company. Clearly, this is not only a matter of what it is put in writing; also the practical execution of the agreement has in fact to be fully compliant with the local legislation to avert any future undesired consequence.

Leadership-transfer-intended approach

Employers are increasingly adopting delegation with the only aim of transferring the individual(s) functional lead from the transferor to the transferee. According to this method, employees continue to report in solid line to the manager of the delegating organization, but these actually report in dotted line to a manager of the hosting company, who essentially gives delegated employees the working instructions.

This approach is more often than not used by employers of the same group of organizations with the main objective of concentrating in a single entity the control and management of a particular activity and ensuring that the related actions and initiatives are performed and implemented uniformly and consistently across all of the organization entities involved.

Differently from the traditional approach, in this case employees will not physically perform their working activities in the hosting company, but continue to perform these in their original employer premises. By reason of the legal constraints possibly imposed by the local legislation, in such a case formally posting, delegating or seconding an employee could hence reveal to be unnecessary or even counterproductive.

Employee posting may be subject to a series of legal constraints and limitations provided for by two main categories of regulations, namely lease of employees and social security contribution payment rules. Lease of employees regulations aim at preventing that organizations not meeting the legal requirements set by the local legislation and not having been expressly accredited by the specific authority to take up this activity may lease personnel to other businesses. Whether a law regulating the lease of personnel should be in place, in order to eventually be able to relatively easily support posting as being truly “genuine”, and hence legal, employment law specialists must do their best to clearly differentiate posting from the lease of employees. For instance, whether an organization should perform as its core activity the lease of personnel this would clearly charge a mark-up to the businesses requiring its services. To clearly tell the two approaches apart, the transferor should therefore invariably rebill to the transferee the real costs only, as recorded by its accountancy office, which are as such well-documented.

In some countries, legislation may impose some restrictions to the directive power exercised by the hosting company, providing for this activity resting with the posting employer. From the applications of the EU regulation and court case law across the European countries it has emerged, for instance, that the power to determine the nature of the activity performed by the posted employee must rest with the posting employer. This does not entail that the delegating organization has to necessary give posted employees detailed instructions about their daily duties and the way these have to be performed, but that the final outcome, both in terms of product and service, has to be defined by this (Social Europe, 2012). This requirement is clearly consistent with the legal tenet, introduced in some countries, according to which posting has to be invariably implemented in the interests of the delegating employer.

An additional aspect which needs to be carefully and duly taken into consideration regards the payment of social security contributions. Posted employees may be covered by their home social security system for up to a given number of years (in Europe at large up to two years). Legislation may also provide for a break, whose length of time is expressly specified by the local regulation, before the same individual may be posted anew to the same employer.

In the event the delegation period should last longer than the maximum period provided for by the local legislation, it might be possible to request an exemption to the local Authorities. The exemption is essentially aimed at obtaining an extension of the posting period without prejudice to the posted employee rights in terms of social contributions payment. The length of the extension varies according to the agreement ratified between the relevant Authorities.

As we have seen, when employers have recourse to secondment with the only aim of transferring the individual functional lead, the seconded employee is not actually transferred and continues to regularly work in the transferor premises. In such cases, rather than having recourse to a formal option requiring an agreement to be signed with each individual, subject to a precise and sometime restrictive regulation which might additionally be the object of difficult practical implementation vis-à-vis the objective the employers want to attain, the transferee and transferor should rather consider not to formally have recourse to posting, secondment or delegation. In such circumstances a matrix approach might reveal in fact to be far more appropriate and effective in the light of the intended objective. Rather than formally delegating a number of people, the instruction necessary to ensure and monitor that things are done as expected, that is, according to the standards and procedures set and decided by the transferee, could be given to the executive or senior manager of the transferor relevant function or department in order this to give them in turn to the employees concerned.

This approach would be sorely similar to a matrix approach according to which the functional lead is assigned to the person(s) in charge of the specific activity, for instance, at central level. Indeed, the most significant benefit of this option is represented by the circumstance that this does not require the ratification of any formal written document. Yet, rather than involving in the process a considerable number of people, this approach would require the involvement of the executive or senior manager in charge of the specific activity in the local organization entity only.

As discussed earlier, in order to justify the rebill of the labour costs, the implementation of this approach only requires the subscription of a service level agreement between the two employers concerned, whereas no delegation agreement will be signed by the potentially delegating employer and its employees.

The executive or manager of the potential transferor will be in charge to discuss the plan of action and next steps with his/her potential transferee counterpart and give instructions locally accordingly.

This approach offers indeed considerable advantages in terms of:

ü Flexibility – whether some employees should not be available for a given period of time, different individuals could cover without any additional administrative burden;

ü Implementation ease – no discussions have to be held with the individuals identified for the assignment and no delegation letter needs to be signed;

ü Lack of time restraint– the implementation of this arrangement is not subject to any time restraint in terms of duration and hence renewal;

ü Considerable reduction of legal risks – the introduction and execution of a functional matrix approach is utterly unlikely to give rise to any claims. The potential transferor manager(s) will keep constant contact with the functional leadership by video, call conference and travel when required. A functional internal reorganization might eventually be implemented by the potential transferor in order to allocate the most suitable manager to the different units and ensure the process to work smoothly and flawlessly.

The SLA-exclusively-based approach, notwithstanding, does not represent a solution completely immune from drawbacks. On the flip side, this approach may, for instance, entail a looser control over individuals compared to the traditional method. The circumstance control is exerted elsewhere by means of an in-between manager, that is, indirectly, might risk to pose some difficulties during the execution phase. Nevertheless, training sessions, video conferences and other similar activities can occasionally be held to update and provide direct information to the employees concerned on the technical procedures and topics associated with their assignment.

Service level agreement distinguishing features

The agreement entered into by the two employers merely describes the provision of a service, it is not intended to contain the employees’ identification and details, and does not thus require the employees’ agreement and signature.

The duration of the service provision can be varied at relatively short notice, without any prejudice to the people performing the activities linked to the agreement. This may include the automatic expiration at the end of the pre-set term, unless renewal is expressly agreed at a given time before the agreement expiration date.

Another important factor is ensuring that the number of employees in charge of delivering the identified services is consistent and relevant to the scope and extent of the service provision.

The impact of the different possible layers of legislation

As discussed in several occasions earlier, when involving employers located in different countries, posting, secondment or delegation can be subject to a number of constraints coming from different levels of legislation. Some limitations can be provided for by the national legislation, whereas other restrictions can be imposed at European and global level according to the provision regulating this subject in the different countries.

It has to be stressed the circumstance that the level of concern emerging from the different legislation layers varies and widens proportionally according to the extended geographical application of this option.

Whereas at domestic level the main legal concern is typically represented by the respect of some procedural requirements, at European level the legislator concern rises at National Insurance and social security contributions payment level. The aim is clearly that to protect employees from the risk that a too long-lasting assignment abroad may jeopardize their pension entitlement and rights.

Employers have to be prepared to deal with additional rules whereas in the countries they are operating a specific legislation regulates the lease of employees.

At global level, in addition to all of the constraints which can exist at local level, employers have to be ready to manage secondment also in the light of the tax legislation applicable both to the employee and the employer in the country of the hosting company. With specific reference to the hosting employer location, organizations need to gain all of the necessary information about the tax legislation and eventually the local government assumptions about the circumstance that employee posting might be considered as a permanent establishment, that is to say as a means for the employer setting a local branch in the foreign country.

It clearly transpires that the wider the geographical extent of posting, the trickier this it to manage and the wider and deeper the impact of legislation. Whether an employer has an interest in posting an employee abroad and cannot count on a sound legal expertise internally, this should not hesitate to having recourse to professional legal advice in order to ensure that all of the requirements provided for by the local regulations are fully met. The legal implications associated with posting are in fact sorely wide; as we have seen, it is not only about employment law legislation, but also about tax and commercial law regulations. Professional legal advice can definitely prevent employers to suffer the undesirable and unpleasant consequences which can arise from not strictly observing the local regulations.

Longo, R., (2015), Posting, delegation or secondment: is it invariably necessary?, Milan: HR Professionals [online].

Employers are constantly changing, trade unions are not

2014-12-28T19:42:00.002+00:00

It is an axiomatic fact that the pace at which the world has evolved and is still changing is becoming increasingly fast. Technological advances, a restless globalisation process and governments intervention in many aspects directly and indirectly associated with the businesses activities are continuously prompting employers to change and adjust their organization’s structure and strategies.

The pressure coming from the exogenous environment can take different forms and shades, but for employers the biggest challenges and threats are indeed those posed by the market or global market where these compete, that is, by their competitors.

The frequency at which new entrants appear in any given market and mature organizations are forced to leave this is constantly increasing. Organizations have thus to simultaneously respond to the pressure coming from a world in constant evolution and the attacks launched by competitors, which are clearly forced to adapt to and possibly anticipate the future trends, too. Individuals deciding to set and run a business have therefore to make accurate and careful decisions about the market(s) these want to enter, where positioning their brand, what consumer target aiming at reaching and subsequently strive to gain and maintain competitive edge.

Employers have learned over time that adapting to the current trends and hopefully anticipating the future ones is of paramount importance, insofar as having genuinely accepted that innovation, readiness to change and flexibility have to be nowadays considered as mandatory prerequisites of a modern organization. It can hardly be averred on the other hand that unions have undergone a similar transformation process; it seems in fact that the way unions’ officials and representatives perform their activities has not changed by any means with the passing of the years.

The role and scope of trade unions is clearly important and indeed socially relevant. The core activity performed by labour unions is essentially that to safeguard the interest of their adherents and bargaining on their behalf the employment terms and conditions, pay included, with employers. Ensuring employee job security and adequate working conditions definitely represents a further fundamental purpose trade unions aim at accomplishing. In addition to these main objectives, unions usually also provide their members ancillary services such as financial assistance, legal advice and learning and training opportunities.

The significance and value of the role played by unions, in the light of the objectives these intend to pursue, is clearly unquestionable. Notwithstanding, unions have over time mostly improved their offering in terms of ancillary services, whereas their power and effectiveness has sensibly decreased in terms of bargaining power. The global picture is indeed sorely varied; in Northern Europe countries, namely Finland, Sweden and Denmark, for instance, union density still seems to hold on, whereas in other areas of Europe, namely Austria, France, Germany, Netherlands and United Kingdom from 1980 to 2010 union density has practically halved. The reason why union membership is still high in Northern Europe countries is indeed explained by the circumstance that in those countries it has been set and run an unemployment insurance programme, Ghent System, directly managed by unions.

As a general rule, trade union membership is much more widespread amongst public sector employers, which have, in relatively recent times, recurrently been the object of privatization and downsizing processes and bigger organizations; by contrast, unions do not reportedly appeal to younger generations. The primary reason for unions losing ground amongst the employee populations is associated with the circumstance that employee pay is the more and more agreed by employers and employees at individual rather than at collective level. Yet, in many regions, despite the existence of national-level or industry-level collective agreements, the reward packages of professional and management roles are habitually agreed at individual level. Notwithstanding, in some areas trade unions definitely play a remarkable role within organizations, even more so whenever employers need to implement plans of action leading to the closure of some business units, transfer of employees, layoffs and change of employment terms and conditions.

The approach unions habitually use to respond to employers requests whether these do not meet unions’ expectations or to support their own request during negotiations is that to call for a strike. The right to strike is essentially virtually universally recognized and is used by unions to put pressure on employers and dissuade these from relentlessly pursuing their intended interests.

Albeit calling and staging strikes is a very ancient practice, it is not with reference to this attitude that unions show not to have made any progress over time when sitting at the negotiations table. What in general distinguishes trade unions attitude is to assume and take for granted that once an employer has conceded any given allowance or benefit this has to be for life, irrespective of what it may happen in the future. Employer decisions and consequent concessions are indeed invariably made according to the current circumstances. When the economic and financial landscape is encouraging and the business is prospering the employer is clearly open to make even generous concessions, but when the economic and financial outlook becomes grim, it is common sense and according to the circumstances even necessary, to withdraw totally or in part the concessions made in a period when the sun was shining. All of that, also in order to preserve the same stability and existence of the business and protect the job of all of the organization’s staff.

Taking, for example, the Lufthansa case, the pilots' union Vereinigung Cockpit (VC), which represents approximately 5,400 Lufthansa pilots, is striving to maintain a pension programme enabling pilots to retire at the age of 55 whereas still receiving up to 60 percent of their pay, somewhat of a transition payment, until formal retirement occurs at 65. It is glaringly obvious that the German flag carrier would have never ever made the decision to grant such a privilege to its pilots these days. This is clearly a concession made in the past, namely when low-cost, no-frills carriers had not yet invaded the flight markets causing remarkable problems to existing carriers in the short- to mid-haul flights segments and gulf airlines were not adding further pressure offering extremely competitive fares in the long-haul market.

It is not completely clear what the Lufthansa position is in respect of the currently employed pilots, but it is utterly comprehensible the German airline firm decision to resist the pilots’ union request to extend such a privilege to new recruits. Unquestionably, the pressure faced by pilots when performing their regular job is indeed remarkable, but do not working for 10 years receiving 60 percent of pay before receiving full pension at 65 is a benefit which certainly has no parallel. It is sorely unrealistic assuming that the company would have ever introduced such a “decades-old” early retirement scheme hereupon. Pilots’ union should sit at the negotiations table with the objective awareness of the current, sensibly different landscape characterizing the airline industry globally. On the other hand, however, albeit the decision to not extend to new recruits this benefit can be considered justified, the employer cannot assume to fully withdraw the scheme for existing pilots either. Postponing the moment at which the transition payment can actually be offered, whereas slightly increasing the current salary or paying a monthly amount to a pension fund in charge to provide pilots an income during the period in between these stop working and formally retire could be considered as viable options and a satisfactory trade-off for both parties. Negotiations are still underway, but unions request to maintain the pension scheme exactly as it stands and extend it also to newcomers can be nowadays actually considered as fairly impracticable.

The public opinion is habitually supporting employee initiatives, but in this specific case, which sounds fairly unrealistic and inconsistent with the current global economic and industry scenario, people at large are distancing themselves from the pilots’ union position. The German newspaper Bild wrote rather harshly that "in their cockpits, the pilots are in cloud cuckoo land" and that "for Lufthansa it's about surviving merciless competition. But the captains care only about their fat pensions and the dream of the good old days when there weren't any budget carriers." The severity of the commentator is self-explanatory of the feeling the German public has about this story; notwithstanding, this situation can clearly cause detrimental consequences for the carrier. To cushion the blow, Lufthansa has sent to all of the customers who have joined its frequent flyer programme an e-mail explaining the current situation, representing the employer concern for its long-term competiveness and expressing its commitment to reach an agreement with pilots and overcome the problem as quickly as possible. Additionally, as a concrete evidence of Lufthansa discomfort with the current state of play, the carrier also awarded its customers a number of status miles in their mileage account.

All too often, unions assume and maintain that whether an employer is in good health today this entails that this can make life-lasting concessions without limitations, overlooking that things can change rapidly and that, whether the current management is not cautious and prudent, is the stability of the entire business which can be put in jeopardy, what worse even irreversibly.

Staying in Germany, it did not go unnoticed the action called last November by the GDL, the labour union of national railways - Deutsche Bahn - drivers. The union called for a two-day strike to support a request for a 5 percent pay increase coupled with a reduction of the working week to 37 hours for 20,000 drivers. Irrespective of the appropriateness of the request, it cannot be denied that asking for a salary increase and a simultaneous reduction of the working time sounds rather disproportionate these days; you cannot have your cake and eat it. GDL has also attracted widespread criticism for having declined every form of mediation.

In Germany, industrial action may also reveal to have counterproductive effects. The frequency of these unions initiatives, indeed not really alarming compared to some other European countries, has prompted the German government to decide to work on a bill aiming at averting that a relatively small number of employees may paralyze the whole country. In the particular case of the action called by the GDL, Deutsche Bahn had indeed tried to ask a state court to issue an injunction to prevent the strike, but the court clearly rejected the employer request.

Going back to the airline industry, it also appears to have no absolutely clear foundation the four-day strike called by the Unac and SNPNC-FO unions’ of the French branch of easyjet during the Christmas holiday season. The reason for union action is in part due to the increasing frequency cabin crew schedule is changed, up to twenty times per month and all too often at very short notice and in part to deter the company to reduce staff bonuses of 25 percent in the light of the company very good performance and the alleged plans to increase management bonuses. Whereas the unions’ request aiming at increasing the management awareness of the hardships faced by employees to get an acceptable work-life balance is completely and utterly justified, it is apparently not completely understandable the reference to the bonuses. According to the Luton-based airline management in fact this aspect is annually discussed with unions, negotiations have just recently begun and are hence underway.

Much more consistent, practical and pragmatic has revealed to be the support provided by Italian Unions to the entire employee population of the Palermo branch of Accenture. On October 31^stthe local Accenture branch dismissed the entire workforce, formed by 262 employees. After intense negotiations, unions reached an agreement with Accenture and BT, which was indeed the only customer of the Accenture Palermo’s branch, on the basis of which the overall staff will be employed by Atlanet, a company fully owned by BT, accepting a 10 percent pay and 25 percent working time reduction.

In transpires that in this case trade unions adopted, as it should invariably be the case, a constructive and realistic approach to negotiations and it can be argued that the final agreement, given the circumstances, can be deemed as rather satisfactory. It is hardly imaginable, whether unions would have insisted for all of the employees to be hired by Atlanet with exactly the same terms and conditions these were employed by Accenture, that an agreement would have actually been reached.

Trade unions play without a shadow of a doubt a significant role within the business contest, but their role necessary needs to evolve and can no longer be intended as that to just enabling employees to have their relevant share of the cake, every time a cake seems to have been freshly baked or intervene in case of impending disaster. Unions’ perspective should more and more coincide and correspond with that of employers, with whom these should share the main aim in terms of employment, that is, ensure and preserve employment sustainability over time. Rather than arguing with a business management over the size of the cake’s slice, these should first and foremost ensure that the employer is investing the required share of profits to gain and maintain competitive edge in the long-term, ensuring thus employment stability over time. Differently, in the not-too-distant future rather than the bonuses topic these could find themselves discussing redundancies, layoffs and similar undesired issues; invariably extremely tricky to address, provided these can be actually properly addressed.

Labour unions should act as somewhat of organizations’ partners and, as should employers do, invariably approach issues both from the employee and employer perspective. Unions should thus take care about the business and its operations as much as the employer does, since this is the only, real practical way to preserve employment stability. Once unions have demonstrated that they really care about the organization future, gaining full credibility, these will be in a better position to make suggestions about the approach to be used to share the remaining organization profits.

Nowadays, employers at large tend to offer employees adequate reward packages and terms and conditions of employment. Notwithstanding, in those cases in which this is not the case or where employers fail to introduce and to implement fair and equitable practices, trade unions can and have the duty to intervene.

This duty is not clearly limited to the subject of reward or even work-life balance per se; in the case of easyjet, for instance, the impact an exceedingly frantic schedule can have on employee well-being and the implications it can produce in health and safety terms can be remarkable. However, also in this case unions need to face the issue pragmatically and taking into consideration the employer outlook and the specific features and characteristics of the low-cost airlines. Flight attendants of no-frills airlines, for example, once the aircraft lands and passengers disembark, have habitually thirty minutes only to prepare the cabin before the new flight passengers board the airplane. Low-cost companies have in fact to reduce to a minimum their stay in the airports tarmacs to reduce costs. The work of low-cost airlines flight attendants is definitely more hectic than that performed by their traditional carrier counterparts. It could be argued that it has to be by definition, but helping employers finding new, viable solutions enabling staff to maintain their performance, whereas reducing stress and efforts should be considered as one of the primary, arguably the primary, concern of unions.

Merely protesting, claiming that things are not properly managed and call for industrial action at the drop of a hat is clearly straightforward, but whether union officials want to elevate their professional standard at a higher rank, these have to seriously and professionally analyse the current organization circumstances and the relevant industry scenario, investigate the future trends and possible developments and objectively formulate viable and likely effectual propositions. Such a new unions’ role would be clearly appreciated by employers who, more often than not, just strive to stay afloat and ahead of the harsher and harsher competition.

The final decision clearly invariably rest with the organizations’ boards, but effectively supporting employers in their quest to gain and maintain competitive advantage or come up with sound and viable ideas putting in serious difficulties employers trying to implement cunning plans at the expense of employees, would definitely represent the best approach modern trade unions should have recourse to.

Longo, R., (2014), Employers are constantly changing, trade unions are not; Milan: HR Professionals, [online].

At times the real problem is when employees stay, not when they leave

2014-11-30T19:47:00.000+00:00

More often than not, employers devote most of their efforts and resources to find new and sound solutions to improve their employee retention practices. From this point of view, it could be argued that organizations treat their employees as their customers. Since competition in every market has become increasingly harsh, expanding the current clientele has turned to be the more and more difficult so that employers have found out that a great part of their efforts should be devoted to the preservation of their current customers too. Similarly, in addition to the struggle aimed at attracting new talents from the external environment, employers have realized that a good deal of resources should be used for and directed at retaining the quality individuals the organization already employees.

However, inasmuch as not all of the customers are good customers, not all of the employees are good employees. Customer who do not timely pay the sums due for their orders, for instance, are not good customers, not to mention those who do not pay for the goods or services they purchase at all. Likewise, individuals who do not behave as expected by their employer and do not perform at the level desired by this are not good employees.

Employers and HR managers should therefore pay more attention to the employees who stay with the organization. All too often, especially in those organizational settings where individuals are rewarded for their length of service or for the mere circumstance “of being still there”, the fact an employee remains may not necessarily represent a good event for the employer.

Habitually, regardless of the circumstances which have accounted for an individual having decided to leave his/her employer, whether this leave is because this is active, determined, focused and, most of all, because this considers his/her competencies and skills valuable and thus marketable. After all, it actually hardly happens that an individual leaves his current organization whether this has not already received a similar or even better offer from a different employer; which is an evidence of its own accord that the individual really has some qualities. It could be hence argued as a rule of thumb that people who leave a business are habitually individuals who perform at appreciable levels or have the skills and capabilities to potentially perform at significant standards.

By contrast, some people stay and are by no means supposed to leave their employer because these are well aware that no other organization in the market would offer them the same reward package as that offered by the present employer. People who perform any given job since a decade or even longer and receive salary increases on the basis of their length of service, but have not developed any skills or capabilities over time, would find it particularly difficult to change their employer and continue to receive the same level of pay. Organizations whose reward system is in fact based on length of service ensure to individuals salary increases which are not offered according to their contribution to the business result. This entails that in such cases individuals develop and receive over time appreciable levels of pay irrespective of their contribution, performance and capabilities. By reason of their appreciable income, these people would find it sorely difficult to find a new job enabling them to receive from the outset the same current level of pay.

Notwithstanding, the fact an individual remains with his/her employer for decades or even till retirement has not clearly to be seen and perceived as a negative event. On the contrary, this should be hailed as somewhat of an achievement by the employer, but only and only whether the employee is satisfactorily contributing to the organizational result.

Individuals who receive an appreciable reward package and regular pay increases from their employer regardless of their efforts and contribution to the organizational output might tend to create somewhat of a comfort zone and would clearly eventually resist any attempt to change the favourable state of play. The existence of such circumstance can indeed produce remarkable downsides and reveal counterproductive.

Employees who with the passing of the years have completely lost interest and enthusiasm for their job and pay lip service to the way they perform their daily activities cannot, properly speaking, develop new skills and capabilities; let alone can these contribute to redesign the way the job is done. By contrast, the lack of interest and the insufficiency used when performing their job can also account for these individuals losing part of their abilities. It is hardly believable that, once this type of vicious circle triggers, the level of performance and the outcome yielded by these individuals might be significant for the employer and fulfilling for themselves.

More often than not, in order to prevent conflicts to openly emerge, managers tend to avert dealing with this type of behaviour. Conflicts, whether conspicuous, should in fact eventually be managed and since it is objectively difficult to fix such types of problems, managers habitually prefer to overlook such situations. This clearly represents the worst approach, firstly because, openly emerged or not, the conflict is essentially already existing, secondly in that such occurrences can negatively impact the other employees performance and the overall unit climate.

Inasmuch as these circumstances are unwelcome and difficult to manage, adopting the right approach can definitely help managers to effectually deal with these undesired events. It is crucially important that managers take appropriate action in that such situations can just risk degenerating and are unlikely to ameliorate with the simple passing of the time. Differently, the job not performed by these people should be permanently carried out by the other colleagues, with the obvious consequences this will produce on their workload and the overall unit climate. Yet, other employees efforts notwithstanding, the unit concerned may risk not yielding the desired and pre-set result, which according to the reward system run within the business may in turn impact the income of the other employees.

The first step and initiative managers should take is hence that to frankly talk with the individuals concerned, try to find out which the roots of such behaviour are and agree with these the initiatives and actions necessary to let them feel back at ease in the workplace. Apathy amongst employees can be caused at times by their discontent with the management decisions, which these may perceive as unfair and biased. In other cases, individuals might (also unconsciously) decide to give up doing their best at work by reason of considering their job monotonous and repetitive or because they have never been offered opportunities for growth. In the worst cases, such behaviour can be triggered by the employee perception of the existence of a simultaneous combination of two or more of these circumstances.

Openly discussing the reasons behind an individual behaviour can definitely help managers to find out which the origins of such behaviour are and to identify the most appropriate solutions to fix the problem. Indeed, this is not a straightforward feat to achieve. Sometimes employees perform below an acceptable standard just because these do not consider it worth making any effort to attain what they receive as a matter of course and take as axiomatic, that is to say, their salary. In other cases, managers task is particularly difficult because, for apparently mundane an activity might be considered to be by the employees concerned, this is actually necessary to yield the unit final results. Since the task performed by these employees is truly significant for the business and the attainment of its objectives, however, in this particular case job design and employee firm and stable involvement should contribute to help managers effectually set the issue.

Definitely not an easy task for managers, but turning a blind eye to employee misbehaviour and poor performance will never ever enable these to identify and overcome the problem.

How can reward practises help

In the case of employees deliberately underperforming and misbehaving, despite the management attempt and manifested willingness to mend relations with the individuals concerned and find appropriate solutions, the benefit produced in this sense by the sorting effect can definitely help. Usually used to attract and retain quality individuals from the exogenous context, the sorting effect can be also used to offer more generous reward packages to the company best performers in order to encourage worst and bad performers to either raise their level of contribution or leave the organization. Indeed, this strategy is likely to work properly when the reward budget is managed with full latitude by the employer and a variable pay scheme is in place. By contrast, whether the business reward system is length-of-service-based some individuals may find it pointless to make extra efforts to increase the value of their reward package: the efforts necessary to attain the additional benefit may in fact not be proportionate to its worthiness. In these cases and according to the circumstances, employers could attempt to reach with the employees concerned an agreement on a severance package.

Reward practices may also reveal useful to engage employees when these are performing repetitive tasks. Gain-sharing programmes, for instance, may turn to be effective to make these individuals perceive the significance of their contribution to the overall organizational outcome. Notwithstanding, every financial reward manoeuvre should preferably be implemented in combination with some other initiatives; clearly explaining to each individual how his/her work fits into the overall business process should invariably be part of the identified bundle in that of paramount importance.

Constantly involve individuals with the aim of coming up with new and more effective ways of design and perform their job can definitely help. Yet, offering employees, according to their attitudes and behaviour, opportunities for horizontal and vertical growth should be placed high at the top of line managers’ agenda.

Employers should also ideally offer individuals the opportunity to expand their knowledge and continue their education. Such initiatives, even whether employees are performing repetitive tasks, will make individuals understand that their employer really cares about them. Indeed, the psychological contract has changed over time and for employees the opportunity to extended their education and gain new capabilities and expertise, contributing to make their skills more marketable, really matter and count.

Managers and employers task is unquestionably tricky, but whether these should identify the most suitable tools and initiatives, which they can realistically implement to support their quest, possibly bundling these where practicable, the task would reveal easier and the final result definitely a win-win for employers, managers and employees as well.

Longo, R., (2014), At times the real problem is when employees stay, not when they leave; HR Professionals, Milan [online].

Rhetoric and Practice of Strategic Reward Management

Leadership and management, how different are these?

2014-11-29T17:34:00.000+00:00

One of the major concerns, arguably the major concern, of today’s employers is to ensure their companies the appropriate level of leadership. Apparently, organizations are relentlessly trying to pursue this objective, but its attainment is indeed revealing to be in practice a sorely difficult feat. Companies at large are finding it extremely difficult to recruit externally or develop from within effective, strong leaders, insofar as leadership can really be considered as the holy grail of the modern business world.

During the last decades, many Authors have plead the case in favour of a marked distinction between leadership and management adducing a plethora of arguments essentially aiming at confining management to administrative and executory tasks and elevating leadership to the sublime.

Are habitually defined leaders those who have followers, offer a vision and set direction, facilitate decisions, are charismatic, use their heart, are proactive, influence others by selling, like striving, take risks and break the rules, use conflict, are concerned about what is right, give credit and take the blame. By contrast, managers are supposed to have subordinates, seek objectives, plan details, make decisions, use their formal authority and their head, are reactive, persuade by telling, like action, minimize risks, make and are compliant to rules, avoid conflict, are concerned of being right, take credit and blame the others.

These distinctive features, differently typifying and characterizing leadership and management, are habitually used by those who advocate the existence of a clear divide between management and leadership to support this idea and stress the worth of leadership to the detriment of management.

The significance of the features associated with leadership and which should thus characterize good, strong leaders are self-evident. Since we are looking at aspects directly associated with an organization human capital, whether employers could count on a relatively large number of people in possess of these features, these would undeniably find it relatively easier to attain competitive edge. The need for organizations to avail themselves of individuals having these valuable and remarkable characteristics is hence totally justified.

The problem with leadership and more in particular with its habitual complete separation from management, relates to the confusion this distinction risks generating. Depicting managers and leaders as having two completely different characteristics and objectives might induce to believe that the roles of leader and manager actually relate to two different posts. Their activities and missions are indeed not mutually exclusive; by contrast, in every organization these should ideally coincide as a matter of course. The term “leader” is in fact mainly used to refer to a person’s qualities and features, it does not represent a job title which can be included as such in the grading and pay system of an organization.

Irrespective of the circumstance that one may believe that leadership is an inborn, rather than a learnable feature, its idea is not associated with technical skills, but rather with a set of personal qualities. A distinctive feature whose practical manifestation emerges from the way a person behaves, approaches difficult situations, the relationships with others and his/her job.

Employers cannot afford to recruit leaders and managers as if these were two different roles to be covered within their business; differently, the role of managers would not only be drastically emptied but would also make no sense. Employers need managers who are and act as leaders: individuals who provide their staff a vision and induce and encourage employee engagement and motivation; leaders should ultimately be nothing else than good effectual managers.

In an organization it is habitually possible to distinguish four main categories of employees, namely the shop floor, professionals, managers (from mid- to senior-) and executives (board included). Leaders can be actually identified at all the levels of the organizational hierarchy; the leaders included in the mid- to upper-scale of the organizational order are usually known as formal leaders, whereas those belonging to the shop floor and professional categories (or more in general those not covering any management role) are usually recognized as informal leaders. All of these individuals, like the other employees, are clearly filling a specific role and position within the business; the difference is that these individuals, albeit not necessarily having an official managerial authority, have followers and the capability to influence their colleagues, whereas the others, formally appointed managers included, do not.

As a general rule, employers should not underestimate the significance of the support and contribution which could be provided to organizational success by the informal leaders and should hence try to approach and ally with these rather than consider them as a threat.

The fact that the current management may show not to have the leadership qualities the employer would have expected and desired these to have should not really come as a surprise. Individuals are different one another; yet, at times individuals can differently interpret the role of manager. The real issue may not be represented by the fact that managers are not good strong leaders; the problem may rather be caused by employers using to appoint as managers people before assessing whether these are already or have the potential to evolve to strong leaders. Once the wrong choice has been made, it obviously is extremely tricky for employers to go back so that these cannot do nothing else than shoulder the cost for their wrong decision and try and control the likely negative consequences.

Executives and directors should definitely pay much more attention to the way managers are identified before these are formally appointed. By establishing clear practices and introducing sound and effective assessment methodologies, HR can clearly effectually support all the organizational functions in the process, where appropriate availing itself of the contribution of external consultancies.

Leadership should ideally not be a commodity common to a restricted and limited number of executives and managers; at a predetermined satisfactory level, all of the managers of every organization should possess leadership abilities. On a daily basis, employees are in constant contact with their line managers, it is with them that these mainly interact and it is hence by these and their behaviour that they are influenced the most.

It cannot be a priori excluded that some managers might occasionally find it easier managing rather than leading by reason of being extremely busy with their daily tasks. In hectic periods, managers might find it preferable, that is, more practical having recourse to traditionally labelled managerial approaches to the detriment of the leadership ones. For instance, telling rather than selling and holding the existing road rather than taking a new one, may be preferred by managers under some circumstances to ensure that the pre-set deadline is met.

This may clearly not invariably be the case, but employers should also take into due consideration the circumstances under which managers work on a daily basis in order to evaluate, assess and judge their leadership abilities. The reference is not here to situational or contingent leadership, but rather to the particular circumstances and time constraints which may account for managers being prompted and consequently decide to manage more and lead less. Occasionally, managers might hardly perceive of having been recruited for their leadership abilities and that their work is that of being a leader. Individuals covering management roles, especially during periods of economic downturn and slowdown, are possibly supposed their employer just wanting them to yield the expected results and would therefore focus and also personally strive to attain the pre-set objectives.

Before and in lieu of complaining about the scarce level of leadership showed by their managers, criticism however completely justified, CEOs, directors and executives should first and foremost show to be good and strong leaders themselves. These can hardly assume that their subordinates may have the qualities and capabilities they should excel in the most whether they do not. It is very unlikely that whether executives and directors were good leaders these would not influence the way their reports, that is, managers behave. Especially at management level, it is sorely common to see individuals tending to emulate and follow the example of their bosses, namely of executives and directors. Despite some managers might have some inborn leadership features these might feel prompted to change their instinctive behaviour and give these up, whether resulting in open contrast with the leadership or management style used by their superiors. In the first instance, the real leadership abilities facilitators are in fact managers at all levels.

The quest for the holy grail is still underway, but it is important for employers to have clear what they are searching and when and where to better search.

Longo, R., (2014), Leadership and management, how different are these?; Milan: HR Professionals, [online].

Talent Management and Employee Retention, why you need them both

2014-11-16T12:29:00.001+00:00

The importance of human capital as the real distinctive organizational component genuinely and effectually enabling employers to attain competitive edge can be taken as axiomatic. Indeed, beyond the rhetoric which may at times surround this principle, it can be definitely averred that whether an organization attains determined objectives this is thanks to its people contribution.

Unquestionably, employers can imitate, on occasions even promptly, every move made by their most successful competitors in the market but their people. Whether an employer has been successful in attracting the best talents existing in a determined area, this could practically boast the achievement of two simultaneous important feats: employing the best people and averting these to be hired by its competitors.

Albeit talent can be defined in many ways every definition in the business field associates with talented individuals particularly significant features and characteristics enabling these to yield remarkable results and an above-than-average performance.

Talents could be thus defined as those individuals who possess distinguishing skills and capabilities enabling them to effortlessly perform at well-above-the-standard and who can effectually support the employer in the pursuit of its strategy and attainment of its intended objectives. Yet, these individuals can be considered as talent-dynamic, that is, people whose current capabilities and skills are predisposed to further grow and develop over time and who can consequently help the organization to sustain its growth and ultimately gain and preserve competitive advantage.

With particular reference to the business world, it can be averred that talent is not as widespread and promptly available as employers might desire it to be. By contrast, the number of individuals who can actually make a difference for employers and effectually help these to yield the desired results is relatively small. This has triggered and exacerbated over time a borderless competition amongst organizations, which have ever since devoted a growing attention to the design and development of practices aiming at attracting this significant category of individuals. So harsh has become the competition for talented people over time as in 1998 the consulting firm McKinsey formulated the self-explanatory expression “war for talent” to label this new phenomenon.

With the passing of the years, employers realized that attracting particularly talented people is not enough, it is in fact also crucially important to further develop and retain these. The need to adopt a structured and clear approach and to specifically investigate new and effective ways to attract and retain talents gave later birth to a new specialism widely known as “talent management.”

Talent, however, can be intended not only as a current state, but also as a prospective state. Individuals can already possess the sought-after qualities or show to have the potential to develop these in the incoming future. Some employers have hence reconsidered the meaning of talent accordingly and expanded the extent of their search of potential talents to the organization current staff.

Businesses can essentially opt for an inclusive or exclusive approach to talent management. The talent management strategy adopted by an organization can be deemed as exclusive whether employers restrict their attention and efforts to a limited number of high-fliers; by contrast, whether the activities and initiatives aiming at identifying and developing talent are extended to the overall workforce the approach to talent management is deemed as inclusive.

Irrespective of the approach considered as the most appropriate and hence practically adopted by employers, talent management can be divided into two main stages: the first stage is concerned with the search of talented people, either in the exogenous or endogenous context, whereas during the second phase organizational efforts focus on developing and retaining the pre-identified individuals.

The common denominator of the inclusive and exclusive approaches to talent management is, however, represented by the employer dedication of resources and efforts to a limited number of people. Albeit the inclusive approach entails the extension of the quest for talented people to the organization overall employee population, once the talented people and potential talents have been identified the initiatives included in the business’ talent management programmes will be offered only to the individuals qualifying for the scheme.

All in all, it can therefore be concluded that talent management programmes and initiatives are invariably dedicated to an elite of employees. Albeit the presence within a business of a number of particularly talented individuals definitely represents a great asset to the business, it can be hardly assumed that employers may ever attain their objectives and successfully pursue their strategies without the active and effective contribution of the entire workforce. The remarkable importance for employers of developing sound and effectual employee retention practices seems hence to be self-evident.

Talent management and employee retention practices are by no means mutually exclusive; on the contrary, the simultaneous introduction and implementation of such practices can certainly contribute to improve the worth of the employer value proposition and hence its employer branding. These programmes added to the other financial and non-financial initiatives implemented by employers can undeniably help these to attract and retain quality individuals. Once again, the synergic multiplicative effect produced by bundling reveals to be significant for the attainment of the organizational objectives.

Employers must be aware of the circumstance that the implementation of talent management practices does not entail having in place employee retention practices. Even though talent management and employee retention could be deemed as the two sides of the same coin, these actually represent two different approaches aiming at achieving two different aims. Whether an organization should experience serious hardships in terms of attrition, the development and introduction of talent management programmes would not enable this to overcome the problem. Similarly, organizations will never be able to set the problems associated with skills shortage and succession planning by introducing employee retention policies.

Design, develop and implement effectual talent management and employee retention practices is everything but straightforward; however, since talent management initiatives are introduced to the benefit of a limited number of people, whose wants and aspiration can also be more easily investigated and met, these programmes should reveal to be relatively easier to manage. Employee retention practices, by contrast, being basically directed at the entire workforce, can turn to be much more challenging and problematic for the HR specialists involved in their development and demanding for line managers and HR during the implementation phase. Whereas offering to talented individuals genuine opportunities for professional growth and autonomy, which could be in detail identified also on the basis of the current and prospective business wants and necessities, may reveal to be relatively, but not in absolute terms, straightforward; regularly coming up with brand new initiatives aiming at retaining the overall employee population is very likely to reveal a sorely difficult feat to achieve. Some remarkable differences are also likely to emerge in terms of budgetary issues and constraints.

Inasmuch as employers need immensely talented and smart people to help them to identify the most appropriate strategies and the most effective ways to attain these, organizations could never ever be able to yield results without the contribution of capable and proficient individuals properly and effectively performing the activities indispensable for the regular unfolding of the business day-to-day core operations. The tasks, activities and chores performed by the people within a business are indeed all necessary to produce the final outcome. It can hardly be imagined that employers would recruit and reward individuals whether the activities these perform would not contribute any value to, or would not anyway be significant for, the overall production process.

It is widely recognized that individuals derive most of their motivation from the job and the activities they perform, provided that these are perceived as fulfilling and generate as such a sense of accomplishment, pride and ultimately of belonging. Whereas the activities performed by talented people imply a high degree of autonomy and responsibility, which can definitely contribute to these a considerable return in terms of intangible and intrinsic reward, it can hardly be assumed that people executing more repetitive and not captivating tasks may derive the same sense of fulfilment as the former from performing their job. Yet, it is widely recognized that employees derive most of their motivation from the awareness that the activities they execute are significant and valuable for the attainment of the organizational objectives and hence for the employer. Whereas talented people may hardly lose sight of the strong link existing between the activities they preform and the way these fit with the organizational strategy, this line of sight habitually results to be much more blurred for the shop floor.

The development of both talent management and employee retention practices definitely represents a sorely difficult task for HR managers and specialists but, as we have seen, the development of sound and effective employee retention practices typically poses even more difficulties. Furthermore, whereas talented people once the employer has decided to invest in them, are likely to start and walk a path entailing a constant development, growing levels of responsibility and possibly a change of role over time, the largest part of employees are likely to continue to perform the same tasks and activities for a very long period of time at best, and till retirement at worst. In these cases it is glaringly obvious that people with a certain level of Growth Need Strength (GNS) will feel uncomfortable continuing to perform the same activities for a very long period of time. In such circumstances, especially whether individuals should perceive their current job as dead-end one, there is a good chance that these people will try to seek for new opportunities either internally or externally.

Managers’ mission is therefore very important and at the same time definitely tricky. In every organization there are people performing repetitive tasks which are in any case vital for the attainment of the organizational objectives and that, for repetitive and mundane these might be, require to be executed by experienced, accurate and professional workers. Yet, very often these people perform such type of tasks from a long period of time and at a more-than-satisfactory level. In terms of quality and quantity there is a world of difference between the final outcome yielded in the same length of time by an experienced and loyal employee and that produced by a newcomer; especially if this does not fully fit the business culture. Whether some of these experienced and productive individuals should leave the business, the employer would be prompted to activate a costly chain process formed by: recruitment and selection, induction and training. Indeed, at the end of the process it is very unlikely that the new hires will attain the same level of professionalism and performance as that achieved by the employees who have resigned. At best, the incumbents will be able to attain the same level of contribution after a number of years, which does not clearly represent an ideal situation for an employer.

All in all, it clearly emerges that retaining good workers and best performers is of pivotal importance for employers, irrespective of the complexity of their roles. Employers should hence definitely continue to pursue their interest in talent management, preferably in its inclusive rather than exclusive form, but not to the detriment and overlooking the importance of the rest of the company workforce. Every good employee is important, the definition of human capital is not casual and it is not either limited to part of an organization workforce. Retaining good employees is invariably important and can enable employers to practically attain competitive advantage and avert the costs associated with employee turnover. On the other hand, it could not be denied that a too stagnant workforce is not positive for employers too; newcomers, especially whether these have had previous working experiences in different businesses, can clearly contribute to any organization a breath of fresh air which is habitually beneficial to employers and employees as well. This objective can, however, be pursued when replacing retired people, when expanding the size of the workforce or as a consequence of a deliberately activated sorting effect.

People at all levels are important for organizations so that, in order to avoid undesired additional costs and possible disruptions, employers should devote to all of them the right attention and resources and strive to make each individual feel valued and respected in the workplace.

Longo, R., (2014), Talent Management and Employee Retention, why you need them both; Milan: HR Professionals, Milan [online].

Who develops, shapes and controls organizational culture?

2014-10-19T16:19:00.000+01:00

Corporate culture is increasingly gaining employers attention in that it is supposed to having a remarkable impact on individual behaviour, “the way we do things around here” and ultimately, on businesses performance. Whether employers and their management could control corporate culture, these would thus be able to influence individual comportment in the workplace and employee contribution to organizational success.

Academics, practitioners and managers nevertheless formulate and support different theories and ideas so that it can hardly be averred that a widespread agreement as regards this subject actually exists. All in all, these theories can be grouped into two main categories: those who support the idea that culture is “something an organization is” and managers cannot hence manipulate or control (Silver, 1987; Smith and Peterson, 1988 and Ackroyd and Cowdy, 1990) and those averting that in order to attain organizational efficiency and effectiveness corporate culture needs to be controlled by a company management (Ouchi, 1981; Peters and Waterman, 1982 and Smith, 1992).

Trying to determine whether corporate culture can be actually shaped and controlled by an employer can turn to be quite a conundrum. Indeed, in a bid to provide a reliable answer to this tricky question it may reveal to be useful starting by taking into consideration the genesis of corporate culture. The first question to answer would therefore be: does culture actually develop or is it rather defined and shaped by company founders and then handed down through the generations?

Whether we support the idea that organizational culture develops from shared values on the basis of which individuals found their common beliefs and norms to identify the appropriate behaviour, which are in turn reinforced by the positive outcome produced by this, we should conclude that corporate culture could be hardly controlled or manipulated by a business management. In many cases, however, organizational culture is actually defined by the company founder who hopes that it will be subsequently handed down by the business management through the generations.

In the former case corporate culture can be considered as the outcome of a rather slow and habitually relatively long process where all individuals are or may be potentially involved; whereas in the latter case organizational culture is somewhat of an off the shelf package, it has been prepared and prepackaged by the founder and fostered and implemented within the business with the help of the organization management.

The example of the Disney Enterprises is one of the most fascinating and remarkable in this sense and can definitely help to identify some crucially important points.

In order to clearly communicate and express his vision of the company and the culture he desired to foster, we go back to the early 1950s, Walt Disney had recourse to the figurative language, more precisely to the metaphor of organization as drama or theatre. Customers were thus called “guests”, employees were known as “casting”, the ticket boots were called “box offices”, the dress code “costuming”, a clear difference between “back-stage” and “on-stage” was made with reference to the different areas of the park and everyone was essentially acting according to the Disney script.

Albeit staff at Disney used an unconventional business wording, the metaphor of drama was absolutely consistent with the requirements of a typical for-profit organization. Each individual basically played a precise role, within a structured framework, aiming at favouring the attainment of a specific business-related objective (Smith and Eisenberg, 1987).

By reason of the paternalist and friendly approach adopted by Disney, many employers had also developed the idea that an additional metaphor could have been used to describe the park culture, that is, the metaphor of organization as a family.

Things changed dramatically when Walt Disney died in 1966. Walt, as he wanted to be called by the park’s employees, was charismatic both as a founder and as a leader and after his demise the park management literally strived to cope with his absence. Insofar as in the 1980s employees harshly complained that the management was sensibly diverging from Disney original vision and that they were the only people truly caring to keep faith to Disney’s genuine view (Smith and Eisenberg, 1987). As suggested by Martin et al (1985), the circumstance that a founder can leave an organizational culture as a legacy can be considered questionable, to the extent that the Authors defined this option as “seductive promise.”

Employees desire to preserve Disney’s original vision led these to re-interpret the metaphor of the park culture putting much more emphasis on the metaphor of family rather than on that of drama; a reinterpretation which Walt would have not possibly supported. The park management, in a bid to cope with these adversities, developed the “Disney philosophy” based on the image of the park as a friendly place, first-name-based and where teamwork was crucially important (Smith and Eisenberg, 1987).

These values and beliefs gained a widespread acceptance and consolidated rather quickly within the business. Employees treated the park visitors as their personal guests and were expected to receive the same treatment from the park management, which actually didn’t take any particular action to readdress employee expectations. In contrast, managers adopted a paternalistic style and people feel so at ease working at Disney insofar as nobody would have even considered leaving the organization; working at Disney was ultimately considered somewhat of “a way of life” rather than a job.

In the early 1980s the external environment played a sorely remarkable role and made quite an impact on the organization and its people. The growing pressure exerted by competitors, some company takeover attempts and the increasing level of the operating costs accounted for the company management needing to pay extra care to the cost-containment side of the park administration. Yet, the findings of an industry-related salary investigation revealed that wages at Disney where 62% higher than those offered by the other employers of the same industry so that in 1984 the park management proposed a two-year pay freeze and the elimination of some benefits for the employees whom would have been hired hereinafter.

The need for this profound, revolutionary change was essentially based on economic and financial grounds and was negatively perceived by staff, who considered the interference of the economic and financial factors as threatening the stability of the Disney family and in open contrast with Walt’s original vision. Albeit Disney was also remembered by staff as an acute and clever entrepreneur, as it has to be, very focused on the profitable side of his business too. Discontent and malaise culminated in an unprecedented 22-day strike. The park managers tried to persuade the employees that the proposed sacrifices were actually required and essentially consistent with the metaphor of the organization as a family in that when a family is experiencing difficulties, family members need to jointly tie the belt and make some sacrifices. Employees nonetheless rejected this management argument, which was deemed to be a distort re-interpretation of Walt’s vision. At that stage, the park management clearly realized that some permanent changes needed to be introduced (Smith and Eisenberg, 1987).

Employees and management come thus to an inevitable, open and, indeed, marked contrast. Employee concern, however, was not actually mainly deriving from the financial sacrifices required by the new circumstances, it was rather based on the different management interpretation of Walt’s philosophy and the amendments implemented on the park policies as a consequence of this re-interpretation.

The aftermath of these events was really severe, especially in terms of human relations. Some employees perceived managers as enemies insofar as restricting the metaphor of family to the employees only, with the exclusion of the organization management. Indeed, contrasts also spread amongst employees. The difference in salaries between the people recruited after the abolition of some benefits and the “old employees”, who were still entitled to enjoy those benefits, clearly generated divisions and tensions amongst employees too.

Some complications were also caused by the confusion generated by some opposing preferences expressed by staff. Albeit some employees enjoyed the care for individuals the old paternalistic approach used by managers entailed, many others did prefer not to be considered like children and wanted to have their say on the design and development of the future “life at Disney.”

All of these events gave rise to a strong resentment amongst staff and to a clear split between employees and management which had a long-lasting remarkable impact on the business performance and on both staff motivation and morale.

At Disney with the passing of the years organizational culture had therefore generated from different sources. Culture was originally shaped by the charismatic founder and widely recognized strong leader, that is, Walt Disney; whereas subsequently it was developed and to some extent manipulated by employees. In both cases the business management played a limited, if any, role in defining the corporate culture.

This case also shows the significance of the impact and role played by the external environment. Life at Disney essentially changed when after the economic prosperity of the mid-1960s the economic circumstances dramatically changed in the early 1980s. The worsening market conditions in fact sensibly, negatively influenced the park atmosphere and exacerbated internal human relations, in the first place between management and employees and soon after also amongst staff.

Indeed, the endogenous environment also contributed to add fuel to the flames. The idyllic atmosphere which had characterized the park in the previous decades had in fact accounted for managers and staff never having managed conflicts so that the moment arrived both parties were not used and prepared to manage these (Smith and Eisenberg, 1987). Somewhat ironically perhaps, in this case, the nonexistence of previous conflicts made it harder the conciliation process between the two parties involved.

The Disney Enterprise experience also shows that whether the development and control of organizational culture are completely left on employee hands, the final result could reveal not to fully meeting the business real expectations and aim. When organizational culture is shaped by the founder not only culture has to be embraced by the existing employees, but also the identification of the future recruits has to be based on their capability to adapt, or rather, naturally fit the employer vision. Indeed, in the Disney case employees re-interpreted the founder vision of organizational culture because the park management did not continue to strongly and firmly support it and did virtually nothing to readdress employee deviating views.

The more charismatic a company founder, the stronger the impact of the culture this shapes and introduces within his/her business. Yet, the more recognized the founder leadership qualities, the easier for this to foster the desired culture and the likelier that individuals will willingly and eagerly embrace this; Apple’s Steve Jobs and Microsoft’s Bill Gates are two remarkable examples of this in modern times.

When a founder is a strong genuine leader and a charismatic person it is indeed also very likely that stories, narrations and myths where the founder plays the role of the hero can effectively help the business to hand down culture through the generations.

Albeit this might not always be the case, Disney’s lessons learned book definitely supports the Ouchi, Peters and Waterman, and Smith view: to attain organizational effectiveness and efficiency corporate culture needs to be shaped and controlled by management. It can be added, and particular care needs to be paid to the exogenous environment for the impact this can potentially make on it.

It could be argued that culture tends to develop, and thus to be managed by employees, when no charismatic founder or genuine leader is shaping it or, more in general, when the business management is unable to shape and effectively, influentially and convincingly foster it. It is in fact hardly imaginable that corporate culture could be developed by employees whether a charismatic founder or a strong leader has shaped it and the business management is strongly supporting this. By contrast, the management lack of initiative and support to an even strong corporate culture might account for this drastically weakens over time and for employees developing and supporting a new or different culture, which in some cases, albeit diverging or sensibly diverging from this, may also be the fruit of the re-interpretation of the original culture (as in the Disney case).

The role and support of informal leaders might reveal to be paramount. Especially in the absence of a genuine leader amongst the business management, these may make or break corporate culture. Regardless of the specific circumstances, informal leaders support to foster corporate culture is definitely invariably important.

It can be concluded that, in practice, corporate culture can either be shaped by a company founder or management, or developed by employees. The latter process, however, is much more likely to be triggered by the absence of a charismatic founder or of a genuine strong, leader amongst the business management, or can be initiated by employees to fill the vacuum left by the company management. Yet, the circumstance that corporate culture is developed by the employees not necessarily entails that this meets the employer expectations and wants and that it is consistent with the employer strategy and objectives. In actual fact, organizational culture should support the business strategy and policies and needs thus to align with these. Hardly a business culture exclusively developed by employees can enable employers to fully attain this objective.

Longo, R., (2014), Who develops, shapes and controls organizational culture?; Milan: HR Professionals.

Who to value the most: past achievers or potential future performers?

2014-10-05T19:26:00.004+01:00

Perhaps sometimes unconsciously, employers at large tend to appreciate and recognize individuals either for their past achievements or for their future potential.

This preference is hence reflected in the organization culture and its practices; in particular in the recruitment and selection, retention and reward policies.

Recruitment and Selection

Offering the right position to the right person definitely represents the main objective every recruiter aims at attaining. Although the desired final end of the procedure is absolutely clear, however, it might not invariably be so immediately clear which the most suitable means to achieve the intended purpose is.

Recruiters habitually assess applicants and candidates for any given post on the basis of their CVs. There are numberless anecdotes about what people includes in their résumés and how self-explanatory this information might reveal to be in many cases. The hardest problem with CVs, nonetheless, is associated with the reliability and trustworthiness of the information contained in this document. More often than not, candidates tend to inflate the content of their CVs, either overstating the positions these have actually covered or listing qualifications these have never gained; never mind the inclusion of practical results these have never actually achieved. Inasmuch as identifying the right person for the right position is difficult of its own, having to deal with altered and crafty devised CVs can just contribute to make the task for recruiters even trickier. The best and most effective method would be that to practically assess individual knowledge and expertise, but according to the circumstances this could reveal particularly difficult to attain in practice, especially when the recruitment and selection process has to be carried out to a tight deadline.

Even in those cases in which the applicants CVs properly reflect the candidates’ previous experience and background, during this delicate and important process employers, and recruiters on their behalf, aim at scrutinizing individual past experiences, or rather, past achievements in order to identify the most suitable candidate for the current vacancy or try to read between the lines, based on CVs and interviews, whether these, albeit not having the desired experience, have the qualities and skills to yield outstanding results in the not-too-distant future.

Indeed, the fact that an individual has attained certain results in the past, according to the circumstances and to the existing context, does not necessarily imply that this will yield the some remarkable results in the future. On the other hand, whether a person should be able to provide evidence of his/her past achievements this should entail that this has the experience to potentially re-achieve those results, which should coincide with the accomplishments the employer is expected from the selected candidate.

Notwithstanding, many newly graduates and brilliant candidates who just haven’t have the chance to cover determined roles in the past may also reveal outstanding achievers whether offered the chance to show their abilities and capabilities in practice. As long as these will not be offered the opportunity to perform and demonstrate what they are capable and keen to yield, these people will invariably remain overshadowed by those people who can boast a previous, specific experience. This practice can reveal to be particularly detrimental for graduates who very often find it frustrating, after years of intense study, not being offered a position for lack of practical experience. It should not come as a surprise hence that many young people prefer approaching the world of work rather than the academic one.

This practice, however, could reveal to be counterproductive for employers too; this may in fact cause in the mid- to long-term a widespread general shortage of talent. Yet, people who have gained a previous experience of performing a determined task may tend to approach it routinely, without making any contribution in terms of innovation and originality. In some cases, merely repeating what one is used to do may also account for introducing or implementing a solution not necessarily fully meeting the employer requirements and expectations.

It clearly depends on the circumstances; for certain types of jobs requiring a high degree of autonomy and assertiveness, a previous specific experience may be justified but this is not necessarily invariably the case.

According to the circumstances, recruitment specialists and professionals should hence try to identify and agree with employers when some specific experience for any given post can be “sacrificed” or otherwise for future potential.

Retention practices

Employers preference for past achievers or future potential will certainly also be reflected in the business retention policies.

Opportunities for growth, training, teamwork, increased autonomy and responsibility, involvement and participation and pay increases, just to cite some examples, will be offered only to those employees who have attained the pre-agreed results or to those individuals who have shown to have the capabilities to deliver outstanding results in the future, whether the employer is willing and keen to bet on these.

Albeit the sorting effect is habitually associated with the influence pay increases granted to some individuals can exert on others as regards their decision to stay or leave the company, these initiatives can actually support and complement the sorting effect provoked by reward practices. Individuals who are not offered opportunities for growth and development in fact might found it more appropriate to leave the organization. Even more so when this lack of opportunities is coupled with a lack of pay increases, whereas other colleagues are offered and benefit of both of these types of prospects.

Reward practices

Money talks so that employer preference for past achievers or future performance will emerge from their reward practices too.

Organizations aiming at rewarding past achievements and outstanding or above-the-average performance will have recourse to contingent, variable pay arrangements. Pay increases will be linked to past results and performance as long as these will be repeated over time (and eventually consolidated into base pay after these will be repeated for a given number of consecutive years). The cash supplement is in this case considered as pay at risk or pay which needs to be re-earned.

Organizations valuing future potential would rather introduce competency-related schemes where emphasis is in development and future performance rather than past achievements. A pay supplement will hence be granted to individuals based on the assumption that their increased competencies will enable them to regularly achieve better results in the future.

Finally

Employer preference for past achievers or future performers may also be associated with the individual maturity on the job. Individuals should first of all be future potentials, this being the case after a while these have covered a given post or role they will also become past achievers.

Indeed, the two features are not really in contrast the one with the other, but are not either necessary coexisting. The concept of past achievers of its own, as mentioned earlier, could be merely associated with an individual ability to repeat a given level of performance or achievements based on his/her past experience. In contrast, a future potential, whose status could also coincide with that of a past achiever, is a person who, albeit capable to re-achieve any given result, could also extend and expand further his/her capabilities and attain higher level of performance and even more considerable and remarkable achievements in the near future. Employers wanting to foster both aspects usually have recourse to contribution-related pay approaches.

In general, it can be maintained that past achievers are not necessarily future potential, whereas future potential can easily evolve into past achievers, still preserving their potential to further grow and develop in the future and consequently attain more remarkable and outstanding results.

Longo, R., (2014), Who to value the most: past achievers or potential future performers?; HR Professionals, Milan [online].

Rhetoric and Practice of Strategic Reward Management

2014-09-02T21:45:00.000+01:00

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What is the problem with executives’ and directors’ pay?

2014-09-01T19:44:00.007+01:00

During the last decade, executive directors and non-directors pay has attracted public and media interest mainly by reason of the overly generous pay offered by employers to this specific category of employees. According to research, in the period from 1998 to 2011 the median total remuneration of FTSE100 CEOs recorded an average growth from £1m to £4.2m. In 2011, nearly a quarter of FTSE 100 CEOs benefited from a 41 per cent total reward package value rise vis-à-vis the previous year; however, the average pay increase in the period has been calculated at 12 per cent. The findings of the investigation also revealed that pay increases mostly occurred in the form of deferred bonuses and long-term incentives, whereas base pay increased of just 2.5 per cent on average (Manifest and MM & K, 2012).

The worth of the reward packages earned by CEOs and the pace at which these have increased during the last years have both attracted public interest and bad press, insofar as political leaders too have turned their attention to this issue and laid specific laws down. In general, governments and regulators of many European countries have imposed restrictions on public sector and financial services organizations, mostly whether these are state-supported. None of the European countries has, however, adopted any particular measures in regard to the executive pay of the private sector organizations.

The main reasons why during the last decade executive pay has remarkably increased are usually associated with:

Ø The extended level of responsibility taken by CEOs for organizations becoming increasingly larger and complex (Kaplan and Rauh, 2007);

Ø The drawbacks produced by the need for more strict governance controls over executives’ pay, requiring many employers having to disclose executives’ pay details. Since employers benchmark their directors pay against the reward packages offered by their competitors, this has caused businesses to offer executives more generous reward packages in order to retain and attract quality professionals. For the same reasons, employers of countries where no regulations on executive pay transparency are in place have felt a fortiori encouraged to offer directors more generous reward packages (BIS, 2011);

Ø The evolution of rewarding systems which tend to become the more and more sophisticated, accounting for employers paying larger amount of variable pay in a bid to more effectively link executives’ performance and results to pay;

Ø The trend pushing reward specialists to develop more complex reward systems favouring deferred pay. Since according to these arrangements the higher the level of risk the higher the pay, the base for pay is usually inflated in that objectives might not be attained and executives might in turn receive reduced bonus payments, if any (PwC, 2011);

Ø The complexity of reward arrangements which may cause the link between performance and reward to be blurred, at best, and completely lost, at worst. Moreover, being these systems based on a larger number of reward options, it is very likely that in the end some of them will be paid despite not completely justified by the real executive performance.

According to the Croner’s “Directors’ Reward Survey” (Cree, 2010), however, the typical director’s fat cat image can be considered just as an executive representation of the past. Findings of the investigation revealed, but this should not come as a surprise, that many executive directors work more than 60 hours a week (21 per cent) and that some of them seldom take all of their contractual holidays. As regards the link between pay and performance, only half of the participants said that their pay is linked to performance; it also emerged that this occurrence is mostly typical of large organizations. Nearly 50 per cent of directors reported just a 2 per cent salary increase, 37 per cent said that their pay had been frozen and 9 per cent of the respondents to the investigation said that they had even undergone a pay reduction. Only 40 per cent of the directors reported having received a bonus during the previous twelve months. The investigation also revealed that the typical bonus amount was of £25,000 for executive directors and £15,000 for executive non-directors.

The findings of the survey actually depict a scenery overly different from that known to the general public. The investigation backdrop may possibly help to find out the reasons for such different depiction. The questionnaire was sent by Croner to 45,000 members of the UK Institute of Directors (IoD) whereas only 745 executive directors responded to the survey, namely less than 1.7 per cent. The final result of the overall investigation is hence the result of the opinion expressed by a minority of directors, possibly those less happy with their current experience and circumstances.

Notwithstanding, the real reason for executive pay having caught the public interest and having had bad press during the last decade is not that much associated with the generous sums of money paid in absolute terms by employers to this specific category of professionals, but rather with the lack of a clear cause-effect relationship between such generous payouts and performance. In many cases, executive directors have received very large amounts of money even for having failed to attain organizational objectives. This bad practice, known as “rewards for failure”, has also actually had a remarkable impact on executives’ and directors’ payment of severance packages. In some cases in fact executive directors have received extremely generous severance payouts upon leaving their companies also after having outrageously failed to attain their objectives.

Averting to reward executives for failure

In many countries the awareness of the negative impact provoked by such bad practice has prompted governments to take appropriate actions. However, also the shareholders of many organizations have expressed concern for the serious threat this undesired habit could pose to their companies, not least from the reputational viewpoint.

The identification of a series of measures aiming at preventing executives to be rewarded for failure has become hence necessary. Amongst these, requiring shareholders vote on executive directors pay and attributing to this a binding value is definitely considered of crucial importance. Giving firms’ shareholders “say on pay” is believed to prompt these to be more involved in the business management and to publicly provide evidence of the significance organizations associate with their executives’ pay decision-making process. Indeed, by reason of the relevance the phenomenon has lately acquired, shareholders’ vote should also be introduced for severance payments determination. In the UK, this requisite has been legally introduced by the Companies Act 2006.

Since the largest component of executives’ reward packages is represented by variable rewards, particular attention has to be paid to the development of schemes establishing a clear line of sight between pay and performance. Care needs indeed to be taken during the implementation phase too; also in this case a sensible difference could emerge between what has been designed on paper and implemented in practice.

The role of remuneration committees is clearly paramount and members composing these should never forget that their main objective is that to foster the long-term interest of the business.

Members of remuneration committees are habitually individuals who have the professional experience and expertise to identify challenging objectives, set appropriate reward packages and develop effective assessment methods of executive performance. On the other hand, however, these individuals, just by reason of their past experience, are also considerably influenced by the “generous pay” culture, insofar as what may be deemed as excessive for the general public could be simply considered as a norm for them (The High Pay Commission, 2011). Additionally, remuneration committee components usually tend to design and introduce pay arrangements based on traditional approaches, rather than coming up with new methods fitting the business circumstances (Main et al, 2008).

It is the more and more believed that diversifying the composition of these committees, avoiding these to be entirely formed by non-executive components of the board, may definitely help (BIS, 2011). To this extent it may turn to be particularly effectual asking independent members with, for instance, academic, consultancy and advisory background (Hay Group, 2011) to become part of the commission with no need for these to become full non-executive members of the board (BIS, 2011). The different background and expertise of these individuals could indeed enable organizations to gain new perspectives and develop new approaches to executive pay practices (TUC, 2011).

An additional feature, more directly associated with the full independence of the remuneration committee members and in turn with their impartiality of judgment in terms of executive pay decision-making, relates to the circumstance that many directors may cover at the same time different positions in different organizations. This may cause that, for instance, a person making pay decisions about the pay of another individual in a given organization is subject to the decision made by that same person in a different organization, still in terms of reward. This could clearly affect the pay decision process in both organizations and cause evident conflicts of interest which should be averted from the outset (BIS, 2011).

Some stakeholders in the UK have supported the idea that, in order to implement a radical and effective change in the executive pay decision-making process, employee representatives should be invited to be part of remuneration committees. This recommendation is based on the assumptions that employees would better dissect pay or severance pay proposals practically aiming at rewarding executives for failure and would better assess extremely generous executive pay offers and increases vis-à-vis those offered to the other employees, especially when the latter have benefitted of very modest pay increases or the business has made people redundant.

Where implemented this initiative has produced mixed results, as well as has produced mixed reactions the proposition to introduce this initiative as a rule in some other countries. According to research conducted by Buck and Sharhrim (2005), for instance, employee involvement has produced positive results in Germany; by contrast, several other investigations have underscored the difficulties emerging when trying to execute this approach in practice in other countries.

The effectual implementation of this initiative implies first and foremost that employees have or gain an in-depth knowledge of the business strategy. Additionally, it should be clearly defined what their responsibilities are and this aspect could be clarified only determining whose interest these are supposed to protect: that of the employer, that of the employees or both? Whether these should be representative of the employer interest, it should be assumed that it would be up to the employer nominating these, whereas in the case they should be representative of the overall workforce interest it should be most appropriate these to be elected by the employees.

The implementation of this approach should be also clearly based on the company law in force in each country. Europe, for instance, is characterized by a fair level of heterogeneity in term of employee representation at board-level insofar as three different grouping of countries can be identified with reference to this aspect (Worker Participation, 2013):

Ø Countries without any specific legislation (Belgium, Bulgaria, Cyprus, Estonia, Italy, Latvia, Lithuania, Malta, Romania and the United Kingdom),

Ø Countries where employee board-level representation is limited to state-owned companies (Greece, Ireland, Poland, Spain and Portugal),

Ø Countries where employee board-level participation is extended to private sector employers (Austria, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Luxembourg, the Netherlands, Norway, Slovakia, Slovenia and Sweden).

Notwithstanding, board-level employee representation is differently regulated in each nation. In many countries, for instance, it is subject to the number of employees forming the overall workforce. The lowest threshold has currently been set in Sweden with 25 employees, whereas the highest in France with 5,000 individuals. Differences are also concerned with the rate of board seats occupied by employees and the title seats are occupied, namely whether these are taken on a supervisory board or single tier board title (Worker Participation, 2013).

The introduction of laws regulating board-level employee participation can also have an impact on, and may require hence a revision of, the company law accordingly. In the UK, for example, company law entails that individuals participating at board or committee meetings are companies’ directors. The introduction of a rule extending employee participation to remuneration committee would, by extension, require the amendment of the company law accordingly.

Irrespective of the legal constraints, however, it can be considered questionable assuming that employee involvement in remuneration committees could reveal to be beneficial for organizations. Once employees would be invited to participate to the committee meetings these should clearly have an active role and it is unlikely that these may have the technical knowledge and experience to actively participate on a decision-making process for which committees members, when needing advice, are used to have recourse to accredited national and international firms. As discussed earlier, executive pay arrangements tend to be the more and more complex and sophisticated; employees not having the required expertise and experience would clearly be in difficulty and would be essentially unable to have their say in such meetings.

As mentioned above, even though responsibility for executives’ pay will invariably rest with remuneration committees, it is possible for their members to seek external professional advice. Since consultancies could hold sway over the remuneration committees final decision, in 2009 was introduced in the UK a voluntary Code of Conduct in relation to the executive remuneration consulting activity. The Code, developed by the Remuneration Consultants Group (RCG) in representation of the major consultancies of the UK listed organizations, as stated by the same Remuneration Consultants Group, basically “sets out the role of executive remuneration consultants and the professional standards by which they advise their clients, whether their clients are Remuneration Committees or the executive management of the company.” It therefore aims at clearly explaining the scope and conduct of consultants when providing advice to the UK listed organizations as regards executives’ pay and defining the standards of the information that consultancies should provide to their clientele.

The conflict of interest which might potentially arise when remuneration committees have recourse to external consultancies has prompted many governments around the globe to take some actions. In 2011, for instance, the Australian government enforced stricter rules on the type of relationship which can be established between companies’ remuneration committees and consultants. Similar initiatives were also adopted in the United States were remuneration committees have the obligation to unveil how these have managed and sorted out the conflicts of interest eventually arisen (BIS, 2011).

Excerpt from Rhetoric and Practice of Strategic Reward Management

To read the whole paragraph (Par. 110, Section XVI, pages442-456)

Longo, R., (2014), Rhetoric and Practice of Strategic RewardManagement; Milan.

Underpinning variable pay practices

2014-01-13T20:11:00.001+00:00

Findings of the very large number of studies and investigations carried out over the years and across the globe on the effectiveness of variable pay, determined and granted on the basis of individual performance, have revealed that in many circumstances this approach has produced very good results, whether in many other cases just failure and fiasco. This can only lead to the conclusion that the successful implementation of a variable reward programme depends on the circumstances; by extension the effectiveness of variable pay practices can be essentially deemed as contextually-based.

The fact that the introduction of a variable pay scheme ends in failure does not necessarily entail that the organization is not compatible with the introduction of such type of programme. The reason why the initiation of a variable pay plan proves a failure might in fact be due to the launch of the wrong programme or to the introduction of the right programme at the wrong moment. The contextual or situational aspect is therefore unquestionably of paramount importance.

The design and development of a variable pay scheme are usually fairly demanding, it is therefore unlikely that, after the efforts and resources deployed to design, develop and introduce a new scheme later resulted in a failure, an organization and its management would be willing to make another attempt, unless a considerable length of time has passed. When introducing or amending such programmes hence employers and reward professionals have to carefully consider all of the possible backlashes and potential causes for failure at the outset. It has to be definitely considered preferable postponing or even withdrawing the introduction of the scheme rather than introducing the wrong programme or the right plan at the wrong moment.

Albeit the miraculous recipe for a universal variable pay scheme does not exist, there are a few tenets and aspects which, if respectively duly considered and managed by the architects of the scheme, can enable these to design the most appropriate programme effectively fitting the organizational circumstances. If the worst comes to the worst, duly considering these elements at the outset will enable employers to avert disaster and cushion the eventual blow. Indeed, the successful or otherwise introduction of the scheme is essentially based on the accurate and thorough knowledge of the organization and of its people and on the investigation of all of the aspects which may have an impact on the employees concerned, both individually and as part of a group.

The first aspect which clearly needs to be taken into consideration is hence represented by the contextual factor. Reward practices, regardless of employers’ awareness, talk. The behaviour and actions which the employer wants to recognize by means of variable pay has to be reflected into the organizational culture, or rather, be reflective of organizational culture, and must be in line with the current business circumstances, financial conditions included. Consistency, as usual, is crucially important; introducing, for instance, schemes rewarding individual performance whereas the organizational culture is aiming to foster teamwork or introducing a new scheme when the business is experiencing financial difficulties, which may put the concern in the position not to pay the promised cash additions, can just represent a couple of glaring examples of this type of scheme misuse.

Employers and business executives tend sometimes to underestimate the effects produced by the introduction of new policies which later reveal to be inconsistent and inappropriate, not to mention ludicrous. Indeed, being different the one from the other, individuals may react to the introduction of a new scheme in many disparate but negative ways do not necessarily openly manifesting their disappointment and discontent. This, however, does not really mean that individuals do not perceive inconsistency and the eventual lack of integrity and that this does not affect their sense of belonging, motivation and ultimately performance. Additionally, all too often it is the occurrence of events like these which accounts for organizational climate being perceived by individuals differently from the organizational culture that the business management is striving to foster within the business.

Whether within a firm should actually coexist differences from the contextual point of view, employers could appropriately decide to implement different schemes according to the different organizational areas or business units peculiarities. These contextual differences may also be reflected in the existence, within the same company, of different cultures. Under these circumstances, in order to ensure the scheme consistency and favour its employee acceptance, the introduction of different schemes could even be preferable to the introduction of a unique common programme which might work well in some cases and drastically fail in others. This objective, according to the circumstances and to the type of scheme, could also be attained by maintaining the same scheme framework but changing in some way the mechanic by means of which it is operated in practice.

Context and situations are however very likely to change over the time, the contextual factor has therefore to be considered as a fairly dynamic aspect influencing variable reward schemes. It can consequently be concluded that variable pay programmes need to be flexible and adjustable in order to be amended according to the possibly changing circumstances. This feature leads to consider schemes’ maintenance as an additional key aspect to be carefully weighed up by reward managers and professionals. What works well and proves to be appropriate at the moment in time may reveal to be outdated, inappropriate and not working by any means in the near future.

In the light of the changeability feature of the contextual factor, and practically as a natural consequence of taking account of this aspect, variable pay plans need to be tailor-made. Reward managers should therefore act as bespoke tailors capable to design variable reward plans meeting individual and organizational needs under the current circumstances, but being at the same time constantly ready to re-design and implement the required alterations as soon as these might be required.

The effectual introduction of variable reward plans is very much depending on their credibility and trustworthiness. Albeit, as we will see later, execution typically represents a key success factor when introducing and altering management and HR practices, it is worth stressing the importance assumed, especially in this case, by the design and development phases.

In order to a variable pay programme be genuinely trusted by individuals, it is important, first of all, that each award granted by the employer is proportionate to the actions and outcome produced by the individual concerned (Reilly, 2003). A small premium for an outstanding feat or achievement will be negatively perceived by an individual as well as the award of a large amount of money for the attainment of a relatively modest, albeit appreciable and appreciated, result would be. The respect of this tenet is also important in order to establish a clear scale of values and the worthiness of variable rewards. Individuals need to be aware from the outset that their actions, activities and consequent appreciable output are rewarded with a premium whose worth is proportionate to the objective value of their attainment.

As suggested by Reilly (2003), it is also absolutely important for employers to establish a clear line of sight between the outstanding achievement, behaviour or performance and reward. Is has not to be neglected that the moment a variable reward plan is introduced, this has to clearly communicate in practice the scope for its introduction. Establishing and maintaining a clear cause-effect relationship between achievements and pay additions represents therefore the best way employers can factually communicate and show individuals that the scheme is fulfilling the promise.

Inasmuch as reward systems need to be fair, equitable, unbiased and sustainable, a fortiori these tenets need to be at the basis of variable reward practices. Only and only if employees perceive and feel the scheme as fair and equitable will these trust it and contribute to its successful implementation enabling, in turn, employers to attain their intended objectives.

Transparency, clarity and simplicity definitely represent additional, pivotal features of a variable reward scheme. In order to trust and appreciate the scheme individuals clearly need to understand it and its mechanic. Communication and employee involvement, as usual in such circumstances, is crucially important and can really make the difference.

Notwithstanding, the careful design and development of bespoke variable reward schemes can head employers nowhere without appropriate and consistent execution. Fairness, proportionality and timeliness can be impressively put on paper but whether these underlying principles are not properly implemented in practice, the introduction of the scheme can just be destined to end in an inevitable and predictable failure.

Companies’ managers need to be involved in the process and have the genuine feeling and conviction that the introduction of the scheme can actually help them to effectually attain their objectives, as well as those of the organization, by receiving the full support of their direct reports.

Inasmuch as employees will trust and accept a new plan whether they really know it, managers can support and become convinced advocates of the scheme if they are familiar with the mechanic of the scheme and of the way it has to be managed and operated. Provide to all of the business managers training in the way the scheme has to be managed will certainly avert many issues to raise soon after the scheme introduction and throughout its execution.

Taking into account all of these elements can definitely help reward managers and professionals to design and develop sound variable reward plans, safe in the knowledge that financial reward in general and variable pay in particular can be regarded as a means to an end and not as the only means to the end. The effectiveness of financial reward is essentially based on the bundle approach, that is, on the synergetic use of different, simultaneous actions on which is in essence based the total reward approach. In any case, employers and managers should also act on Herzberg (1987) suggestion: "if you want people motivated to do a good job, give them a good job to do."

Longo, R., (2014), Underpinning variable pay practices, Milan: HR Professionals [online].

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Legal risks emerging when introducing and varying a bonus scheme

2013-09-08T20:02:00.001+01:00

Whenever organizations agree with employees the payment of a bonus, irrespective of the circumstance that these are granted on the basis of a written document or a verbal promise, they are actually subject to a series of restrictions and constraints which could be tantamount to the employer being trapped in a vicious circle from which it could be extremely difficult to escape.

Deciding not to pay a bonus by any means or paying it partially cannot always be considered an employer prerogative. Yet, managing the payment of a bonus when an employer has just resigned or has been dismissed can represent just a few examples of the difficult situations an employer might be prompted to face as regards the management of a bonus programme. Knowing these in advance can clearly help employers to prevent and avoid them.

Paying reduced or no bonuses

The payment or non-payment, in full or in part, of a bonus can in some cases give raise to legal disputes. This can, in general, be avoided by means of properly and clearly communicating to, and agreeing with, staff the rules underpinning the overall bonus programme. Notwithstanding, in some cases, especially in those cases in which specific agreements are reached between employers and individuals filling particularly important roles within the business, the risk of litigation can be higher and trickier to manage and resolve once arisen.

The source of a bonus payment: express or implied terms?

Express terms

The payment of a bonus, like every other terms and conditions of employment, may be provided for either in writing in the written particulars and/or employment contracts or, since this might not necessarily be the case, verbally.

Albeit the written form of a bonus agreement might not be required ad substantiam, meaning by that that the written form might not be considered necessary for the validity and enforceability of the agreement, always subscribing a written document with employees can definitely help employers to solve disputes eventually arising. A written document, in fact, even though not necessary ad substantiam can always be used ad probationem, that is, to provide evidence of the terms and conditions agreed between employer and employee or, to put it another way, to prove that the employer made a specific and precise offer to the employee and that this accepted it as formulated by the employer in the written document.

The main document and reference in case of litigation is hence represented by the contract of employment. Whether this should, in fact, contain a clear and unequivocal entitlement to the payment of a bonus this would be clearly considered part of the express terms and conditions of the contract of employment.

What in general typifies the express terms of employment is the circumstance that these have been discussed in details between an employer and an employee, agreed and accepted by both parties. As such, these terms become legally binding. The formulation used in the contract of employment to entitle an individual to a bonus payment becomes therefore extremely important (Gannons, 2011). As a general rule, whether an employer wants to keep a degree of latitude as regards the bonus payment, this should avoid to phrase the bonus clause in a way which absolutely entitles individuals to receive the bonus payment. The caveat should rather be formulated in a way enabling the business to retain the right to pay it in part or not to pay it by any means if required by the circumstances.

Staff handbooks and even e-mails and notice boards, albeit not necessarily encompassing a contractual and hence legally bounding status, can contains information which could be used by the court to decide the way to solve a dispute. Employers and the business management should consequently pay extra care when devising these documents and writing whatever kind of letter or note.

Implied terms

Implied terms of a contract of employment are those which, albeit overlooked and not agreed at the moment of starting the working relationship, are necessary to regulate the matters not expressly covered by the written document and therefore to integrate and complete this. The tenet on which a court will eventually establish an implied term is that if this should have been discussed by the parties it would have been agreed in a certain way by these, in accordance with their presumed intentions.

In general, as regards the UK law, the most relevant implied terms, to the extent of a bonus payment, are “mutual trust and confidence” and “not to act arbitrarily, capriciously or inequitably.” Indeed, in order to establish if an alleged implied term can be considered as such, the courts are also very likely to give a high degree of importance to the practical conduct of the parties.

Cases in which an employer can pay a reduced or no bonus during employment

According to the implied term on the basis of which an employer should not act arbitrarily, capriciously or inequitably, there are basically two factors which can restrict employers’ latitude to pay, fully or in part, annual bonuses: the impossibility to explain and sustain the concern’s decision not to pay a bonus and the breach of discrimination law.

More in particular, whether a firm’s decision not to pay, or pay a reduced amount of the agreed bonus, should be sustained by rational and well-supported arguments (the employer has therefore acted neither arbitrarily nor capriciously), as emerged from the UK court case Clark v Nomura International Plc. (2000), it is unlikely that the courts could impose a business to pay an employee the full bonus. With reference to this aspect, for instance, a court decision could be based on the assessment of the overall business performance and actual circumstances. Albeit an individual has objectively performed well, in fact, the payment of the bonus may be in contrast with the current financial health of the business. In Europe, the respect of this tenet is provided for by the Capital Requirements Directive no. 3 (CRD3) promulgated as regards the financial sector organizations. Observing this tenet, however, can undoubtedly reveal to be useful for all the employers irrespective of the industry they belong to (Gannons, 2011).

It depends on the real employers intentions, but firms wanting to consider bonus payment as discretionary, should pay extra care to the way their employment law specialists device the relevant caveat in the employment particulars and/or in the terms and conditions of the contracts of employment. Even in those cases in which a bonus has been agreed in express terms as discretionary, in fact, the way it is couched can reveal to be crucially important and should leave no doubts as regards its discretionary attribute.

Indeed, the term discretionary itself needs to be fully explained and the degree of its application clearly identified. The importance of this principle actually emerged, in the UK, in Small and Others v The Boots Co. Plc. and Boots UK Ltd. (2009). The Judge of the EAT considered “ambiguous” the use of the adjective discretionary in the documentation provided by the Respondent, considering that it could have been referred either to the decision whether to pay a bonus at all or to its calculation method or to its amount or to other factors or to all of these aspects considered together. Simply defining the bonus as discretionary hence is not enough and sufficient to determine the extent to which an employer’s discretion applies.

It is very likely, however, that albeit in the employment contract it has been clearly stated that the bonus payment is discretionary, this could not suffice to totally protect the employer from the consequences of possible claims. As discussed earlier, the fact to show in the terms and conditions of employment that the payment might not be made, either in full or in part, could not be enough if the circumstances to which the employer refer to in order to justify the non-payment are not sustainable and rational. Essentially, what matters the most in order to support the non-payment of a bonus, in addition to having clearly detailed the cases in writing, is the employer’s ability to prove that its decision is consistent and coherent with the financial situation of the business, the current circumstances and the employee actual performance and contribution.

In Ridgway v JP Morgan Chase Bank National Association the court held that the “nil bonus” awarded to the Appellant was consistent with the circumstance that the employee had made losses, rather than providing income, for the concern in the year considered for the bonus payment. The Appellant had actually applied and been authorized by the bank for a sabbatical year from April 2003. The bank did not pay any bonus to the Appellant providing evidence that the decision not to pay was associated with the Appellant performance during the first months of 2003 and not with his absence.

In order to meet the implied term not to act inequitably, employers’ bonus payment decisions cannot clearly be made on the grounds of discrimination-related reasons. Gannons (2011), with particular reference to this point, stresses the importance of considering the circumstance that in addition to age, sex, disability, etc., discrimination based on nationality is protected by race discrimination, this entails that foreigner businesses based in a given country cannot pay home country employees better than local ones.

Another important tenet emerged from the UK’s jurisprudence relates to the so-called anti-avoidance term. The expression anti-avoidance relates to those circumstances in which an employer might decide to resort, to put it mildly, to not completely correct and transparent moves in order to avoid to comply with some employment terms. As suggested by Cabrelli (2007), the anti-avoidance term in the UK mostly emerges in the employer authority to dismiss employees and in enabling them to withdraw contractual benefits according to the changing circumstances. Indeed, in Takacs v Barclays Service Jersey Ltd emerged that the Appellant in mid-November 2004 had not yet met his objectives, he was hence dismissed with a letter sent to him on November 15^th stating that his contract of employment with the Defendant would have been terminated with effect 13 December 2004. No bonus was hence paid to the Appellant who claimed hence the Defendant’s breach of the implied trust and confidence, anti-avoidance and cooperation terms. Additionally, the Appellant also claimed an amount of money considered, pursuant to the contract, as a “guaranteed minimum capital EPP award.”

The High Court of Justice held that the Claimant could have had real chances to succeed and the case to proceed therefore to full trial. The parties however settled the dispute one year later prior to the case to be brought before the court for the full trial.

Payment bonus during notice period of after employment termination

A delicate point abut bonus payment decision is represented by the circumstance that an employee might leave the organization soon after or just before the date set for the bonus payment. In order to prevent to deal in an erratic way should such circumstances arise and avoid legal litigations, it is definitely better to provide details in the employment contract of what it will happen in these circumstances. This could clearly help employers to prevent claims but could not necessarily suffice. The courts might, in fact, consider employee entitlement to the bonus payment to be effective whether this has fully attained his/her objectives and the business is in the position to honour its pledge.

In general, as maintained by Gannons (2011), a firm’s decision can clearly be different according to the different circumstances. It is most likely that an employer will decide to reward anyway a “good leaver” or an employee made redundant, whether it is likely this might be less incline to award a resigning employee or an employee dismissed for gross misconduct.

As discussed earlier, the best approach to this aspect is to clearly state in the contract of employment that in case of termination the bonus will not be paid. In general, courts in the UK tend to impose employers the payment of the bonus when this is paid for the attainment of past objectives, and these have actually been achieved, and not as a motivation or retention means. Notwithstanding, employers should definitely avoid to dismiss people in coincidence with bonus payment, to prevent the risk of breaching the anti-avoidance term; this move might in fact be intended as justified by the unwillingness of the employer to pay the bonus and as such as a breach of the contract of employment.

However, in McCarthy v McCarthy & Stone Plc. (2007) the court held that whether an employee has met his performance objectives as detailed in the firm’s employee share option programme, the employer has no more latitude to decide whether to pay or not to pay the bonus, albeit an employee may be dismissed for gross misconduct. The Judge also held that a bonus clause expressly regulating this circumstance would have actually enabled the employer not to pay the bonus.

Indeed, an employee can be judged to still hold his right to the payment of a bonus also in those cases in which he/she has been dismissed for having breached a contract term, not only for the part of the bonus accumulated at the time of dismissal, but also for the part of the bonus this would have received if still working during the notice period. In general, whether a contract encompasses the payment of a sum in lieu of notice (PILON) clause and the employer counts on this clause to put to an end a contract of employment, the payment or non-payment of the bonus during the notice period should be detailed in the payment in lieu of notice or PILON clause (Greenberg Traurig Maher, 2011).

In Locke v Candy & Candy Ltd. (2010), the Appellant’s contract of employment provided for this to receive a discretionary bonus, whereas no further detail were provided to identify the extent to which the bonus payment was to be intended as discretionary. As such, as observed by the court, the definition of discretionary was actually ambiguous. After 12 months in employment the Claimant bonus would have been quadrupled if the employer would have still been “employed by the company.” The organization, in the contract of employment, reserved the right to terminate employment making a payment in lieu of notice, as it actually did before the payment of the bonus. The generous bonus was therefore not paid in that, as it was, the employee was not employed by the company at the time of the bonus payment. The Appellant based his claim on the circumstance that it should have been taken as axiomatic that the PILON clause also included the total bonus. Notwithstanding, the court held that the extra bonus should have been paid if and only if he should have been employed, whereas he was not, so that the claim was dismissed.

Also in this case, the appropriate wording of the clause would have certainly helped the employer to better manage the issue. However, in this case, the doubt that the anti-avoidance implied term was actually breached by the employer remains. The FILON express term was in fact used by the employer to invalidate another express term of the written contract, that is, the one concerning the payment of a particularly generous bonus to the Appellant. This would have been paid to the Appellant only if this should have been employed by the concern after twelve months; but this condition was not met because the Defendant exercised its power or prerogative to apply the FILON clause to the detriment of the Appellant who undergone it.

However, each case is different from the others and details really count. In Reda v Flag, for instance, where two senior executives were dismissed by their employer in order to allegedly exclude them from the benefits of the company stock options programme, the court held that, according to the Claimants contract terms, the employer had the right to dismiss them for any reason. Even though this would have been not to pay them the sum linked to the stock option programme. In this case, the lack of ambiguity and a detailed and well written contract of employment and particulars enabled the employer to be successful. Yet, as properly stressed by Greenberg Traurig Maher (2011), since the Appellants had claimed that engaging the employer in this tactic had represented a breach of the implied duty of trust and confidence, this case also shows as a properly devised contract of employment can enable employers to protect themselves against the potential consequences of some implied terms.

Employers should be warned that after a bonus has been paid to an employee chances to claw it back, if any, are very limited. Indeed, the most likely circumstance under which a bonus payment can actually be clawed back is when the employee has breached a post-termination pact. The seminal case is represented by an employee breaking a restrictive covenant agreement terms. Other cases in which there may be chances for employers to claw bonus back are those in which these can prove that the objectives set for the bonus payment have been attained dishonestly or that the employer has voluntarily altered facts and/or data on the basis of which his bonus has been paid.

Indeed, the legal aspects associated with bonus payment are many-faceted and the best way to prevent problems to arise is do everything it is possible to do beforehand. Reward managers and employment law specialists need hence to tightly collaborate together in order to phrase a thorough, detailed and consistent clause concerning the payment of the bonus, trying to regulate all of the possible cases they could potentially be prompt to face in the future.

Varying scheme or bonus terms and conditions

With the exception of some statutory terms, each term of a contract of employment, once agreed and accepted by employer and employees, can be changed only with the consent of both parties, those who agreed them at the outset. Whether an employer should change unilaterally a term previously agreed between the employee and the employer, without the employee consent, this variation would be considered unlawful. At this point, nonetheless, comes to play the practical behaviour of the parties, used as a way to determine if a contractual term, or its variation, can actually be considered as an implied term. If the employee, in fact, does not object to the variation implemented by the employer and adapt his/her behaviour to this, the term will be considered accepted by the employee and changed by conduct. As we have seen earlier, this basically represents the flip side of the same aspect, bonus schemes implemented for years by employers initiative, albeit not being part of any express terms, are accepted by individuals who receive the sums of money and become legally binding for the employer too.

It clearly emerges that the existence of a bonus scheme within an organization can pose legal threats to an employer also when this would like to introduce changes in the existing programme. In such a case the risk is, in fact, that changes could be considered by employees as a breach of the current terms and conditions. Before introducing amendments to a bonus scheme employers should hence ensure that these are consistent with the current employment terms and conditions and do not entail any modification of these (Brettle, 2003).

If individual entitlement to a bonus payment is explicitly included in the written contract of employment, this can be altered only with the mutual consent of both parties. The agreement may be either expressed in writing or emerge by conduct. Employers need hence to be aware of the way the scheme is actually operated and executed. Over the time, in fact, the mechanism of the scheme, as initially agreed, might also have been changed in practice and the new mechanism of the scheme considered as having replaced the original or previous one.

The first thing to do before changing a term of a bonus programme is therefore inform the employees concerned. If a bonus scheme has been operated for a number of years employees would take it as axiomatic that it will continue to be operated in the same way. The importance of this implied, by conduct term emerged in Quinn v Calder (1996) where the employer had operated a bonus scheme which, albeit not included in the express terms of the contract of employment, was considered as such by the employees in that it had been consistently executed in the past. The court held that individuals continue to be employed considering the bonus as part of their terms and conditions and that the employer was aware of this circumstance. Essentially the by conduct term is based on the making and the acceptance of a bonus offer.

This tenet actually applies irrespective of the circumstance that a bonus has been offered and accepted in writing. In Noble Enterprises Ltd. v R. L. Lieberum (1998) it emerged that albeit the bonus payment had not been agreed as an express term (with the exception of 1994, when a written document was actually devised by the employer to regulate the bonus programme), the bonus scheme had been operated by the employer for a number of consecutive years, namely from 1992 to 1997, when the Appellant left the organization. The EAT therefore held that the Employment Tribunal (ET) had correctly deemed the scheme as contractual. Just because it had been operated for several uninterrupted years, employees could exactly calculate the amount of their bonus and each of them worked knowing that a bonus would have been paid to award their efforts. The court also held that since the scheme was effective also the Claimant had the right to receive the bonus payment. No documentation or information was, in fact, provided to the Appellant to notify him of having lost his right to the bonus payment. The Appellant was hence expected to be awarded the bonus as it had occurred during all of the previous years of employment.

One of the most important factor, arguably the most important factor, employers should consider when planning to introduce a bonus scheme within their business is that the moment the scheme is implemented within a business, irrespective of the circumstance that this have been introduced because of express or implied terms, individuals generate expectations. The longer the system is functioning and used in the firm, the more individual expectations develop and consolidate. As such, these expectations, or rather, the bonus scheme at the basis of their development becomes part of the psychological contract. Whether the employee should consider that the employer has not met these expectations and complied with the unwritten norm consolidated over the years, individuals feel that the employer has breached the psychological contract. Indeed, this unwritten agreement is actually underpinned by the mutual trust and the implied promise that both parties will perform as even implicitly agreed. All of that inevitably generates expectations, clearly on both sides. Although it might reveal harder for an employer provide evidence of an employee breach of the psychological contract, employee expectations can fairly easier be protected before a court which, in every circumstance, mainly made its decisions considering whether employee expectations have been met or otherwise. It could consequently be said that, to some degree, the psychological contract also benefits of some legal protection, if anything on the employee side.

Employers should inform the employees concerned, at least before the beginning of the period of time with reference to which the bonus payment decisions are made, of the circumstance that the bonus scheme cannot or will not be operated. This in order to both be transparent with employees, prevent them to develop wrong expectations, cause disappointment and ultimately having more chances of success should a case be brought before a court. When communicating employees the elimination or variation of the incumbent bonus scheme transparency and timeliness can definitely reveal to be of paramount importance. This way, in fact, employees can readdress their expectations accordingly and not perceive the change made by the employer as breaching the pact previously agreed, psychological contract included.

Indeed, also in the case of varying the current bonus scheme employers should carefully consider the potential breach of the implied duty of trust and confidence. Individuals affected by the programme change could potentially claim that the variation unilaterally implemented by the employer in the bonus scheme could seriously jeopardize the relationship of mutual trust and confidence existing between them. An employee, in fact, could also claim that the employer has engaged in such a tactic just to force him/her to resign. In this case it is very likely that the employee would claim a constructive dismissal. The change implemented by the employer would be considered as detrimental for an individual as to let him/her perceive that the implied mutual trust and confidence term has been irreversibly breached and that he/she has no option but to resign.

As posited by Brettle (2003), in the UK an individual entitled to claim constructive dismissal could also claim unfair dismissal against the organization. Most importantly, whether the court should establish and recognize constructive dismissal, this will imply that the employer has breached all of the contracts terms, those in its own favour included. In such circumstances, therefore, also express terms like restrictive covenants would be considered unenforceable.

In order to cushion the blow, employers, before implementing any changes to a bonus programme, should always inform and consult with unions or workforce representatives to explain the reason for the bonus cancellation or variation. This will, in any case, prove that the employer did whatever he could to modify or cancel the programme with the staff agreement and that the organization was acting in good faith. In such circumstance, it could hardly be argued that the employer breached the implied term of trust and confidence. This attempt will also provide evidence that employees were informed of the employer intention to vary the programme before changes were actually implemented. In case a new agreement will be reached between employer and employees, it is good practice let the former write a waiver letter to be attached to the original agreement or policy in order to prove that amendments were actually implemented with the consent of both parties (Brettle, 2003).

Longo, R., (2013), Legal risks emerging when introducing and varying a bonus scheme, Milan: HR Professionals [online].

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Job family V career family pay systems

2013-06-20T22:53:00.001+01:00

An investigation carried out by the IPD in 2000 (IPD, 2000) revealed that, albeit just 16% of respondents had introduced job family structures at the time, an additional 17% of employers had planned to use this approach in the incoming future. Reportedly, the main reason for employers envisaging to introduce this method was to avert the employees’ disappointment caused by the establishment of broad-banded structures. These were, in fact, perceived by individuals as not based on a clear, structured and easy to understand pay progression mechanic.

All of this seemed to represent a clear change of trend; employers, in fact, after having broad-banded pay systems in order to attain flatter structures and understate the importance of promotions, were then planning to introduce family-based pay structures with the contrasting aim to make employees aware of the opportunity for professional growth and pay progression offered by their concerns.

As for the mechanic underpinning the way these schemes are designed and developed, both job family and career family pay structures are based on the common approach of grouping under the same family jobs which are considered, in some way, connected the one with the others in that requiring the same set of skills, abilities and competencies in order to be properly carried out. The main feature of these methods is that a different family is designed and developed for each organizational function, such as HR, Finance, ICT, Legal, Sales, Marketing, etc., where a diverse degree of expertise and knowledge is required for the different levels of responsibility included within each family. Both job families and career-families thus essentially enable employers to integrate the jobs existing within the concern in a more systematic and consistent way. The distinction between the two approaches, however, is represented by the circumstance that whilst career-families share exactly the same architecture, this does not happen to job-families.

In the case of career-families the various families introduced within the same business employ exactly the same grades and even pay ranges for all of the levels included within each family are the same. This homogeneity amongst families actually enables employers and employees to make easy comparisons amongst the different families or, to put it in the Armstrong words (2010), to “read-across” families.

Things are fairly different in the case of job-family pay structures where each family has its own architecture based on the various functions peculiarities. Yet, pay rates are, in this case, determined according to the trends emerging in the relevant external labour market. This entails that, differently from career-families, job-families’ size of jobs and pay rates may be completely different amongst the various families, precluding thus employers and employees from reading across them.

By defining the level of knowledge and expertise required at the different levels of each organizational function, career-families practically help employers to outline and explain staff what qualities and competencies are required and sought by the organization in order to this offer individuals opportunities for career progression and development. Career-families hence, like pay structures based on job levelling, practically represent somewhat of career-maps, ultimately enabling individuals to find out what skills and competencies are required within a function to progress, what are the likely opportunities for growth and development offered within each function and which level of pay is associated with each career stage throughout a family.

In general, families can be related both to organizational functions, occupations groups and business units (Reilly, 2004). According to the circumstance that the functional or occupational groupings taken into consideration are associated with business units’ structures or otherwise, families can provide vertical in addition to horizontal integration.

One of the most important decisions reward professionals need to make as regards the introduction of families concerns the identification of their number. On a bid to keep pay systems simple, employers seek in general to maintain the number of families as small as possible. However, employers can clearly introduce as many families as they consider to be appropriate to the circumstances. Also with reference to this particular aspect hence it cannot be said by any means that a universal recipe actually exists; once again the one-size does not really fits all.

Determining the number of families is clearly easier when families are identified on the basis of the functions existing within the concern. This actually is mostly, but not necessarily exclusively, the case of career-families, which are not based on external market rates. In this instance, it could also be argued that the choice of the number of families leaves little or nothing to reward professionals’ latitude and discretion. In such circumstances, in fact, the number of families will certainly coincide with the number of functions existing within the business.

The problem can clearly be different in the case a pay structure is based on job-families. Invariably keeping in mind the aphorism “the simpler the better”, and that the main aim of introducing job-families is that to put in place a pay system as far as possible aligned with the external market rates, it can be suggested that the most suitable number of families should be that enabling employers to consistently differentiate pay according to the practical and real organizational needs.

In the event, for example, an employer should plan to introduce a dedicated family to a professional and/or specialist group, it should duly be considered that arguably this family could be transversal to the different organizational functions. In the labour market, however, there could be remarkable differences between the rates of pay of the different specialists included into a dedicated family according to the functions these activities are associated with. An ICT specialist’s pay, for example, could sensibly be different from that of a HR specialist and, indeed, sensible differences could also be identified amongst the different specialisations existing within the ICT and HR functions. In such cases, the problem could be overcome introducing, for instance, a number of families for the largest part of the staff and a different system for those roles which can actually be considered more difficult to include in more generic and comprehensive families (Reilly, 2004).

As for the number of levels to introduce within each family, it should be considered that whereas the number of levels within a job-family can vary from a family to the other, that defined for career-families is maintained invariably the same for all of the identified families; this number is usually varying from six to eight. Very practically, overall, families can be considered as pay structures having a single grade, where each family practically represents the different levels of pay included within the grade. Taken in isolation, instead, each family can be considered somewhat of a pay band where the different roles are associated with the various pay levels.

Differently from what occur in more conventional pay structures, where the definitions provided for each grade are the same, in family-based structures diverse definitions are introduced to outline the skills and competencies required by individuals in order to these progress within the family (Armstrong, 2010). Job families can thus reveal to be particularly useful when broad-banded pay systems are in place in order to establish a more structured approach to pay progression within a single band.

Pitfalls and benefits of families

Unquestionably, designing and developing pay systems having recourse to this method can enable employers to attain a wide range of objectives. Family-based pay structures can in fact, first and foremost, effectively and successfully help employers to develop a “common language” to reward, whereas differentiating functions the one from the other. Yet, families can also enable businesses to implement pay systems in the light of the different market rates existing for the different job groups (Reilly, 2004).

According to the Herts County Council, the introduction of job families can also favour employee mobility amongst the different departments and contrast the formation of organizational silos (Personnel Today, 2002). Moreover, job families can reveal to be particularly helpful in order to harmonize a business pay structure following the merger of two or more concerns. Reportedly, in fact, both the National Australia Group Europe (IRS, 2001) and Abbey (IDS, 2001), which resorted to the introduction of pay families after a merger, availed themselves of the introduction of this method.

Whereas career-families are more internal-relativities centred, job-families are mostly focused on labour market rates. Tending to mirror and reproduce internally external pay rates trends, these differentiate pay amongst the different families. This circumstance actually allows employers to attain some additional wider benefits. One of these is associated with the enhancement of a firm recruitment and retention practices. Employers whose pay structure is constantly kept in line with external market rates, in fact, should potentially be able to more easily attract quality staff and talents, whereas improving their retention strength.

Another distinctive benefit provided by families is that to reduce the administrative burden typical of the job evaluation exercise. Pay structures based on families, in fact, are designed and developed by associating jobs with grades on the basis of jobs descriptions. Especially in the case of career-families, the exercise can be carried out taking as a reference the competency framework already existing within the organization for each function. This will clearly enable reward managers to more faithfully and swiftly complete the evaluation process, whereas establishing a more reliable and consistent link between career progression, the skills and competencies required for moving up the career ladder and the salary associated with the different steps of the career pathway.

Moreover, the description of career-families levels is in general more reliable and consistent compared with that provided by more traditional pay structures. The former, in fact, relate to roles sharing the same features, albeit at different level of responsibility, rather than summarizing the different skills and abilities required throughout the whole organization which, sometimes, may also be difficult to amalgamate (Armstrong, 2010).

Career-family structures developed having recourse to the same grading system, especially when based on the job evaluation exercise, are fairly defensible and sustainable in case of equal pay claims. These, in fact, are developed emphasizing the importance of internal relativities insofar as enabling to read-across the grades of the different families. In contrast, job-families structures, mainly focused on considering the impact of the external labour market, are prone to expose employers to equal pay legislation problems. In the case of job-families, in fact, jobs of the same value could actually be paid differently as a consequence of the pressure exerted by the external labour market. The fact that these differences are very likely involving the overall family, rather than a single level of the family, can only contribute to eventually make pay differences even more unjustifiable and unsustainable before a Court (Armstrong, 2010).

To curb the problem, reward specialists should do their best to find reliable and accurate external data on the basis of which defining the internal rates. This is actually not always as straightforward as it might seem, especially for public sector employers (Reilly, 2004). In any case, for reliable data might be, external data will never be able to provide employers with any certainty that equal pay legislation tenets are reflected into them. That is why, in general, job-family structures are less likely to be defensible from the equal pay legislation point of view.

The problem associated with accessing reliable market data is clearly also important in order to employers keeping updated internal rates of pay with that existing in the external market. External data collection exposes hence employers to two different kinds of problems: equal pay legislation compliance and the need to regularly acquire new data in order to timely update pay rates.

An additional means to curtail the negative impact produced by family-based pay structures could apparently be that to reduce base pay and somewhat of balance differences by means of provisional pay supplements. However, employers should, in this case, be prepared to face the likely individual unwillingness to accept a pay reduction whether supplements should subsequently be withdrawn; albeit this is affecting additions rather than basic pay. Furthermore, the longer the period of time individuals have benefited of such supplements, the harder it will reveal for employers removing them. Yet, over time supplements tend to consolidate or to be perceived by individuals as consolidated, in base pay and managers usually feel definitely uncomfortable to support this kind of employers move (Reilly, 2004).

But this is not all; one of the most important backlashes provided by family-based structures is that these are perceived as divisive by individuals and in open contrast with the “single status” tenet fostered by the National Joint Council for Local Government Service (Armstrong, 2010). Indeed, the harshest opponents to family-based pay structures in unionized organizations are, in fact, Unions. These schemes are openly contrasted by Unions in that potentially or even practically justifying differences in pay for jobs of equal value. Indeed, this should not came as a surprise, these systems are, in fact, opposed by Unions as are opposed in general rates of pay based on market rates, rather than on internal relativities and, most of all, length of service.

Disadvantages with career-families are not limited to the legal problem and to the Unions opposition, career- and job-families systems, in fact, pose serious problems also in terms of practical design, development and execution.

At development level, although being less demanding than JE, families require lot of work and efforts to be accurately designed. It clearly depends on the number of jobs which need to be evaluated and on the difficulty encountered by the reward professionals concerned on matching jobs with families and with the grades within these. To favour accuracy, the process could be carried out on the basis of a template against which evaluate jobs and allot them into the relevant family and grade.

Also the implementation phase, as suggested by Reilly (2004), is everything but a straightforward process. Individuals, in fact, are all too often unsatisfied with the family into which their jobs have been included. In some cases, that is, when a job is characterized by features making it difficult for evaluators to determine the most suitable family, it might even be harder contrasting individuals’ opposition. In general, the reasons for employees’ complaints about their job allocation may concern either their status or the level of pay they receive. In both instances their feeling is that of having undergone a form of downgrade against which they ask for remedy.

It is supposed that family-based pay structures can also negatively influence internal mobility policies within a business. To this extent it cannot be said that a widespread agreement has been reached amongst employers. As seen earlier, in fact, some employers consider that families, clearly outlining the requirements necessary to fill a position, favour internal mobility, whereas others note that these actually contribute to favour progression only within functional or occupational silos. The moment clear skills and level of expertise are described for each family and for each grade within this, it should be no surprise that individuals could find it difficult, if not impossible, accessing most of the roles allotted in families different from that where their role is currently allocated. But this actually depends on the circumstances and more in particular in the way internal mobility is fostered and intended within a business. Strictly speaking, internal mobility should be intended as an opportunity for employees which can turn to reveal useful for employers too. It has to be used as a means of recognition and as a way to encourage individual professional growth. Depending on the circumstances and on the specific roles in question, barriers should hence definitely be removed and individuals put in the position to gain different skills and a broader knowledge of the business roles and activities; which will certainly contribute, in the mid to long run, to the organizational success too.

Albeit this aspect is not strictly associated with pay, reward managers and specialists have to be aware of all of the implications of introducing family-based pay structures and of the possible pitfalls associated with these. Another crucial aspect that reward specialists need to duly consider concerns how pay progression has to be managed within the business once this approach has been introduced. As we have discussed earlier, both career-family and job-family structures practically endorse transparency and clarity about the skills, knowledge and expertise required to progress within a family. Career progression, however, is clearly associated with pay progression, so that, since decisions about these aspects usually rest with line managers, employers need to be sure, before introducing this approach, that all of the managers working in the concern with responsibility for their direct reports careers, have received the necessary training to properly and effectively manage this type of scheme. The risk being that, efforts and hard work notwithstanding, inequalities, bias and pay drifts occur or continue to occur within the business.

The reasons why employers introduce family structures

Albeit by and large family structures cannot be considered completely flawless, many organizations have decided to adopt these over time in order to attain specific aims and objectives. The circumstance that concerns which have introduced family-based structures still use these clearly entails that the schemes have enabled them to meet their expectations and have proved to fit the business needs, organizational culture and reward strategy and philosophy.

Clearly objectives can be fairly different, but properly designed, developed and monitored family structures can effectively help employers to attain their intended goal. What certainly matters is that before introducing such schemes employers should ensure that these are suitable for their organizations and that the final decision has to be made according to the existing circumstances and not just because this approach has revealed to be successful elsewhere.

Longo, R., (2013), Job family V career family pay systems, Milan: HR Professionals [online].

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The scale and pace of change: radical or incremental – rapid or gradual?

2013-05-29T12:59:00.000+01:00

Albeit the frequency change is occurring in the external environment and consequently in the organisational context is relentlessly increasing, changes introduced within organisations can differently impact their operations, structures, processes and procedures. To put it another way, even taking as axiomatic that change, with the opportunities it offers and the treats it poses, is nowadays unquestionably high on all of the employers agenda, the impact of change and hence its effects over the different concerns, can instead be absolutely variable; such as will be variable the effects produced by different types of change introduced into the same business at different times. Considering this aspect, a hypothetical representation of the change continuum will not therefore result in a flat horizontal line, but rather, in an uneven line characterised by the presence of several as well as irregular up and down levels.

In general, when the magnitude of change is likely and expected to produce remarkable effects upon the business and the individuals concerned, the extent of change will be deemed radical; by contrast, whereas change is expected to not considerably impact the business it is regarded as incremental. Broadly speaking, it can hence be said that radical change seriously alters and impacts the current state of play and, as such, that it will consequently be feared and resisted the most by employees. Incremental change, in contrast, being perceived as less intrusive and invasive by individuals, is likely to give raise to weaker, if any, restraining forces to change. As suggested by Gallivan et al (1994), therefore, incremental change can broadly be considered as having a limited impact over businesses and people, in that it just entails adjustments and partial modifications or improvement of current products, norms, procedures, structures and knowledge, whereas radical change usually implies remarkable modifications, if not a complete replacement, of products, processes, structures and norms and can as such definitely be considered invasive by the individuals concerned.

This dimension of change, that is, the scale or size of change, is associated with the degree and intensity of the effects change is expected to produce, in terms of perceptions, over the individuals concerned. The ends of the scale of change have been called in different ways over time: evolutionary and revolutionary (Greiner, 1972), first-order and second-order (Bartunek and Louis, 1988), incremental and radical (Meyer et al., 1990), transitional and transformational (Wilson, 1992), first-level and second-level (Jabri, 1997) and continuous and discontinuous (Weick and Quinn, 1999).

Another important dimension of change is represented by the pace, that is, the speed change can be introduced and executed in practice. With reference to this facet, going from one extreme to the other, it is generally considered that change can be introduced and executed within a business either gradually or rapidly.

In order to make decisions about the most suitable approach to change, managers have to carefully consider the two different main implications associated with this aspect: the employer ability to contrast restraining forces and the employer capacity to eventually amend intended plans en route in order to attain the desired outcome and prevent the overall process failure.

Advocates of rapid change (Van de Ven, 1993 and Peters, 1993) contend that implementing change rapidly can effectively help employers to better counterbalance and contrast employees resistance to change, leaving little or even no room for hindrance. According to this viewpoint, the circumstance that the probationary period of change is brief will also make it easier for change to pass it. Yet, at least supposedly, over a short period of time it is less likely that restraining forces could associate and unite in order to effectively contrast change; individuals might, in fact, need a bit of time before finding out whereas the proposed change could actually threaten their personal interest and have detrimental effects over their status quo, ultimately causing them to move out of their comfort zones.

In the same fashion but taking a different or rather opposite viewpoint, supporters of the incremental approach to change management implementation aver that introducing change over a long period of time would ensure change a longer trial period during which managers can eventually identify anomalies and miscalculations and amend these accordingly. Whether during the execution process, in fact, managers should realise that plans are inconsistent with the pre-identified objectives and that, more in general, the plan is not proceeding as expected, to the detriment of the achievement of the intended original programme, these could still be in time to make the necessary adjustments.

Relationship between the scale and pace of change

During the last decades, researchers have tried to investigate if a linkage or even a cause effect relationship could be identified between the size and pace of change. Albeit these different studies have led to different and sometimes even contrasting results, a common view about the existence of a certain relationship between the two dimensions seems however to transpire.

Hammer (1990), for instance, contended that radical change can effectively and successfully be achieved only by means of a rapid implementation process, whereas Tyre and Orlikowski (1994) suggested that a gradual, phased implementation of change is instead necessary to ensure a change project success. To this extent, it might reveal to be fairly interesting comparing two different approaches, that is, the Culture-excellence approach with the Japanese approach to change management.

Amongst the advocates of the Culture-excellence approach, Peters (1993) suggested that employers should adopt a “big bang” approach to radical change management: “change radically and do it quickly”; Handy (1986), by contrast, supported a more gradual approach to radical change “big changes over a long period”; whereas Kanter et al (1992) argued that a blended approach, based on a mix of these two extremes, would have represented the most appropriate approach to change. According to the latter, invasive, remarkable changes, especially when these are affecting behavioural aspects, can successfully be achieved over a longer period of time only. Notwithstanding, they also recognized that, albeit radical change can effectively be attained in the long run, employers may also need to put in place initiatives aiming to achieve some tangible results in the short time. This is basically why their approach to change is defined as a combination of “bold strokes and long marches.”

The Japanese approach to change, called organisational learning, is essentially based on a more focused and structured method where the developmental phase of change basically consists in identifying and creating a vision of the future, whereas the execution phase is carried out putting in place all of the required actions considered necessary to move towards the desired position by means of incremental steps (Burnes, 2009). This actually is a methodology typical of the Kaizen philosophy to management, also known as lean production. This approach is underpinned by the idea that, in order to businesses improve their output’s quality or more in general to attain efficiency, changes have to be introduced and implemented gradually as well as constantly. Products and performance enhancement are, therefore, achieved by means of incremental rather than by means of rapid change.

The Japanese approach is hence based on making ambitious and extended plans which are subsequently gradually but relentlessly pursued till these are successfully attained. According to Burnes (2009), the effectiveness of this approach is questionable, in that, it is much less likely to work in western countries such as the US and the UK where competitive pressure seems to better be contrasted by business by means of implementing radical change over a short period of time and where a sort of built-in aversion to long-term thinking, especially within the financial service industry, which plays a pivotal role in the life of most other firms, dominates. Indeed, according to Cawsey et al (2012), Japanese entrepreneurs actually learned this approach from US management researchers such as Duran and Deming. Irrespective of this, it appears to be rather difficult thinking of Japan like a country which is not beset with troubles due to competition and exogenous-related pressures. Considering that the most accredited Japanese industries operate in the automotive and electronics industries, in fact, it is really hard to imagine that these might afford to be late of one single day vis-à-vis their competitors in terms of innovation or that these might be immune from the market pressure. This approach may eventually rather explains the reasons for Japanese economy having experienced some particular hardships during the last years. Yet, the circumstance that from time to time some Japanese automotive manufacturers are retiring from the market large numbers of car on account of some technical problems detection might induce to think that this approach is showing some signs of weakness, but this is a completely different topic.

Back to considering the pace and scale of change, a definitely compelling question concerns whether a direct relationship between these two dimensions of change actually exists in practice; and, more in particular, if it could be assumed that both radical and incremental change have to be implemented at a specific, universally recognised and well pre-identified pace.

Employers can actually decide, and sometimes even be practically obliged, to introduce changes for a wide variety of reasons. Yet, changes can be applied and related to different aspects of organisational life. Technology advancements, the need to change the organisation of work and the way activities are carried out within a business only represent a few examples of how changes can impact a concern. Indeed, changes can also affect deeper and more intangible aspects of organisational life which may require trickier, more profound and more thorough interventions, such as those aiming to transform organisational structure in order to more effectively sustain businesses strategies. For the same reason, changes may also be required in organisational cultures and pay systems as well. It can hence be agreed with Newman (1998) that change, albeit not necessarily radical change as she contended, “is a process by which firms regain competitive advantage after it has been lost” or, since prevention is better than cure, before it might be lost.

Since organisational wants can clearly be different and, most importantly, the different circumstances, which are subject to changes of their own over time, clearly play a remarkable role in change decisions, the one-size-fits-all approach is definitely to exclude in order to avert likely fiascos. This clearly entails that it would be pointless and even counterproductive trying to establish a universal, specific and predetermined link between the size and pace of change. Notwithstanding, one of the most important decision managers have to make, after having identified for each specific project the size of change, concerns the speed change has to be practically introduced and implemented. Strictly speaking, therefore, it can be maintained that a project aiming to introduce a given size of change should be implemented at the pace suggested by the different circumstances.

In order to identify the most suitable speed at which change should be better introduced, managers in charge of the project should first and foremost thoroughly and carefully analyse some important factors. Amongst these, the contextual factor is clearly of paramount importance. Indeed, both the internal and the external context are, in actual fact, likely to sensibly influence management decisions about the pace change has to practically be introduced.

When in the mid 1990s Mr Jong-Yong Yun was appointed as the new Samsung Group’s President and CEO, for instance, he clearly had to consider the internal state of play in addition to the remarkable pressure exerted over the firm by the exogenous context in order to identify the speed change had to be implemented. Albeit the main key to success was in that case represented by the type of strategy Mr. Yun decided to adopt, based on fostering and instilling a sense of crisis within the business, he would have not clearly attained the predetermined objectives if the speed of change execution should have not effectively supported the identified strategy.

Indeed, Mr Yun had to face particularly exceptional circumstances: the external environment was characterised by a severe recession affecting the whole Asian region, whereas the organisational context was utterly unsuitable and unprepared to face the current adverse conditions. A restructuring process leading to a workforce reduction of about a third of the existing overall staff, counterbalanced by the recruitment of 1,000 staff composed of American MBA graduates and PhD-level engineers, combined with profound changes in the concern’s management structure and a huge investment in technology, clearly depicts a situation of radical change. Even though it could be argued that in similar circumstances Mr Yun had not that many options available to him in order to decide the pace at which change had to be executed, this example shows the relevance and importance that the contextual factor plays over employers decisions about the speed change has to be introduced (Instilling a sense of crisis – Crisis v Urgency in change management).

The exogenous context

Samsung example shows on the one hand how the pressure exerted by the external context can play a remarkable role in management decisions about the pace of change and on the other hand how it can actually help employers to accelerate the speed of change without giving rise to relevant, if any, restraining forces. Whenever, in fact, internal decisions to change are dictated and imposed by the exogenous environment, change is much more likely to be accepted by individuals. In such circumstances, the pace of change can clearly be accelerated with little or no risk that this could fiercely be opposed by individuals, who will certainly be much more incline to accept changes when these are considered genuinely necessary, albeit these might require them to leave their comfort zone. In such circumstances, properly communicating staff the reasons for change, in order to individuals become aware of the scope and necessity for change and of how this can effectively and genuinely help the business to stay competitive in the market, will even be more crucial than usual.

Clearly, the influence of the external context is not limited to the impact a grim economic or financial scenario can have over the firm. Technological advancements, new legislation and many other factors, in actual fact, may require employers to introduce sensible changes within a business.

The endogenous context

In general, whenever possible employers would clearly prefer introduce and implement change as quickly as they can, irrespective of the circumstance change may be deemed as radical or incremental. Indeed, the pace of change implementation emerges as an issue for employers in that this is in general considered very likely to cause the emergence of restraining forces. Yet, the larger the magnitude of change, the harsher the likely resistance individuals will oppose to it. The pace of change has hence to be duly considered and adapted to the circumstances by employers in order to avoid these forces to emerge at best and to effectively and successfully contrast or curb them at worst.

As properly suggested by Boddy (2008), albeit employers aim to introduce change in order to alter the organisational state of play, the organisational context can in turn, even remarkably, influence employers change attempts. This is basically why Pettigrew et al (1992) made a distinction between receptive and non-receptive organisational context to change based on the businesses environmental characteristics, which may, in fact, naturally favour or impinge change.

This clearly depends on a number of factors but, amongst these, organisational culture clearly plays a pivotal role. Concerns whose culture is based on endorsing and stimulating continuous development and where individuals are invited to contribute new ways of organising and performing their job activities can clearly be considered receptive organisations; not only constantly ready to change but also ready to its rapid implementation. Other examples of receptive organisations can be considered those businesses whose culture fosters the need and readiness to exploit technological advancements. In Samsung, which is nowadays one of the most, arguably the most, valued and trusted global electronics manufacturer, culture is still based on fostering a sense of crisis and urgency. The tenet underpinning this idea is that, even though the business is performing incredibly well at the moment, it might take little for the tide suddenly and abruptly reverse.

It can be argued that the rate of change should very much be associated with the real need and perceptions employees may develop about the need for change.

It cannot and should not be overlooked that also the general and, more in particular, financial conditions of an organisation may play a role. Whilst individuals could accept, for instance, a rapid radical change whether the business is experiencing severe financial hardships, individuals might more likely prefer a phased, incremental approach in those cases in which the business is, for instance, financially healthy.

According to the kind of change, its pace can also be influenced by its magnitude. Taking as an example the introduction of a business-wide new technology, a sudden and too fast implementation could very likely produce a series of backlashes and a knock-on effect for employers too. Whether people will not be properly and appropriately trained and put in the position to comfortably deal with the new system and/or procedures before definitively using them, consequences might, in fact, be negative for both parties. Especially when changes affect different levels and units of the business a rapid, revolutionary approach, rather than a phased and evolutionary one, can clearly risk paralysing a business’ operations.

All-in-all, it can be concluded that the pace at which change is introduced by employers should be as faster as it could genuinely be supported and justified. Individuals, in fact, will be much more willing to accept a faster pace of even radical change whether this is perceived and considered relevant, pertinent, functional, proportionate and reasonable to the circumstances and to the attainment of the preset and communicated objectives. Clearly, the identified and communicated objectives need in turn to be sustainable and important too. It can be considered, according to the different viewpoints, somewhat of a virtuous or a vicious circle. Notwithstanding, individuals comprehension can be considered equal to individuals acceptance, if there are genuine, good reasons for introducing changes, just clearly explaining these to employees will dramatically increase employers chances to succeed.

Longo, R., (2013), The scale and pace of change: radical or incremental – rapid or gradual?, Milan: HR Professionals, [online].

Job Evaluation + Market Pricing = Job levelling

2013-04-03T06:47:00.000+01:00

Job levelling, also known as titling, as well as job evaluation essentially aims to determine internal relatives and job hierarchies in order to establish fair and consistent salary grades within an organization. The concept was developed back in 1956 by Elliot Jaques who suggested to adopt time span as the method to determine levels of work (Armstrong, 2010).

Levelling is essentially based on identifying the different levels of jobs, and eventually the different grades within a job family (Career Architecture), by means of a process aiming to pinpoint and outline “a clear set of standardized requirements.” These requirements will hence be used to clearly establish career paths or to put it another way to determine and explain how to progress from one level to the following one (Chen and Rosenstein, 2009).

In practice the process is executed by means of a prearranged framework, based on a number of different criteria or factors, which can and usually are essentially the same as those used for designing and developing the job evaluation exercise. The identified model can be applied to the overall business, regardless of the different functions and units existing within it. However, according to the circumstances, different needs and, more in general, whenever different kinds of competencies are required to more properly and effectively outline the different types of jobs object of assessment, different frameworks can be developed for the different functions existing within the same organization. In this case, each scheme will be designed and developed with respect to each function or unit peculiarities and taking into consideration the skills and competencies which mostly influence the performance associated with the execution of a specific category of jobs.

Job levelling schemes should be consistent and coherent with the jobs profiles associated with the different levels identified, in order to the former expressing the degree and level of responsibility associated with the job and the latter describing the job requirements in terms of tasks and skills (Chen and Rosenstein, 2009). Once the process has been completed, employers will be able to determine if the salary rates they are offering to their employees are higher or lower than those offered in the relevant labour market by the other organizations. Additionally and not negligible, as it is the case for the job evaluation exercise, in order to prevent the likely pitfall associated with equal pay legislation, evaluators should also ensure that individuals carrying out jobs of the same level are equally paid regardless of any gender, ethnicity, religion, and sexual orientation difference.

As contended by Armstrong (2010), job levelling if only applied to compensation can essentially be deemed “as no more than another name for job evaluation.” However, job levelling can reveal to be particularly useful for other important reasons and, even considering reward-related grounds only, when the way an organization evaluates internal jobs diverges from the way equivalent jobs are valued in the external environment (Hay Group, 2013). As seen earlier, job evaluation enables employers to determine internal relativities and hence internal pay fairness, whereas market pricing to establish pay rates competitiveness in the light of what happens in the external environment. Job levelling can indeed enable employers to achieve better results by means of taking and commingling together the best features of the two approaches.

The objectives pursued by the two methods are equally, crucially important, but it should not be overlooked that, in the case employers should pay to individuals salaries well above the market rates associated with the relevant level or grade, the business will be practically wasting money; whereas in the case an organization should pay lower rates than that prevailing in the labour market for jobs of equal value, employers would inadvertently seriously jeopardize their capability to attract and retain quality staff (Hay Group, 2013). Job levelling as an approach based on both JE and market pricing best elements can thus enable employers to actually design and develop sound and consistent financial reward systems.

The approach can either be based on a single or on a combination of different factors. In the case of the Birkbeck University of London (Hay Group, 2007), for instance, job levelling lead to a scale formed by ten levels. For each level an outline of the roles included in the level or grade is provided and a summary of the “representative tasks or activities” is also included. Notwithstanding, the job levelling process is basically underpinned by three factors: knowledge, skills and experience.

Job levelling is recently revealing to be particularly effective and suitable for multinational corporations or more in general for companies with a rather global-wide expansion, in order to these achieve extensive pay consistency across all of the interested regions. Global levelling can therefore be defined as a structured and systematic approach enabling employers to establish a common equality, both in terms of roles and pay, across all of the regions concerned.

However, not necessarily all of the different roles existing within an organization can be object of job levelling or anyway not all to the same extent. At multinational corporation level, for example, supporting roles are, in general, unlikely to be included in global talent management initiatives; in contrast, executive roles are usually all involved without any particular limitation (Bonsels, 2009).

As mentioned above, the job levelling exercise is not just limited to reward management-related reasons, if properly designed and executed, in fact, it can actually enable employers not only to introduce fair, legally sound and defensible salary structures but also to attain a number of additional priceless benefits.

Among the most compelling reasons for embracing this approach can clearly be identified:

- The creation of broad talent management practices better aligned with organizational strategy, objectives and culture;

- The introduction and implementation of consistent and effective internal and international talent mobility programmes;

- The prevention of resource dissipation by eliminating overcomplicated and exceedingly onerous administrative burdens, which will in turn contribute to improve overheads management and increase the quality of an employer value proposition;

- The introduction and implementation of more sophisticated and thorough Enterprise Resource Planning (ERP) structures and systems (adapted from Bonsels, 2009).

The combined achievement of these aims, in general, enable employers to attain better overall levels of performance, but this should not actually be cause for surprise by any means. Yet, the process can also be used as an effective means to review and amend existing reward management practices and talent management strategies, even though apparently considered appropriate to the current circumstances.

The concept and aims of job levelling from its first Elliot Jaques’ formulation are clearly remarkably changed and evolved over the time. From a tool enabling employers to define levels of work in terms of time span, it has evolved to a structured process whose benefits are now definitely wider and overarching; ranging from talent to reward management and from cost and risk management to governance (Towers Watson, 2011).

As mentioned above, in addition to enabling businesses to better manage their reward and talent management practices, this method can effectively help employers to: better administer and oversee, by means of improved HRIS, workforce planning; more promptly identify learning and development needs and to develop clearer and more factual and consistent career management and succession planning programmes.

Indeed, one of the most valuable benefits associated with job levelling implementation is represented by the opportunity it offers to develop clear, transparent, flexible and adaptable career maps which are easy to communicate and explain to staff; which is actually useful and important for employees too.

A career map can hence be defined as “a predefined framework with a series of career bands and levels that increase in complexity and responsibility, representing career progression opportunities” (Towers Watson, 2011). As such a career map provides and outlines, in a clear and comprehensible language, the criteria, requirements and capabilities demand necessary to progress from a level to the following one according to the pre-identified factors on which it is essentially built and developed. The shift from traditional numerical “points” to an outline of roles based on words clearly makes schemes more accessible to employees and help them to better identify and understand what an employer is expected from an individual in order to offer him/her a career progression (Charman and Blackwell, 2012).

Each existing role is associated with a career band and level, whereas each level is associated with a job family and describes how all of the jobs included in the scheme contribute to organizational effectiveness (Towers Watson, 2011). As such, career maps can be tailored and adapted to the changing organizational needs and provide employers with a clear and structured vision of the jobs which are or can be needed for the correct unfolding of the business activity; all of this can in turn enable employers to better plan and identify workforce requirements.

It is particularly important to highlight that the way this approach has recently evolved has also lead to a significant shift in focus from jobs to roles. More in particular, roles tend to be graded and outlined on the basis of their requirement in terms of responsibility rather than merely on the basis of the tasks which need to be performed. This ultimately accounts for having less jobs and a reduced number of roles categories and families, contributing in turn to make the overall framework more sustainable and less likely to requiring substantial changes over the time (Charman and Blackwell, 2012).

Job levelling is unquestionably an approach which deserves particular attention. In addition to potentially offering the benefits of both job evaluation and market pricing, it can enable employers to attain further and far reaching objectives; benefits, as we have seen, range from reward to metrics and analytics management. All of that accounts for this approach being likely to progressively attract the interest and attention of a growing number of employers, HR Professionals and Reward Professionals as well.

As for the job evaluation exercise, employers can approach this method either having resort to home-grown or proprietary brands, ready-made schemes, albeit it is much more likely that in the latter case schemes will surely need to be modified and adapted to the different specific circumstances (becoming hence hybrid). Amongst the consultancies offering this service can be cited Aon Hewitt, Hay Group, Mc Lagan, Mercer and Towers Watson which have all developed well tested methodologies.

Longo, R., (2013), Job Evaluation + Market Pricing = Job levelling,Milan: HR Professionals [online].

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Business strategy: good, consistent, effective, winning or sustainable?

2013-03-03T22:12:00.001+00:00

The circumstance that strategy execution can be considered of paramount importance for organizational success can be taken as axiomatic, insofar as many employers and practitioners as well tend to prioritise strategy implementation over the quality of its definition. Indeed, the exercise of trying to evaluate a strategy and more in particular to determine if this is good or bad could reveal to be a rather tricky attempt. Yet, this effort can actually even be considered as meaningless. Even thought a strategy formulation can clearly let transpire its genuine intent, in fact, being able to determine in advance if a consistent and effective execution will lead the organization to the right direction cannot really be considered an easy task whatsoever.

In any case, strategy execution can be considered as a means to an end, i.e. organizational success, but not as the end itself. To put it another way, whether business leaders have not correctly and appropriately identified the firm journey’s end, or rather, the never ending journey’s direction, an outstanding strategy implementation process would anyhow bring an employer to the wrong place at best and directly to bankruptcy at worst. It clearly emerges therefore that identifying and choosing the right strategy can reveal to be crucially important for a business, even more when this is operating in a gloomy economic context.

Considering what strategy is, however, and the reasons for a strategy being formulated and implemented in actual fact it would definitely be much more appropriate and meaningful referring to strategy, intended in a positive fashion, as consistent, effective, winning and, as long as possible, sustainable rather than good.

Whereas, in fact, the concept of good can be subject to different appreciation by the different individuals eventually involved in the tricky strategy evaluation exercise; consistent, effective, winning and sustainable features are likely to more objectively represent the desired outcome and result an organisation is expected to attain from the business activity. Employers do not need a strategy as a mere, good plan of action, or simpler as something nice-to-have but, rather, employers essentially need a strategy in order to set guidelines and a direction enabling them to enhance their performance, increase revenues and profit and ultimately being successful in their relevant market outperforming their competitors. More briefly, firms need strategies to attain competitive edge and maintain it as longer as they can.

If preset aims will subsequently be achieved and the organisation gets where previously desired and planned by its business leaders it would hence be thanks to the level and quality of strategy execution. It can hence be concluded that essentially the strategy process is divided into two main phases: identification and execution.

The end of the identification process will lead to strategy formulation, which should aim to clearly state the business intent both in terms of the definition of the market(s) in which the organisation wants to compete, how to approach it and the position the business wants to occupy within it. Once a strategy has been carefully and thoroughly identified and formulated, however, as we have seen earlier, it will be difficult to judge it as good or bad and let alone would make any sense attempting to do it. For difficult it anyhow is, it would instead be much more worth the effort to determine if the identified strategy is clear, consistent, likely to be winning and over what period of time probable that it will be sustainable.

Since strategy is determined and defined by employers according to and on the basis of the information available to them at the moment they are planning for the future of their businesses, it is clear that we are looking at a speculative process. Business leaders, in fact, cannot be sure whether their intended plan will lead them to the right direction or rather if the direction they have identified reveal to be winning. They clearly hope that, but cannot be sure; which is perfectly consistent with the risk typical and proper of setting and running a business.

In order to ensure that everybody is singing from the same hymn sheet within the business, amongst the most important features characterising a strategy definitely have to be transparency and comprehensibility. Strategies hence need, first of all, to be clear, consistent and coherent with the genuine aims and objectives an employer is aiming to pursue. In order to produce the desired effect, it is therefore of paramount importance that strategy is formulated in a way clearly linked to and to some extent evocative of these. Once an employer has thoroughly investigated the external and the internal context by means, for instance, of PESTLE, SWOT and scenario planning tools, the approach to the market and the positioning within it have therefore to be clearly reflected in the identified strategy.

Indeed, consistency is a feature which can be assessed from the very beginning, that is from the moment it has been identified, and can also be monitored throughout the execution process too. In the event, in fact, the implementation process is either deliberately or involuntarily deviating from the initial plan, business leaders and/or strategy specialists and managers should be able to identify the eventually emerging gap and decide if and how, whether required, take action accordingly.

Effectiveness is instead concerned with determining if during the execution process the outcome and results attained by the business coincide with the initial plans set by the business leaders. Consistency will thus enable employers to determine if any change is occurring vis-à-vis initial plans, whereas effectiveness enable strategy executives and/or managers to evaluate if preset plans are producing the intended outcome and results. This does not necessarily entails that the strategy is revealing to be winning, but just that the plan is unfolding consistently with initial plans.

Whilst effectiveness will therefore be impossible to predict and let alone assess at the beginning, it can, instead, be properly monitored and assessed throughout the strategy implementation process.

Indeed, a consistent, effective and well executed strategy cannot ensure employers to be successful in the relevant markets these have determined to compete in. Employers can, in actual fact, make plans, monitor and keep under constant control that execution is leading the organisation where they had planned this had to go, however the identified direction could finally reveal to be the wrong one. This being the case, the preset strategy will reveal to be unproductive, fruitless and unsuccessful.

A winning strategy is hence a strategy enabling employers to gain competitive edge over competitors and to acquire a relevant and steady position in the market. A strategy could be deemed winning when having this being properly identified, monitored and executed will enable employers to increase revenues and profits and stabilise the business presence in the market.

Notwithstanding, businesses existence, stability and long-lasting presence in the market cannot be firmly associated with, and assured by, a given strategy; if anything not necessarily and hardly in the mid- to long-run. Even though hence the assessment of a strategy sustainability is of paramount importance, this has not to be intended in the sense that the identified strategy, despite having been deemed sustainable, has to be necessarily maintained unchanged over the years. A winning strategy will be maintained as long as it reveals to be winning, the moment business leaders should feel or perceive that the strategy in place is no longer sustainable, or is about to become no longer sustainable, these should promptly amend this accordingly.

Being able to assess if and for how long a strategy could reveal to be sustainable is obviously extremely difficult. Prediction can only be based on what employers consider probable to happen in the future and what they expect and consider possible to happen in practice. The process is hence very much intended to predict and anticipate future trends and customers’ wants and expectations and identify the most suitable way to meet these. We are clearly looking therefore at a prospective exercise.

Many industries, especially consumer electronics or more in general employers operating in a field whose products are sensibly influenced by technological development, might sometimes find it relatively straightforward develop a new winning strategy, but are likely to be exposed to more serious threats in terms of strategy sustainability, meaning by that that these kinds of firms might be particularly subject to more frequently assess and amend their strategies even to ensure their business survival.

Indeed, the problem with a winning strategy is that, differently from consistency and effectiveness, business leaders will be able to find out if a strategy will be winning or otherwise somewhat of retrospectively. It is, in fact, just after that a series of actions and activities have been implemented and carried out that employers will be able to assess the worth and value of the preset plan. What worse, according to the circumstances, employers might find out that the pre-identified strategy could even reveal to be detrimental to the same preservation of the business operations when there is little or nothing to do or to put it another way when it could definitely be too late to even trying to change or reverse the course of action, which could have already reached a point of non-return.

Unfortunately, being able to discern if a strategy can reveal to be winning or otherwise beforehand is an utterly difficult feat and even virtually impossible to predict, so that in most cases employers can find it out only by looking back and with the wisdom of hindsight.

However, the circumstance that employers can assess the success of their strategies just retrospectively should not be associated with the idea of emergent strategy. Supporters of emergent strategy, in fact, aver that the pace at which changes occur in the external environment accounts for employers being unable to formulate strategies and that these can thus even be identified retrospectively. Although the circumstance that the external environment is changing at an increasingly rapid pace can be taken as axiomatic, it cannot be supported and backed the idea that employers are to some extent victim of the circumstances and have no influence at all over their strategies. This would consequently entail that businesses might all go towards the same directions or contribute to make, if anything, it harder to determine on the basis of what a business is successful whereas others are not. Once again, electronics manufacturers may be more exposed to change than employers operating in other industries but this does not entail by any means that these employers do not have craftily devised, intended, intentional strategies.

By contrast, it can instead be argued that it is just when employers lose control of their strategies that businesses start getting into serious and, all too often, irreversible troubles. In some cases, employers are even forced to leave the market and cease operations for not having taken action, timely changed strategy or, simpler, for persisting with the current, inappropriate and henceforth obsolete strategy.

When in the mid 1990s Mr Jong-Yong Yun was appointed as Samsung Group President and CEO, for example, he definitely had crystal clear ideas about the change of strategy, starting from the internal context, needed by the South-Korean business in order to recover and emerge from the severe financial crisis affecting at the time the entire Asian region.

The same can also be said for Lenovo’s 2009 appointed CEO Mr Yang Yuanqing, who has enabled the Chinese computer manufacturer to become in less than 3-year time, by means of a tremendous rally, the leading PC global manufacturer ahead of HP, Dell, Acer and Asus (The Economist, 2013 – Source Gartner). Whilst the South-Korean business owes it spectacular success to, but clearly not only, the change process lead by Mr Yun based on encouraging a sense of crisis and instilling in management a sense that the company could go bankruptcy any day (Yun, 2003), Mr Yang strategy is based on the “Protect and attack” approach, namely protect the Chinese market and corporate PC sales unit, while attacking new markets introducing new products (The Economist, 2013).

Both Mr Yun and Mr Yang strategies reveal to be more than simply successful, without a doubt these examples are at the same time astonishing and astounding and clearly none of them owe these results to something which just happen and has not been previously meticulously and craftily planned and subsequently constantly monitored and controlled.

Indeed, the strategy developed and executed by the South-Korean giant has proved in actual fact to be absolutely sustainable, even though this does not really necessary entail that no change of strategies have been developed and implemented during these years. Indeed, the secret of the success cannot exactly be considered as a secret, but rather, as a matter of the strategy pursued by the South-Korean manufacturer which has clearly revealed to be a winning one, at least so far.

Considering the smartphone market, for instance, Samsung’s winning strategy can be deemed as a “spray and spray” strategy. Essentially, the overwhelming success of the electronics giant is based on the incredibly wide range of Android models introduced in the market, enabling the South-Korean manufacturer to meet all kinds of wants at every price. The unquestionable success of Samsung seems hence be based on the “breadth and depth” of its offering (Mobile Network Comparison, 2013).

By contrast, Sony is allegedly likely to change its strategy in the incoming future. According to Mr Hirai, Sony CEO, in fact, the Japanese reputable manufacturer might soon abandon the low-level market to focus its offering on top-of-the-range products (Mobile Network Comparison, 2013). As further explained by Mr Sneeden, Xperia PMM, probably, because of the failure of the Sony Xperia J, Sony will abandon the smartphone entry level segment, in approximately two-year time, in order to focus on the “mid- to premium tier” (Low, 2013 – CNET Asia). The final aim is clearly to produce quality items only, and preserve the “Sonyness”, considered as a distinctive hallmark of high quality of all of Sony’s products. The same approach is likely to be used by both the Taiwanese HTC and the American Motorola (Mobile Network Comparison, 2013).

By contrast, Apple, which since its founder’s, Steve Jobs, death in 2011 has offered little in terms of innovation, is rumoured to preparing to introduce a cheaper iPhone. The firm has denied of having such a plan, however, someone consider that a cheaper iPhone is indeed in preparation but just in order to be marketed in the emerging markets (The Economist, 2013).

The strategy pursued by Samsung in the smartphone market seems to be different from that that its competitors are going to embrace. Reportedly (France 24, Source Les Echo), as a consequence of the current global economic slowdown, and not surprisingly, the organisations performing better are in general those producing low-cost and top-quality items. This could justify the change of strategy in their positioning within the mobile phones market decided by Sony, HTC and Motorola, the problem being that there might be too many competitors for the same share of market or niche. Whether in the future will reveal to be winning the strategy adopted by Samsung or that adopted by its competitors is anybody’s guess (although everyone might have its own opinion and perception). What is certainly sure is that business leaders always have clear ideas about what they want to do and the strategy and direction their organisation have to pursue, but they can obviously be unsure about the final outcome or aftermath of these. However, keeping focused on the current and future trends and constantly analysing the market can undoubtedly enable employers to avoid major failure or, the worst comes to the worst, to cushion eventually the blow.

It can be concluded that whereas the concept of good or bad can hardly be considered meaningful when associated with strategy, the concepts of consistent, effective, winning and sustainable, even though not invariably being under employers’ full control, can definitely reveal to be much more significant and explanatory. More importantly, especially when the economic landscape appears to be bleak, employers need to be more focused on their strategies and take prompt action to adapt these accordingly as soon as they perceive and receive the first signal that market trends are likely to change.

Longo, R., (2013), Strategy: good, consistent, effective, winning or sustainable?, HR Professionals, Milan, [online].

Reward vs recognition

2013-01-27T22:51:00.002+00:00

Very often the words reward and recognition are used interchangeably by reason of the overlap existing between the two terms. Indeed, relations and associations between the two terms notwithstanding, these are actually associated with two different concepts and are, or rather, should be used in practice by employers to achieve two different objectives. Perhaps many employers are not fully aware of these differences, but having crystal clear ideas about their real meaning and aim can definitely reveal to be useful in order to organizations more properly and effectively design and develop total reward systems within their businesses.

Limaye and Sharma (2012) claim that recognition is mostly intended to thank employees for doing the “right thing”, whereas rewards are basically offered to individuals in order to compensate them “for their efforts and contribution” to the organizational success. They also maintain that whilst recognition is mostly based on non-financial means, reward is intended to meet individual financial expectations.

Rather different appears to be the definition of reward provided by Stewart (2011), who defines reward as a financial or non-financial item conferred to an employee for “completing/reaching an achievement/milestone.” Indeed, this definition is practically sensibly overlapping with the definition provided by the same Author of recognition, the difference being apparently exclusively relying on the different, and in both cases posterior, reasons associated with the awards: the attainment of an objective in case of reward; the behaviour, effort or business result favouring the attainment of the organizational objectives in the case of recognition. Indeed, these definitions of reward and recognition could have been considered consistent in the event a further definition, for instance that of compensation or remuneration, would have been considered to refer to fixed salary. In this case, in fact, rewards and recognition could have been identified with the different kinds of achievements or outcomes employers would have aimed to award, whereas compensation or remuneration could have been associated with the fixed component or reward. All-in-all, in this definition the fixed component of reward, which is indeed compulsory, seems to be missed and reward would seem totally formed by variable components. Adding a third component, instead, would have lead to a classification very similar to that used by British Airways where a distinction is made amongst reward - which is associated with pay; incentives - which are offered when objectives are attained by employees and recognition - whose purport is saying thank you to employees for specific achievements (Rose, 2011).

Assuming to extensively consider reward as also including incentives, the crucial factor on which the difference between reward and recognition mainly relies is actually time-related. Rewards are promised by employers to individuals from the start of the working relationship, whilst recognition arises in an after-the-fact fashion (Silverman, 2004). Yet, rewards represent an important part of the working agreement, these are, in actual fact, agreed, identified and included in detail in the written contract of employment, whereas recognition is not usually part of any legal written contract. As aptly summarized by Rosabeth Moss Kanter (Rose, 2011): “compensation is a right, recognition is a gift.”

Indeed, inasmuch as employers regularly paying salaries and financial rewards to their staff can be deemed legally compliant, those who do not introduce and offer to their workforce recognition schemes can be considered as breaching the psychological contract. Nowadays, in fact, individuals are not just expecting to receive from their employers the payment of the financial rewards contractually agreed but also to be recognized and acknowledged for their efforts, achievements and contribution.

Another element of paramount importance at the basis of the difference between reward and recognition can be identified in the definition provided by Juran (2003), who defines rewards as the money paid by employers to staff in the forms of salary increases, bonuses and promotions which are linked to the assessment of individuals’ overall performance and are normally offered in private, whereas recognition is expressed by means of events or ceremonies aiming to give visibility and publicity to commendable performance and achievement. Similarly, but even more explicitly, Ostendorf (APQC, 2002) suggests that “recognition is more than likely going to be public. Rewards don’t have to be.” Indeed, the reason for giving visibility to recognition is associated with the same scope underpinning the introduction of the overall scheme, that is thanking individuals for their particular contribution and efforts. Clearly a public formal thank you is likely to produce much better effects than a private one and is also likely to be remembered for a longer period of time by the individuals concerned. What matters the most is the message that recognition intends to put across. Whatever the incidence of the tangible, non-financial component within the selected overall form of the award, the main element of recognition still rests with the thank you. Completely different is the case of rewards, these have, in fact, contractually been agreed and as such represent somewhat like a debt for the employer and are practically due to the employees, not negligibly, regardless of their performance and behaviour.

The introduction of recognition programmes within organizations help employers to differentiate salary from the other initiatives (Rose, 2011). This process is basically enabled by a psychological state which Jeffrey (2003) calls separability. The tenet at the basis of this human attitude is that individuals essentially tend to aggregate and separate things and phenomena according to their sources and the way they are perceived. Employees who receive, in addition to their salary, supplements for their outstanding performance, efforts or achievements are likely to consider the overall amount of money all-in-one as deriving from their job and to disregard the circumstance that part of the overall sum of money has been received for something special. In contrast, recognition initiatives are much more likely to be recalled and as such appreciated the most by individuals. The same perceptions are likely to arise in the case of non-consolidated cash bonuses, keeping these amounts separated from salary will help individuals to differentiate them and induce employees to attach to them much more significance and value (Rose, 2011).

Another distinct asset of recognition programmes mainly based on non-financial rewards is the so-called “memory value”, whose concept is associated with the idea that individuals are most likely to remember non-cash awards than money. Findings of an investigation carried out in 2006 by Workspan revealed that a remarkable 18% of respondents did not even remember how they spend their cash rewards. Inasmuch as people can be delighted and proud to show to their relatives and friends an object that they have received as a “thank you” from their employers, they are likely to be even thrilled to tell their relatives and friends about a travel to a popular destination received from their organization. Additionally, in the latter case memory is destined to even be longer-lasting (Rose, 2011), also thanks to the pictures which will be taken, shared and showed to friends in different occasions and perhaps posted online by means of social networks.

Recognition awarded by means of non-financial rewards provide thus individuals with external in addition to internal visibility. This will clearly make employees even gladder and more proud of their work, making them understand that if their employer is publicly awarding them is because the activities and tasks they carry out are deemed meaningful and useful for the business success. Yet, individuals will thus recognize that the employer is giving them the opportunity to perform and do things which are appreciated and significant for the business, which should contribute in turn to increase employees gratefulness and loyalty to the employer too.

Yet, the emotional impact spawned by non-financial awards, which can also result amplified by the circumstance that these are handed to employees on occasion of specifically planned public events, is also correlated to other two mental processes called by Jeffrey (2003) evaluability and justifiability. The concept of evaluability is linked to the value which different individuals can associate with a non-financial award which, in some circumstances, might also be perceived as higher than the real purchasing cost of the item or service provided by the organization. The idea of justifiability is instead associated with the circumstance that, even though individuals could have actually bought by themselves the items they receive from their employer as a thank you, they do not in that might consider those items or services particularly costly and in some ways not necessary for themselves and/or their families. This, however, does not really entails by any means that they do not appreciate, and justify, receiving them.

Non-financial rewards will be even more welcomed and appreciated by individuals whereas these have been chosen by an employer having in mind the beneficiary likely expectations and wants. This will unquestionably proof that the employer has dedicated time and thoughts to the individual and that its efforts were focused on providing the employee with something he/she would have genuinely appreciated and not that the employer is giving anything, maybe even cheap an outdated, just for the sake of giving something (Rose, 2011).

However, reward managers and specialists have to be extremely careful when designing and, above all, managing these schemes and need to do whatever they can in order to prevent the flip side usually associated with these programmes, which can trigger dissatisfaction and discontent amongst the individuals not receiving any form of award (Armstrong, 2010).

As maintained by Rose (2011) it is somewhat ludicrous that employers spend much more than half of their overall annual budgets in reward and employees neither appreciate their worthiness nor “understand what it is about.” Indeed, the real true is that in many cases employers too have not totally clear how and why they offer rewards to their staff. This is certainly causing confusion amongst employees but also amongst business leaders and managers as well. If rewards are intended as the sum of salary and incentives and recognition schemes as a means to say “thank you” to individuals, managers need to be aware that in order to award a specific achievement is not a salary increase that they have to ask for to the employer, as well as if they want to acknowledge the regular and constant outstanding performance of a direct report it is not a flat-screen colour TV that they have to propose for the individual concerned. The mechanic of these rules have to be first of all clearly identified and hence shared within the entire organization’s management, in order to prevent triggering potentially dangerous backlashes, unintended negative outcomes and indirectly foster undesired behaviour.

The BA model distinguishing fixed salary from incentives and recognition schemes, can reveal to be clearer to understand and hence to explain and execute. Indeed, this scheme enable managers and employees as well to associate specific reasons with each element of reward: fixed salary – according to the salary grade system, incentives – outstanding performance and results and recognition – to thanks employees for specific achievements and behaviour.

Longo, R., (2013), Reward vs recognition,Milan: HR Professionals [online].

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Risk and Reward Risk Management

2012-12-08T22:54:00.001+00:00

Risk management and consequently reward risk management, need to be carried out in a structured and systematic way. Effective reward risk management requires hence that a few but important stages will be carried out in a specific and structured order. Although a number of different approaches and methods to risk management have been developed, some common steps can actually be identified. It is in any case recommended that in those organizations where risk management approaches and techniques already exist, reward risk management should be carried out according to the risk management approaches already in place. As suggested by the CMI (2010), in fact, “risk management is most effective when embedded into existing systems which are established and accepted, rather than creating stand alone systems.” Moreover, this approach will also enable employers both to save the time of designing and developing the process from scratch and to confer it, and to the outcomes it will produce, more reliability and credibility (CIPD, 2009).

The first step of risk management is in general represented by risk identification and classification. This stage is actually particularly important because, putting reward professionals in the position to determine to what kinds of risks their organizations could be exposed in term of rewards, can consequently enable them to determine, amongst the identified risks, those which are likely to have or are deemed to have the highest impact over the business reward system (CMI, 2010).

Reward managers and specialists should do whatever they can in order to identify the largest number of likely risks to which the organization reward system could realistically be exposed. In order to effectively and successfully attain this goal, reward professionals should involve individuals coming from the different functions of the business and hopefully build a real network by means of which gather as much information as possible on what events might happens and what effects they could eventually have over reward.

Without a doubt, the functions which can mostly help reward professionals in the risk identification process are risk management and compliance and internal audit.

The compliance and/or risk management functions can potentially provide reward managers with some precious information about the range of risks to which a business could be potentially exposed. Whereas regulations directly associated with reward should, even though not necessarily, be known by reward specialists it is very likely that rules not directly associated with reward, but potentially affecting it, might not. Compliance and risk managers support and knowledge, could, hence turn to be particularly important.

Indeed, internal auditors could reveal to be an important source of relevant information for reward specialists too. These, in fact, being aware of the risks which might affect the business and being regularly involved in testing the effectiveness of the control system put in place by the employers to contrast them, can very likely have already identified potential risks deriving from or affecting the firm’s reward system.

Other relevant information can actually be gathered within the same HR function. People in charge of the personnel budget, in fact, especially when using software enabling them to make future prediction costs by means of “what-if” scenario tools, can provide useful information about the future total overheads which an employer will be called to honour.

In those organizations where there is not a personnel budgeting unit, these data can be provided by the Finance function.

Other crucial HR allies in the risk management process might be represented by the organization’s business partners. These can, in fact, reveal to be a tremendous source of intelligence as for what concerns employees reactions and attitude towards the reward system implemented within the business and the effects this enable employers to achieve or otherwise in terms of retention (CIPD, 2009).

All of these sources are clearly of paramount importance, but there is still another source which could enable employers to collect remarkably important information, namely trade unions and works councils. Individuals leading these groups, in fact, being very close to employees, undoubtedly know their genuine thought and perception about the current reward system and their likely reaction to, and appreciation of, a different reward system eventually introduced.

Additional data, relevant for present and future reward decisions, can also be gathered within the internal context by means of:

- Exit interviews: these can enable reward professionals to find out if it has ever occurred that individuals have left the business because of reward-related reasons;

- equal pay audit outcomes: these can enable reward specialists to determine if pay is perceived as fair and if discrimination is perceived as existing within the firm;

- HR managers and line managers, who can provide information: about the rate of the accepted employment offers; about why some of these have not been accepted; the turnover rate; etc. (CIPD, 2009).

The second stage of the process is represented by the risk measurement and evaluation phase. This analysis will enable employers to investigate and determine how likely it is that the reward risks identified will occur and, eventually, the magnitude of consequent impact they could be likely to produce on the business (CIPD, 2009).

The approach most widely used to assess risk probability in risk management is represented by the Probability Impact Matrix (PIM). This method basically consists on identifying risks and associate to each of them a numerical value in order to express both the likeliness that they might occur – probability - and the impact they will eventually have on an organization’s reward system – impact. The final index will be obtained multiplying the value associated with probability by that associated with the impact. The higher the final scores related to each risk, the higher the probability that it actually will arise and have a considerable impact over the reward system. Clearly, this approach will enable employers to determine the priority order according to which risks need to be dealt with (Risk Management Capability, 2011).

In general, both impact and probability are assessed having recourse to a five bands scale. To both probability and impact is associated a numerical value corresponding to the scale: very low, low, moderate or medium, high and very high. Are actually these values which, multiplied the one by the other, will produce the final score.

Probability		Risks Probability Impact Index
Very High	0.8	2.4	5.6	12.8	32	80
High	0.6	1.8	4.2	9.6	24	60
Moderate	0.4	1.2	2.8	6.4	16	40
Low	0.2	0.6	1.4	3.2	8	20
Very Low	0.1	0.3	0.7	1.6	4	10
		3	7	17	80	100
		Very Low	High	Moderate	High	Very High
		Impact
		Impact

Figure A

In the example - Figure A, risks whose indexes are included into the red-shaded cells represent the most urgent reward risks which need to be mitigated and against which reward managers should take immediate and firm action. Whereas those included into the orange-shaded cells are those risks against which reward professionals will need to deal soon after having appropriately and effectively found sound solutions for the red-shaded risks. Finally, it will be the time to deal with those risks whose index has fallen into green-shaded cells.

It is important to underscore the fact that probability impact matrix approaches do not represent absolute methods to risks management. To put it another way, this kind of approach will enable reward professionals to assess reward risks relativities, i.e. to determine amongst the identified reward risks which are the most threatening for an organization and need, hence, to be promptly dealt with. But this method does not enable reward managers to identify risks, so that those which will not be identified and included into the matrix could still continue to represent a serious threat for the business and, what worse, remain unaccounted for.

Reward specialists should be aware of this circumstance which, however, cannot be considered as a real limitation of this approach, in that this method simply aims to categorize risks according to their detrimental impact on organizations, whereas it is not concerned with also identifying the variety of risks to which a business could actually be exposed. It can be said that PIM is to risk management as job evaluation is to grading jobs, in the latter case too, in fact, job evaluation enables employers to determine a scale or relativities amongst the identified jobs, but if not all of the possible jobs have been considered, something will surely not work properly by reason of this.

There are, however, a series of additional activities which need to be carried out in association with the use of PIM approaches. Amongst these, having no doubt about each risk ownership and eventually stressing the existence of relationships amongst the risks identified is definitely crucial. Also in this case, in fact, the bundling approach, even though in a negative fashion, could come to play. Each risk can, in fact, have a negative impact on the reward system, but in combination with others the extent of this impact could result further magnified. However, it would be wrong having recourse to additional arithmetic calculations, as for instance summing single indexes, to determine an overall risk index (RMC, 2011). Another important thing to do is do not consider that all of the identified risks need to be mitigated; this, in fact, need to be done according to the pre-identified risk appetite or tolerance (RMC, 2011). This stage is therefore crucially important also in that it actually provides precious insight to employers in order to decide if accept and hence manage risks.

As we have seen, occurrences impacting on a reward system not necessarily have to be considered negative, i.e. as downside risks, these could also, in fact, reveal to be real opportunities for reward specialists, upside risks, and hence requiring to appropriately be exploited.

Also positive events should hence appropriately be investigated and assessed and to this extent the probability impact matrix can, once again, definitely help. A mirror matrix, developed from the matrix developed in order to exclusively assess threats, will enable reward specialists to attain the aim, i.e. assessing at the same time and by means of the same tool both opportunities and threats (RMC, 2011), Figure B.

		Probability Impact Index
Probability		Risks					Opportunities						Probability
Very High	0.8	2.4	5.6	12.8	32	80	2.4	5.6	12.8	32	80	0.8	Very High
High	0.6	1.8	4.2	9.6	24	60	1.8	4.2	9.6	24	60	0.6	High
Moderate	0.4	1.2	2.8	6.4	16	40	1.2	2.8	6.4	16	40	0.4	Moderate
Low	0.2	0.6	1.4	3.2	8	20	0.6	1.4	3.2	8	20	0.2	Low
Very Low	0.1	0.3	0.7	1.6	4	10	0.3	0.7	1.6	4	10	0.1	Very Low
		3	7	17	80	100	3	7	17	80	100
		Very Low	High	Moderate	High	Very High	Very Low	High	Moderate	High	Very High
		Impact					Benefit
		Impact					Benefit

Figure B

During the risk assessment and evaluation phase it is also important duly considering that risks can, for instance, have a limited financial impact but likely to produce remarkable reputational backlashes, as it has been the case, for example, of the financial services industry firms before the financial crisis lead to couple together the negative effects of the financial loss with the reputational loss.

The third stage of the process is represented by the risk managementand mitigation phase. This step is basically concerned with deciding how to handle the reward risks identified consistently with the business’ risk appetite as defined by the board at a given time. As we have anticipated above, risks cannot be completely avoided and prevented by employers for the simple reason that risk is itself part of each business’ activity. Appropriate risk management should, hence, recognize that employers take risks having full understanding and consciousness of the impact specific events can have on their organizations at any one time (CIPD, 2009). If on the one hand this means that employers deliberately take risks, on the other hand this also requires that businesses will decide and set beforehand the limit or level of risk which they are willing to take. This limit is broadly known as risk appetite, although someone wrongly refer to this concept in terms of risk tolerance. In order to avoid mix-ups the Institute of Risk Management (2011) has made a clear distinction between the two terms. More in particular risk appetite is defined as the “amount” of risk an organization is willing to accept in order to facilitate the attainment of its pre-identified objectives. Although the term appetite might mostly induce to think about food, required for satisfying one’s needs, in term of risk management risk appetite should be rather intended as the level of risk in front of which an employer is still in the position to decide to “fight or flight.” To some extent, hence, employers in such circumstances are still in the position to face the risk beyond the predefined limit or can, if anything, decide to do so. The idea of risk tolerance is, instead, associated with that level of risk an employer is not prepared and ready to face or to venture in order to achieve its organizational objectives. This is an area, hence, whose borders are impassable.

In order to be effectively and properly carried out by reward professionals, this phase practically requires reward professionals having a thorough and overarching knowledge of all the risks likely to have an impact on reward and that a scale of priority consistent with the current risks appetite, has been developed.

In order to approach risk management in a structured and systematic way, developing a risks map will definitely be beneficial, if not absolutely necessary. An example of risk map is shown in Figure C (adapted from CIPD, 2009). The proposed mapping method includes the option to insert the risk index as determined by means of the probability impact matrix and to update the score further, after the execution of the actions taken to mitigate it.

Risk Group	Description	Index	Owner	Mitigating actions	Implementation date	Index after actions implementation

Figure C

Risk management process ends with the reporting and monitoring phase. This activity can very much be associated with the lesson learned logs typical of project management. A reporting activity can turn to be very useful for future occurrences and to communicate to other and/or future individuals in charge of reward each risks’ likely impact and the actions taken in order to mitigate them according to the circumstances. Clearly, a description of the outcomes produced by the actions and initiatives taken will also be included.

Monitoring risks and producing reports providing useful hints about how to evaluate occurrences, putting management in the position to make informed decisions, can definitely reveal to be a tremendously useful activity (Risk Reward, 2011), well worth the efforts and time it might sometimes require.

Longo, R., (2012), Risk and Reward Risk Management, Milan: HR Professionals [online].

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Can informal leaders help employers shaping organizational culture?

2012-12-03T13:28:00.001+00:00

It is generally accepted that organizational culture is represented by the set of assumptions and shared valued and beliefs developed within an organization. So rooted are these components within the organizational context as to be considered and perceived by individuals concerned as norms. These values, beliefs and set of assumptions are mostly, but not exclusively, expressed within a business by means of individual’s practical behaviour. Indeed, it is in actual fact by means of the way people behave that individuals coming from the external environment could first and foremost find out what kind of actions, conduct and values are characterizing a working environment. So firmly associated is organizational culture with actions, rather than words or writings, that business culture is also very often referred to as “the way we do things around here.”

In theory, it should be a direct employer’s interest to identify and decide the values which should be fostered and endorsed within a business. This because these values should also be supportive of the intended organizational strategy and should, as such, enable employers to more smoothly attain their intended objectives and aim. Employers usually use to develop and implement different initiatives within their firms in order to make employees aware of the values and norms which are underpinning the business culture and of the way they are expected individuals behave within the organizational context.

Indeed, individuals tend to give much more importance to actions and practical behaviour rather than to marketing initiatives and campaigns so that, whatever the content of the message an employer might try to get across, what really counts in the end is, and will always be, what employers (i.e. managers) do and not what they say. Yet, even worse, inconsistency between what it is said and what it is actually done within the business will surely be tantamount by individuals to employers’ lack of consistency and integrity.

In general, employers try to shape, influence and possibly control organizational culture, and the seminal allies they count on to this extent are clearly represented by managers. Managers are, in actual fact, the individuals who have most visibility within an organizational context; those who know nearly everyone within the business (despite this might not always be the case in big companies) and those who have the chance, hence, to speak and stay in contact with the largest number of people within the organizational context. It is, consequently, widely recognised that organizational culture is mostly influenced by the business management. However, although a firm’s management is actually in the position to influence organizational culture, this is not always necessarily and invariably true in practice.

Individuals are likely to genuinely follow a manger if this shows good leadership capabilities. With specific reference to this aspect, it is particularly important discerning between the apparent respect deriving from the hierarchical role a manager holds, and the genuine respect which a manager is able to command thanks to his/her leadership abilities. To put it another way, individuals will generally take into account what managers say, but this is mostly linked to the role and position they hold within an organization, it would clearly be different if managers would be able to inspire and lead other people thanks to their personal qualities rather than because of their hierarchical status. However, leaders, i.e. individuals having features and characteristics enabling them to be appreciated and listened to by people and capable to exert confidence, trust and admiration on others are not necessarily managers. That is why this kind of leaders are usually called informal leaders, where the term informal is actually associated with the circumstance that they, in actual fact, do neither hold a management nor a responsibility position within an organization. Indeed, these individuals very often are unaware of the influence they exert on other people and of the importance their influence could actually have. As a matter of fact, they naturally attract followers even though they have never attended coaching or training programmes enabling them to develop these characteristics.

Nonetheless, we are certainly looking at people who are influential or perceived as influential within the internal organizational context. As such, informal leaders are able to influence other employees decisions, perceptions and behaviour. These individuals do not necessarily benefit of an organizational-wide visibility, in that it might depends on an organization size or on the kind of role they cover, so that in some circumstances informal leaders might not actually be in the position to exert their influence over the entire staff.

Regardless of the level of visibility they might or might not have within a business, and independently of their awareness or unawareness of the influence they are able to exert over other individuals, informal leaders definitely are seen and perceived as models and point of reference by other employees. It is hence very likely that although these individuals are not doing it intentionally or deliberately, they actually influence the way their followers behave.

It could be argued, therefore, that these individuals could actually help employers influencing other employee behaviour and contributing to shape and develop organizational culture. Despite informal leaders ability to influence other individuals’ behaviour can be taken as axiomatic, it cannot however be taken for granted that these influential individuals could, without any employers intervention, help businesses to foster and endorse corporate culture. All too often in fact the respect and admiration these people induce and exert over other people derive from the circumstance that these do not actually cover any formal management position or responsibility role. If employers, in the bid to obtain their full support for shaping corporate culture and influence staff behaviour should confer a formal responsibility to informal leaders the likely consequence is that followers would suddenly stop to follow. To some extent this move could even be perceived by many colleagues as a form of betray from the side of the informal leader.

The picture would clearly be completely different if informal leaders would naturally behave and perform in the way the employer is actually expected individuals would within the business. For how desirable and possible this circumstance would be, not always such a pleasant situation occurs in practice. So that employers should try to do something in order to gain informal leaders support. However, since informal leaders are usually appreciated and admired by others essentially for the way they behave, perform and relate to others, it could be said that, in general, the gap to bridge should not be particularly wide. Notwithstanding, employers have to be particularly cautious when trying to obtain informal leaders support. Every attempt to manipulate or suddenly award an informal leader an official management role or responsibility position in fact is likely to fail at best and to trigger more detrimental consequences at worst.

So that prudence has to be considered as a mandatory prerequisite to attain the desired aim and as an, anyway honest, means to an end. As previously mentioned, informal leaders are leaders just because they have some qualities which enable them to be perceived as such by other individuals and because they behave and perform well. The circumstance they also are informal leaders, anyhow, cannot and should not act as a limit to their personal development. To put it another way, considering that these individuals are anyhow valuable individuals the fact that they are, often involuntary, perceived as leaders should not play a detrimental role in their professional growth and development. The circumstance, hence, that managers would communicate and spend time with these employees should not jeopardise their image and their colleagues’ perception.

Spending time with these naturally talented individuals will enable managers to bit by bit being slightly more explicit about the behaviour, values and beliefs the organization aims to foster and promote. Having recourse to figurative language and metaphors could enable managers to be clearer and, to some extent, to approach the issue in a more informal way. These conversations, can also help managers not only to know informal leaders opinion but, possibly, also that of their colleagues and can eventually help employers to address their view about the way corporate culture is fostered within the business.

Managers can also take advantage of the appreciation informal leaders benefit amongst other employees to also approach them when they are speaking with other colleagues, in order to be involved in group discussions and bit by bit engage other people interest in organizational culture. This is actually an effective way for formal leaders to be better known by staff, possibly in a more informal fashion and be appreciated and recognised as leaders themselves.

All too often, individuals form wrong and negative images of their managers, especially of the boss of their boss, just because they do not actually know them and perceive them as distant. Informal leaders can reveal to be precious employers’ and more specifically managers’ partners to this extent. What matters the most is that everything is done with transparency, providing precious occasions for two-way communications processes and avoiding that informal leaders could be perceived by other colleagues as a plaything or an instruments in the hand of the employer. In this case, the aftermath could be remarkable and sometimes even irreversible.

Both that managers could consider informal leaders worth to be trusted future formal roles, and provided that these want it and would feel comfortable in holding formal responsibility positions, or otherwise, informal leaders could reveal to be precious employees allies in the process of developing and shaping organizational culture.

Informal leaders are essentially considered and perceived as such by their colleagues either thanks to their personal attributes like: honesty, integrity, sincerity, transparency and consistency or for their approach to work, i.e. for their level of performance, dedication, enthusiasm and energy or for a mix of both kinds of features. It is, therefore, very likely that employers would receive a benefit from these individuals in shaping organizational culture.

Informal leaders can also reveal to be employers’ important partners when changes need to be introduced within a business, also as a consequence of a change in culture or in “the way we do things around here.” A mundane but significant example might be represented by the introduction of new technology; starting from training informal leaders and doing whatever it is possible to make them absolutely comfortable in using new working systems will certainly reveal extremely useful and important as well. Informal leaders in fact thanks to their natural personal features will always be willing to help others and explain employer’s reason for change; contributing, hence, to make it easier the execution of the change process. Clearly, involving these individuals since the very beginning in the change procedure will enable employers to receive their genuine and full support since the start and will also consequently enable them to more effectively contrast restraining forces to cultural change eventually arising.

Unfortunately, not always informal leaders are represented by the “good guys”; sometimes it can also occur that are the “bad guys” who inspire colleagues, are perceived by these as a model and attract followers. This actually is a very bad situation in which employers could experience particularly unpleasant hardships.

Broadly speaking, although it clearly depends on the circumstances, it could be said that the process by means of which managers should try to reverse the situation is similar to that used to tight good relationships with and receiving support from the “good guys.” Disciplinary measures are unlikely to firmly and effectively set the problem. People might also apparently change in order to avoid penalties which can lead to lose their job or part of their salary, but resorting to coercive measures is unlikely to produce long lasting results. In order to productively deal with these individuals, hence, managers should try to communicate with these people and find out what behind their wrong behaviour. Sometimes resentment for past events, perception of unfairness or inequality, particularly stressing working conditions, problems with their line managers and other similar circumstances can be at the basis of individual disappointment and rebellious behaviour. It is very likely that causes of such a negative behaviour are associated with organizational climate. Employers try to foster a kind of culture which, rightly or wrongly, is completely differently perceived by individuals, insofar as to be manifested with behaviour contrary to that wanted and expected by the employer. When to misbehave are informal leaders, however, the negative impact and consequences could reveal to be considerably magnified.

Yet, these people are likely to always have at least a bunch of followers, if anything within the business unit where they work. Although this behaviour can be easily explained if fairness and integrity are not respected within the business and employees wellbeing is particularly neglected and overlooked. Giving them attention and the chance to be heard, but not forgotten, is clearly important and could give them the opportunity, which is actually an opportunity for the employer too, to find out what they perceive is going wrong and to find sound remedies enabling employers to find, in turn, win-win solutions and restore trust and respect for the employer within the business.

Clearly, in these cases thinking to offer formal responsibility positions to these kinds of informal leaders could turn to be particularly detrimental. Beyond fostering a message totally opposite to that of integrity, other employees could think, and would actually be totally justified to think, that it takes to misbehave to get promotions. Such an organizational move could be tantamount to organizational suicide.

Clearly, in the long run and in the event these individuals should completely change their behaviour and become genuinely and effectively supportive of the business it will be correct to offer them, as well as to the other employees, growth and development opportunities but, especially in these circumstances, employers should ensure to have strong and well evident reasons before doing so and, invariably, after a relevant and considerable length of time has passed from the misbehaving informal leaders’ conversion.

The fact informal leaders influence organizational culture can, in conclusion, be taken as axiomatic. To some extent they could be associated with the good and evil of organizational culture, they can in fact enable and help employers to develop and shape organizational culture, as well as they can play a negative role capable to raise strong and insurmountable barriers to the development and shaping of an employer intended corporate culture. In both cases, managers need to be extra vigilant and pay the required care to identify and develop the right measures and eventually the countermeasures, enabling them to achieve their intended objectives and aim. Constructive or disruptive informal leaders’ activity can reveal to be, these individuals have to be approached and an open and transparent two-way communication process needs to be established with them in order to understand their view point and trying to receive their genuine support and help.

Longo, R., (2012), Can informal leaders help employers shaping organisational culture?, HR Professionals, Milan, [online].

How to develop career planning programmes

2012-11-25T22:40:00.001+00:00

People development and growth is as important for individuals as it is for businesses. Yet, it can be taken as axiomatic that people skills, knowledge and talent development is beneficial both for individuals and organizations as well. Indeed, although individuals can have innate and inborn talent this needs to be nurtured and further developed in order it to be transformed in expertise, competence and professionalism.

Increasing markets competition and the frequency employers are confronted by economic downturn and financial crisis are contributing to making business understand the importance of their human capital in order to gain competitive edge and be successful in the relevant market. On the other hand, individuals are the more and more demanding and in search of roles enabling them to express their capabilities, qualities and skills, basically in order to meet their ambitions and personal expectations. This is by far a need that individuals naturally, inwardly feel regardless of the contextual factor conditions. However, recent and long lasting labour market difficulties, which are accounting for people in general and the young in particular, to experience severe hardship when looking for a job, should contribute to make individuals understand that these are not times for mediocrity and that in order to find valuable job opportunities, by means of which being able to express their personal capabilities, achieve self-fulfilment and meet their ambitions, gaining remarkable levels of knowledge and competency definitely is of paramount importance.

It clearly emerges that nowadays the need for quality and excellence is important for individuals and employers as well. This entails that individuals should do whatever they can to expand their knowledge and capabilities in order to find valuable roles within valuable organizations, whereas employers should focusing more in their human capital development and growth in order to be successful in their relevant markets and have more chances to being able to maintain, and possibly expand, their success in the near as well as in the distant future.

Although in general employers seem to be more genuinely receptive and sensitive to the development of people in charge of management or executive roles, the same interest is not always expressed with regard to the way people filling other kinds of positions should be developed and trained.

What career planning is

The idea of career can effectively be expressed by means of the metaphor of career as a ladder. The concept can, hence, be associated, with the process of constantly and progressively enhancing and improving personal and professional abilities, skills and capabilities in order to attain a pre-identified objective which can, broadly speaking, be associated with self-advancement.

Career planning can, consequently, be defined as the systematic and structured approach by means of which individuals accurately and craftily plan by their own, or by mutual agreement with their employer, their progression, development and growth.

Indeed, career planning can be developed either on individuals or on employers’ initiative. Individuals who have, in fact, identified clear personal career objectives, regardless of their current role, if any, but eventually preferably in line with it, can take a series of coordinated and linked initiatives in order to attain or facilitate the attainment of the desired career objectives. Clearly, these initiatives need to be both consistent with and supportive of the identified career final aim. Very practically, an individual aiming, for instance, to embrace the HR profession will in the first instance try to gain a qualification and join the accredited professional body (in the UK the CIPD).

Notwithstanding, this choice is everything but straightforward. HR is, in fact, becoming the more and more similar to medicine or law as for what concerns specialisation. As a MD you might aim to become a paediatrician or an orthopaedic, a dentist or a cardiologist; whereas as a lawyer you could, for example, aim to specialize in criminal, civil, international, immigration, corporate and securities, environmental, intellectual property, real estate, tax or employment law. Yet, once you have made your decision about being a medical doctor you still have to decide if you want to be a surgeon or otherwise, whereas if you have opted to be a lawyer you also have to decide if you want to be a barrister or a solicitor. An attorney in the US does not need to take such a decision, but still need to decide if he/she wants to become, for instance, a judge or a district attorney. So that objectives need to be clear and decisions infomed.

Obviously, individuals when taking all of these decisions, i.e. when dealing with their career planning, cannot only consider their aims and ambitions, but should also try to find out if they have the potential, strength and required features to attain the desired goal.

People, who have decided to pursue a HR career, can decide to specialise in employment law, in reward, training, employee relations, talent development, industrial relations, change, etc. But in the event they should also aim to gain a management or business partner status, they should also seriously consider investing their own resources, both physical and financial, for instance, in project or risk management, gaining a project or risk management qualification. Also developing and expanding their negotiations abilities and the art of being persuasive and excellent communicators could reveal to be of pivotal importance for modern managers and HR specialists as well. Unfortunately, not many people are approaching their career planning in such a way, but this could reveal to be a tremendous opportunity for those who do.

In those cases in which career planning is, instead, managed on an employer initiative, this will need to balance individuals and business needs. The plan is, hence, essentially intended to match individuals’ aspirations and career objectives with organizational needs, in order to ensure the employer having the right people at the right place at the right time. Clearly, this also involves a business investment in the identified individuals so that, employers need to give careful consideration to the assessment and identification of the right people on which focusing their investments and efforts before agreeing a development plan with them.

In order to assess individuals’ potential, interest, objectives and aptitudes employers can have recourse to assessment centres, receive managers and colleagues opinions and eventually count on external specialists and experts advice. This can clearly help them to make accurate predictions about the likeliness that an employee will succeed.

Broadly speaking it can be said that individuals, by and large, aim to fill management or highly specialised positions. However, more in general, people usually tend to be professionally satisfied when performing compelling jobs giving them the opportunity to express their ability and act autonomously.

Career planning developed within organizations is not necessarily, and let alone exclusively, intended to develop individuals already holding management positions. It is, more in general, aiming to identify, according to individuals aptitudes, aspirations and disposition, the most suitable initiatives enabling them to meet their desired career objectives. Individuals are no longer aiming for just a job, but rather for compelling, absorbing and interesting roles, whereas on the other hand businesses are the more and more interested in accomplished and assertive people capable to properly and effectively fill a whole range of positions considered of crucial importance for the success of their businesses. Career planning essentially enable both employers and employees to fulfil expectations and to make plans in order to ensure to satisfy organizational future needs and provide employees with opportunities for growth. Independently of the fact that plans will lead to a management position, career planning is without a doubt a process providing individuals with practical opportunities to higher levels of responsibility.

It clearly emerges that career planning can also reveal to be a powerful means to an end, namely that of retaining and engaging staff. Indeed, in addition to contributing to the employer branding image, and hence to reinforce attraction and retention practices effectiveness, career planning can also reveal to be an effective component of non-financial reward in that specifically contributing to provide intrinsic motivation deriving from the job itself. The plan of action developed by employers and individuals in order to ensure the latter attaining the desired agreed objectives, in fact, will imply a series of practical activities which will clearly contribute to reinforce individuals sense of belonging, participation and ultimately loyalty.

To some extent, it can be said that career planning can be defined as a pre-stage of succession planning. In fact, even though it is not necessarily and above all directly intended to nurture managerial capabilities and to fill future executive positions, its early implementation could reveal tremendously important also to this extent.

Organizational approach to career planning design and development

As anticipated above and as suggested by the same wording, career planning has to be intended as a systematic and structured approach to people advancement and development. Without accurate and meticulous preparation, it is very unlikely that the intended objectives will be achieved in practice. Yet, since the process is intended to attain pre-identified objectives over a relevant length of time, it can be said that career planning can, to some extent, be tantamount to business strategy.

The first stage of the process is, in fact, concerned with direction, i.e. the identification of the final objective that both the individual concerned and the employer want and are expected to achieve. Both organizations and individuals need to have crystal clear ideas about the real and precise individuals’ aspirations and about how these will be achieved, whereas it is a precise employer responsibility ensure that the identified final goal is consistent with the business aims and that the organization context can actually enable the individual to develop and attain that specific objective.

Once the direction has been identified it is time to determine a timescale. If direction is, hence, concerned with identifying the arrival point, drawing a timescale will enable both individuals and employers to determine a reasonable length of time within which the intended outcome should be attained.

Assessment and monitoring is a phase, instead, which will be practically carried out throughout the whole process in order to determine, and eventually remove, the possible barriers which could arise all over the process. This activity is actually very important in that it can help both employers and employees to avoid disappointments. In the event, for instance, some barriers should actually require additional efforts, initiatives and time to be removed, this could imply the initial schedule to be modified accordingly or the overall process to be reviewed and amended according to the changed circumstances. This phase is also particularly beneficial in that it will practically enable both employers and individuals to regularly assess technical and behavioural improvements made by the individuals concerned.

The final stage of the process is represented by the assessment of the final results achieved: the upshot. Indeed, even though the necessary adjustment have been introduced and implemented throughout the process, it might still be possible that the final result is not exactly that expected from the very beginning. So that, the final stage of the process will enable employers and individuals as well to identify what went wrong and what should have eventually better be done in order to avoid problems or to more effectively develop and implement the process. A typical side activity of the upshot final stage could be represented by a lessons learned and reporting activity.

Although we are looking at a structured and systematic approach, it should not be neglected that individuals are different one another so that, even when objectives set could be completely similar in different situations, these could require to be achieved making different arrangements according to the different individuals concerned. A report of what has gone particularly well and particularly wrong could, hence, definitely reveal to be useful for other managers within the organization who will be involved in future similar activities.

If on the one hand, without a doubt, the person in favour of whom the organization will develop a career planning should be identified according to the range of well determined features and characteristics he/she has, on the other hand it might not be so immediately obvious to determine who should care of the process on the employer behalf. Depending on the circumstances, it will not necessarily be a manager, but the person identified to closely look after the employee should be, for how possible, always the same. This person, in fact, should act such a mentor or a coach and should hence be able, also from the technical view point, to understand if the person is going towards the right direction or otherwise. Since career planning can be developed over a relatively long period of time, in addition to a coach or mentor in charge of the overall process, a restricted number of people, each according to their abilities and field of expertise, could also alternate throughout the process.

The role of the organization’s mentor or coach is particularly important to the success of the overall process. This, in fact, in addition to assessing individuals potential and providing support throughout the programme, also needs to give employees feedback, provide two-way communications occasions and identify the right opportunities for development available within the firm.

In order to avoid disappointment and undesirable misunderstanding, employers and individuals to whom the employer has decided to offer a so valuable opportunity, should agree and have crystal clear ideas about some specific tenets at the basis of the programme. Amongst these, one of the most important is actually mostly, if not exclusively, an employer’s responsibility, the reference is here to fairness and objectivity, i.e. integrity. This underpinning tenet, in fact, needs to be applied and perceived by individuals both in the assessment phase and throughout the programme, in order to objectively ascertain if each person identified can actually progress from a stage to the following one. Indeed, another relevant aspect which needs to be agreed from the very beginning is that, once offered the programme participation, it is not a right for individuals being offered the final intended position too. This will, in fact, be possible if and only if the person deserves this, i.e. if he/she has shown throughout the programme of having the required features and capabilities necessary to fill the pre-identified role.

Does career planning pay off?

As seen above, career planning can enable employers and individuals as well to achieve a whole range of advantages. One of them is definitely represented by the massive savings it can enable employers to attain in terms of staffing. The high cost and risks associated with external recruitment can, in fact, be completely avoided by means of this form of internal staffing.

Posting jobs internally can represent the first stage of organizational career planning programmes development. Once the need for some specific positions has, in fact, been unveiled to the entire workforce, individuals can, according to their personal aspirations, goals and interests, agree with employers a win-win accord enabling them to pursue meaningful and compatible career objectives and achieve desired goals.

At the same time, in addition to the savings achieved in terms of recruitment, career planning will enable employers to effectively reinforce attraction and retention strategies, providing individuals with valuable opportunities to feel non-financially rewarded.

Leibowitz et al (1986) identified seven different categories of mutual benefits for employees and employers deriving from career planning: improved skills in career management, retention of quality staff, enhancement of communication between managers and direct reports, more effective performance appraisal meetings, favour a deeper understanding of the business and better employer branding image linked to individuals’ development.

All too often, individuals are used to complain with employers about the circumstance that they are not considered for career advancement and managerial positions. It is not infrequent that individuals consider themselves much more capable and skilled than other people to whom employers actually offer opportunities for growth. These individuals, however, do not practically do anything to show employers that they are wrong and assume to be suitable to fill future key roles within organizations basically just because of arrogance or because underestimating others. Fostering a culture based on excellence and self-advancement within businesses could help individuals understand that if the employer has identified and deemed some individuals worth the efforts and the investment necessary to ensure them a career development this is because those particular individuals have showed, in a way or in another, to have what it takes to deserve this.

In the field of HR, for instance, gaining a certification will surely entail attending programmes and classes, which in turn can also imply to stay in class beyond the usual working hours. But this is not obviously all; courses are very often delivered by colleges and universities by means of absolutely demanding master level programmes. Assignments need to be prepared and exams taken as a matter of course. For a person having a work this entails studying during the night and very likely during the weekend and possibly during the summertime too.

Fostering self-advancement within organizations does not really mean that businesses have to drastically cut their training budget and remit this responsibility to individuals; the responsibility to care for employees development and growth will obviously always rest with employers. But making employees understand that this form of investment can only be granted to people really wanting and aiming to grow, willing to take responsibility and having the determination to cope with the pressure this might entail is crucially important. To some extent, developing and sustaining a corporate culture endorsing this value could also enable employers to establish even clearer and more transparent psychological contracts: we promote and favour personal and professional growth but you have to show that you have what it takes, really want it and are able to make the extra efforts this requires.

What employers need to do in order to make the process smoother

Once methodically and realistically devised, the successful outcome of career planning is basically based on the mutual efforts of both individuals and employers. Indeed, there are a whole range of activities that business should implement in order to favour the positive outcome of the process.

One of the most important things employers should do is to put individuals in the position to cover demanding jobs. Yet, in order to individuals experience different types of situations and challenges, job rotation can absolutely help. This will clearly contribute to expand, in a relatively short period of time, individuals experience and enable them to confront with different circumstances and situations helping them to develop a better understanding of how complex a role can reveal to be and of how important is for people holding responsibility within an organization frequently and promptly trying to come up with different, new and sometime even original solutions.

Another determining element which can either positively contribute to or impinge the successful outcome of the process, is represented by the management. Individuals, especially in their first working experience, tend to take their managers as a model so that the circumstance these need to have good leadership skills and abilities should be taken as axiomatic. Additionally, managers need to have excellent communication skills, be able and willing to provide constant feedback and also be able to counselling and positively influence individuals’ career.

In order to favour individuals development and growth and make the tasks performed by individuals more challenging and compelling, managers should also be able to design and change jobs procedures.

Top of the table of employers don’ts list is, instead, making promise to employees which they will not be able to keep. Backlashes can be serious and really difficult to readdress and firmly fix. This undesirable result can actually be avoided by means of effective career planning. Even though a final outcome has been identified, if during the process implementation phase individuals are exposed to a wide range of experiences and capabilities it is likely that they could also properly fill different positions vis-à-vis to those previously identified. This is clearly not an ideal situation, but could enable employers to mitigate the risk arising as a consequence of making an offer and being completely unable to keep it. Yet, an open and constant two-side communication process will certainly help to prevent serious disappointments and put individuals in the position to know during the process if something is not likely to go exactly as scheduled and to eventually make adjustments to the original plan accordingly.

Internal job posting is another important activity which can help individuals to find out what kinds of roles the organizations is interested to fill and what types of requirements and qualifications are needed to cover the available positions.

Is career planning worth the efforts?

Career planning is clearly a demanding process for employers too. The involvement of managers and specialists and, before of that, ensuring that these have all of the skills and abilities required in order to effectively contribute to others growth is challenging and time consuming for employers too.

Analysing the results achieved by the execution of such a process is, hence, particularly important, the final aim being to find out if the efforts delivered by the organisation throughout the process have been compensated.

The reporting activity carried out at the end of each process can actually enable employers to assess the value of the final results achieved, also against the direct and indirect costs incurred to implement it. Clearly, another KPI of the process could be identified with the number of people involved in the process and with the effective career improvements they have achieved.

Individuals approach to career planning development

Individuals wanting to develop a career planning by themselves need a fortiori to scrupulously follow a methodical and systematic approach. People interested in this exercise can have recourse to a series of online services, self-assessment exercises and tools (Refer to the bottom of this page for useful links) or, when available and applicable, to local universities careers advice service.

As suggested by Adele Merrison, Careers Advisor at the Open University UK (Open University, 2012), the process of planning for self-development and advancement should be mainly based on three crucial tenets which need to be considered throughout the process: informed, systematic and realistic. The approach proposed by Open University to career planning is based on the DOTS model developed by Law and Watts (1977) and is formed by four stages: know yourself, explore opportunities, decide what to do and take action. Needles to say, all of these stages need to be necessarily carried out.

Know yourself

Once again, the metaphor of career planning as business strategy can help to explain the correct modus operandi to which having recourse when using this approach. The first stage, in fact, consists in determining and hence comparing, where you are now and where you would like to be. Broadly speaking, it can be said that, as for business strategy, everything starts with this kind of gap analysis. Clearly, in this stage you also need to define how you want to get where you would like to go.

What you should do is, therefore, determine what you would like and enjoy to do, what skills you would like to use and what kind of employer could be interested, insofar as paying you, in that. It is crucially important being realistic and focus all the efforts towards the identified goal and objective.

During this stage, you also need to objectively consider what constraints could prevent you to attain your identified goal, such as, impossibility to: relocate, travel too far or work during unsocial hours (Merrison, 2012).

Explore opportunities

This phase basically requires you to match your interests and wants with those of a potential employer. Once again, you need to be realistic about the fact that your skills and expectations should, in turn, be useful for an employer in order to this achieving its intended objectives. Professional bodies, job centres and even job sites can help you in the process.

Decide what to do

When deciding what you really would like to do take into consideration that Rome was not built in a day. You have to consider this somewhat like doing a jigsaw puzzle in which before hopefully having the full picture every piece will be added at different times. This can clearly require efforts and sacrifices such as working in a voluntary basis, at low levels and, hopefully, in different environments and in presence of different circumstances.

Take action

This stage is directly linked to the previous one in that it aims to make you understand the importance of working experience. Indeed, in some case working experience can be considered as a mandatory prerequisite, whereas in other as a distinct advantage. Indeed, a working experience can enable you to find out if you are comfortable in a given working environment and if real reality matches your theoretical plans. However, working experience will enable you to build up your contacts and receive advice, reference letters, information about new appointments, etc.

Essentially, career planning developed by direct initiatives of individuals is not that different in scope from that agreed between an employer and an employee. The main difference being that what an individual plans by his/her own not necessarily will meet an employer demand, whereas chances that the agreed plan with an employer will be honoured are clearly much higher. That is why individuals wanting to plan for their future career and development have to be extremely focused, informed and concentrated.

Longo, R., (2012), How to develop career planning programmes, HR Professionals, Milan [online].

Useful links for self-assessment

Windmills Life Fitness Check - http://www.windmillsonline.co.uk/interactive/

National Career Service - http://nationalcareersservice.direct.gov.uk/tools

Prospects planner (for graduate) - http://www.prospects.ac.uk/links/Pplanner

Reward Strategy - The importance of a 360-degree alignment

2012-11-09T18:47:00.001+00:00

Reward strategy basically aims to provide guidance, direction and a clear path in order to employers developing reward policies and practices enabling them to achieve their intended business’ overall strategy. While formulating reward practices, hence, employers should constantly give serious and careful consideration to the main aims the business intends to pursue. This clearly entails that a reward strategy cannot be developed regardless of the business’ strategy from which it instead should practically flow, and that, on the contrary, reward strategy needs to be tightly connected, i.e. aligned, to this.

As suggested by Torrington et al (2008), in fact, a reward strategy is, above all, intended to align an organisation’s payment arrangements and wider reward system with its business objectives. This means developing systems enhancing chances that individuals will actively seek to contribute to the achievement of their employer objectives. So that, if improved quality of service is amongst the major business aims, this should be reflected in a payment system which rewards front-line staff who provides the best standards of service to customers. If the main aim of the organisation is to increase productivity, an approach rewarding efficiency would, instead, be more appropriate.

Broadly speaking it can be said that alignment represents an important part of a reward strategy developmental process. Indeed, for crucially important vertical alignment – as it is defined the alignment of a strategy to the overall business strategy – is, it only represents part of the overall alignment process. Another critical aspect of alignment, on which employers should therefore also focus, is, in fact, represented by the attainment of the horizontal alignment, which refers to the alignment of reward strategies with the HRM practices and policies developed and implemented within an organization.

Indeed, a slight difference can be identified between the purpose that vertical and horizontal alignments are meant to achieve. Whereas, in fact, the latter is mostly intended to provide consistency between the reward and HRM practices introduced within a business, the former is mostly concerned with scope, i.e. supporting the attainment of the overall business strategy. So that the predominant feature of horizontal alignment can be identified with integrity, whereas the most remarkable feature of vertical alignment can be associated with business objectives attainment. In any case, the successful attainment of both the horizontal and vertical forms of alignment generates a virtuous circle based on the supportive action played by the successful introduction and implementation of a type of strategy over the other.

Clearly, a 360-degree alignment process is everything but straightforward to achieve in practice, not only because when devising reward strategies reward managers have to take into account a large number of variables, but also and foremost because business strategy and hence HRM strategies and policies, being remarkably influenced both by the internal and the external context, are subject to frequent changes which can make the alignment process rather tricky to achieve and once achieved, difficult to sustain.

Indeed, such difficulties are sensibly likely to increase when, for instance, business strategies aims and objectives are not clearly stated and/or understood within the organization.

But this is not all. In order to genuinely attain a 360-degree alignment, in fact, reward strategy development also needs to take into due consideration organizational values and shared beliefs. The careful consideration of the impact of these factors over reward strategy can actually enable employers to develop sound reward strategies enabling them to simultaneously attain two different objectives: on the one hand foster consistency and integrity within a firm and on the other hand provide support to corporate culture. Also in this case, reward strategy can actually allow employers to generate a virtual circle where corporate culture and reward strategy reinforce one another. Reward strategy will, in fact, contribute to induce, foster and favour amongst staff the kind of behaviour desired by an employer, whereas values and beliefs underpinning organizational culture will support the consistency of the reward practices developed and introduced within the business.

If within an organization fairness and equity are, for instance, amongst the main values underpinning corporate culture, these have to be reflected in its reward strategy and system as well.

It finally emerges that reward systems can be crucially important to foster and encourage the behaviour, ideals and principles an organization values the most and is expected from its staff.

As seen above, one of the most, arguably the most, important form of reward management alignment is represented by the vertical alignment, which essentially aims to consider, during the strategy developmental process, business needs. Notwithstanding, an effective reward strategy also needs to duly take into consideration employees’ wants and the way they can be satisfied, ultimately balancing the needs of the one with those of the others. To some extent this too can be considered as a form of alignment of its own, and since this kind of alignment is meant to consider the entire staff wants and expectations it can be considered as a transverse form of alignment.

It can finally be concluded that in order to reward strategy being effectively and practically supportive of organizational objectives and consistent with business strategy and other HRM practices a 360-degree alignment process has to be considered as a mandatory prerequisite. A process, hence, aiming to achieve both a horizontal and vertical alignment but also ensuring the alignment of reward strategy with corporate culture and individuals’ wants and expectations. Attaining just a partial alignment will surely reveal to produce a limited, if any, effects. Actually, this approach very much recalls to mind the bundling-approach typical of HRM models, that is an approach according to which only the concomitant combination of different actions and initiatives can effectively enable employers to achieve the intended outcomes.

But the apparent complexity of this approach, basically intended to devise consistent and effective reward strategies, has not to be confused with complexity and let alone with over complexity. One of the main features characterizing reward strategy should, in fact, definitely be represented by simplicity instead. Overcomplicated strategies can only contribute to deter individuals to try understanding the mechanic of a reward system and the way it is operated, making employers efforts pointless and causing them to waste massive amounts of resources

Amongst the backlashes typically associated with complex reward systems can also definitely be included the likely difficulties which will be experienced by managers in executing the system (Armstrong, 2010). Yet, excess of complexity and difficulties are all too often associated with programmes failures and consequently, with the withdrawal of the reward system introduced as a result of the final stage of the reward strategy implementation process.

Longo, R., (2012), Reward Management- The importance of a 360-degree alignment, HR Professionals, Milan [online].

For an extended version of this article and much, much more click here

Strategic extent of reward management

2012-10-28T22:40:00.002+00:00

Even though the need for a strategic approach to reward management should be taken as axiomatic, relatively recently, some Authors have cast doubt on the strategic value of reward. Indeed, in some cases, more than the effectiveness of strategic reward it seems that is the need for prudence and the necessity to empirically test strategic reward theory which comes to play. Clearly, if this should be the case, disquiet can be acknowledged and understood.

Those who firstly raised a certain degree of uncertainty, and to some extent curbed their enthusiasm towards the concept of strategic reward, were Armstrong and Brown (2006) who, outlining the traits of new strategic reward management, warned against the excess of attention paid by employers and reward practitioners as well to the reward designing and planning phases rather than to the process and delivery ones. The Authors basically aimed to highlight the negative attitude of reward specialists, increasingly involved on emphasising the rhetoric of the strategic reward idea, rather than its practical impact on business performance and results. Yet, some factors such as the importance of line managers and communications, definitely critical for the successful and consistent implementation of reward management practices, seem to be too often exceedingly neglected. Armstrong and Brown (2006) also maintained that business are over reliant on the effects of strategic reward and so concentrated on using the best fit approach insofar as they end up to overlook the growing pressures coming from the external environment. Rhetoric is usually so predominant that not only the need for line managers having the necessary capabilities and skills, but also reward managers and specialists’ required expertise and technical knowledge are often underestimated and virtually ignored by employers.

This warning was subsequently echoed by Trevor (2008 and 2009) on the basis of the findings of his research based on the analysis and comparison of a number of case studies concerning multinationals organizations operating in the consumer goods industry.

Findings of this extensive research revealed that not always, in terms of strategic pay, what it is attained in practice coincides with what has actually been planned and designed in theory. More in particular the study revealed a sensitive gap between strategy, practices and implementation. Clearly, ineffective and inappropriate strategy and policy execution can lead to a different employee perception vis-à-vis the employer’s expectations and aims,ultimately causing reward practices implementation ending in failure and the consequent withdrawal of the programmes associated with these.

Indeed, the study also revealed that not always using strategic compensation, such as incentives, can enable firms to motivate their staff from management to the shop floor. In some cases, employers who considered pay as the main lever to induce motivation even experienced some remarkable drawbacks. More in particular, had to deal with the conflicts generated by the compensation system which, in turn, caused disengagement, poor performance and unwanted behaviour. Additionally, these conflicts also needed a good deal of time and resources in order to be managed and settled, contributing to keep even further afield employers from the attainment of their strategic objectives.

Trevor (2008 and 2009) also maintains that, even though his research provides strong support to the contingent, best fit model it also provides evidence of the existence of a certain degree of isomorphism. In that, the same managers are moving from one organization to the other and all of the multinational firms investigated were used to having recourse to the same external consultancy. This contributed and accounted for all of the businesses concerned to essentially putting in place nearly the same compensation practices. Risk reinforced by the dominating habit, which could not be wronger, to introduce within a business pay policies only because they have proved to work well in others.

According to Trevor (2008 and 2009), pay practices rather than being designed and inspired by the economic circumstances are mainly driven by the social and political pressures. This is actually the main reason for a relevant divergence between what has been designed in theory and what it is implemented, and hence achieved, in practice occurs.

The investigation, nonetheless, provide clear evidence of the importance of practices execution. Although the different policies were developed by the same consultancy and showed several similarities, in some businesses results were better than those achieved in others.

It is important to highlight that, rather than proposing to abandon a strategic approach to compensation, Trevor posits a revision of the approach to strategic pay and maintains that findings of his research do not question the importance of compensation. Prudence, however, is mandatory and reward specialists should be cautious about promising quick and unquestionable positive results. Whereas the benefits of strategic compensation are in fact difficult to assess and measure, the drawbacks of managing it inappropriately and inconsistently would emerge manifestly (Trevor, 2008).

Trevor (2008) posits that reward specialists rather than promising value maximization by means of strategic compensation should, instead, act in order to minimize the risk associated with compensation, operating, hence, as risk managers in the compensation field. This conclusion is certainly consistent with Trevor’s recommendation that prudence needs to be used when introducing and implementing a reward strategy within an organization, especially in terms of the outcomes the new strategic approach can enable employers to achieve and of the necessary period of time in any case required to achieve them.

Indeed, these recommendations are absolutely justified, but it could actually appear to be rather limiting considering reward management, and the role played by reward specialists, as only restricted to risk management. Although in fact it is absolutely true that employers and reward specialists should definitely pay much more attention to this aspect, risk management can be considered part of strategic reward but cannot totally be identified with it. To put it another way, reward risk can be considered as a mandatory prerequisite of strategic reward management rather than as an activity reward specialists should deliver in lieu of defining and identifying a strategic approach to reward.

Recent Reward Risk Survey carried out by the CIPD (2012) has identified, amongst the nine reasons for reward risk disquiet, misalignment between reward and business strategy as the fourth most problematic issue reward specialists will need to cope with over the next two years. Attraction and retention of quality staff, pension cost management, budget limitations and the circumstance that incentives are not motivating staff are amongst the main concerns of reward managers and specialists. Strategic reward is indeed meant to address these and other organizational issues.

Reward or pay strategy

But there are a few aspects emerging from the topics discussed above which definitely deserve to be investigated more in-depth. One of these relates to terminology. Whilst in fact in his studies Trevor (2008 and 2009) refers to pay and compensation, Armstrong and Brown (2006) refer to reward. Indeed, Trevor (2008 and 2009) in his research clearly refers to pay and compensation basically meaning by these salary. Yet, he associates the effects of aligning employees’ behaviour to organizational strategy in order to achieve competitive edge. Pay should hence represent the way employees should attract, retain, engage and motivate staff and induce individuals’ commitment and loyalty. Indeed, that money of its own could not enable employers to achieve all of these remarkably ambitious objectives can nowadays be considered unquestionable. Findings of several investigations in fact have revealed that, at best, money can eventually help employers to just attract quality individuals, but it can hardly enable employers to retain, and let alone motivate and engage, them especially in the mid- to long-term.

Clearly, reward specialists promising miracles to their businesses shareholders thanks to new pay strategy approaches would seriously put at risk their credibility and reliability as reward specialists. Pay is just one of the several components forming the overall reward system which should be based on total reward where results and objectives can be attained thanks to the combined effects of different, concurring and simultaneous forces, i.e. thanks to the effect of the bundling approach.

Essentially it can be said that the findings of Trevor research (2008 and 2009) are not that surprising after all. It actually appears to be slightly different, instead, the point made to this subject by Armstrong (2009), who raised some doubts to the extent reward could be considered strategic. Reflections following the expression of concern for the strategic significance of reward (Armstrong and Brown, 2006) are actually comprehensible and compelling, these are essentially intended to highlight the importance of execution and of achieving real results rather than just focusing on rhetoric and theory. Additionally, the Authors appropriately warn about the difficulty of the process and put evidence on the circumstance that real change and good results cannot be attained quickly.

As mentioned above, Armstrong and Brown (2006), differently from Trevor who basically refers to strategic pay, refer to reward and seem to warn about the strategic value and effectiveness of reward management. This is actually more surprising in that the Authors are firm supporters of the total reward approach which, being inspired to the bundling idea should be considered strategic beyond (a) reasonable doubt. Total reward approaches enabling employers to develop an effective value proposition, formed both by tangible and non-tangible components, should effectually enable employers to pursue their intended strategies.

Clearly, all of this has not to be confused with simplification or with the promise of the desired outcomes achievement, especially in the short run. The developmental and implementation phases are important as well as tricky to deliver and a constant review is necessary in order to analyse if the intended results have been achieved and eventually what kind of changes need to be implemented.

Rhetoric and practice

The crucial point here is essentially represented by effectiveness. Even though rhetoric, design and development are undoubtedly of paramount importance, these cannot really be considered as detached from what in the end matters the most, i.e. the final practical outcomes and results. Theory of strategic reward management is absolutely important in that it is very much associated with defining and identifying the route, the direction and the desired objectives an organization intends to pursue by means of reward management and the underpinning principles, guidelines and philosophy to which it has to be inspired. Once the direction and the objectives have clearly been identified and strategy implemented, assessing the effectiveness of the strategy which has been executed, in that considered the most appropriate, is key. Whenever reward specialists should find out that the achieved results are not as effective as expected, appropriate action will need to be taken promptly and accordingly.

It can be said that the effectiveness of reward strategy rhetoric has to be assessed as a marketing strategy or, for instance, as a radio or TV commercial. It can also be nice and interesting to watch and/or listen to, but if it does not help the organization to sell more items of the marketed goods it clearly is ineffective and needs to be withdrawn and changed.

The arguments provided by Armstrong and Brown (2006) in support of the care and attention which need to be secured to strategic reward approaches undoubtedly deserve to be supported, but have little or nothing to do with the questionability of the strategic importance and relevance of reward management. Developing fascinating theoretical concepts which do not bring results in practice might possibly be an interesting exercise but it will hardly be financed by organizations shareholders and let alone would ever be supported by a business’ CEO, simply because it would not lend any practical support to the achievement of an organization objectives. Being cautious about the results which can be achieved, especially in the short run, by means of a reward strategy implementation is also a matter of good and common sense. Yet, paying extra care to external influences is part of the process, as well as is part of the process constantly reviewing and assessing the reward system introduced in order to ascertain that this is in line with the exogenous environment and its developments too. But all of these factors do neither jeopardise nor weakens the strategic importance of reward; they rather show how difficult to manage the process is.

The importance of execution

Indeed, strategic reward is not really immune from all of the vulnerabilities typical of strategy in general. The importance of execution is not just an essential feature and requirement of a successful reward strategy, it is indeed a crucial aspect of, for instance, business strategy as well. So important is considered business strategy execution that it is even gaining growing importance the idea that the real problem with strategy is not its definition rather its execution. Linda Gratton (2000), for instance, suggests that “There is no great strategy, only great execution.”

Another example of the importance of strategy execution can be identified in marketing strategy. Zyman (1999) suggests that if marketing specialists want people to buy their organizations’ products they have “to plan strategies carefully and implement them aggressively.” Once again the importance of implementation clearly emerges as a crucial factor contributing to the success of the overall strategic approach.

To be successful, the implementation of a reward strategy needs the full support of every single individual within the business. But in order to be embraced and supported by everybody strategy needs, first of all, to be known and understood by all of the employees. For its successful execution, the genuine involvement of top and middle-management is crucial. Indeed, it is also important that managers will have the required skills and capabilities and receive the training necessary to properly and effectively carry out this difficult task. Again, all of these factors are absolutely important and have to be considered mandatory prerequisites for a successful strategy implementation. It can hence be said that managing reward strategy as well as business strategy is everything but straightforward: a good deal of care needs to be paid to many details, but this does not entail that reward and business management cannot be strategic.

It can, on the contrary, be said that the success of reward strategies rests with employers and reward specialists and their ability to properly, effectively and consistently execute what they have developed in theory and to eventually assess and review strategy in order to achieve the intended, planned results.

Execution as source of competitive advantage

More importantly, recognising to execution a distinctive merit for the overall strategy success can be considered as a significant element to support the importance of human capital as an element effectively contributing competitive edge to a firm. Whereas, although inadvisable and injudicious, theories and practices can actually be imitated, execution cannot. Reward specialists, the overall organization’s management and ultimately all of the individuals forming the organization can prove how important their personal contribution is to the successful attainment of the final objectives to which the strategic approach is inspired by means of the successful execution of strategy or to put it another way, by the contribution each of them will be able to provide to the attainment of the pre-identified strategic outcomes.

Strategic compensation

On the other hand it must be neither disregarded nor forgotten the hygiene significance of pay. Regardless of the effects that financial reward might have or otherwise on individual retention, motivation, engagement and commitment in fact according to the circumstances and the external influences impacting individuals psychological contract, pay is an element to which individuals attach a certain importance and which employers can wisely try to use in a relatively strategic way too.

Although total pay represents one of the groups forming a total reward system, it is in turn formed by a series of components which need to be wisely and appropriately used by employers. This does not mean that businesses can engage and motivate staff exclusively by means of financial rewards, but that they can and need to wisely use the financial components of reward available to them in order to influence individuals’ behaviours, curb disquiet and better provide support to their overall approach to strategic reward.

Indeed, the benefits of aligning compensation to strategy were already predicated in the early 1970s (Salter, 1973), whilst the effectiveness of this approach was also supported by some empirical studies (Kerr, 1985 and Galbraith and Merrill, 1991).

Boyd and Salamin (2001), analysing findings of the investigation they carried out over two Swiss financial institutions, found out that, with the exception of top management, there is not a causal-effect relationship between strategic compensation and basic salary. Their study also revealed that Prospectors (organizations characterized by a strong orientation to market and aiming to develop new products) offers the highest level of variable compensation, mainly bonuses, independently of the hierarchical position. Whereas, with the exception of top management, differences between Defenders (businesses internally oriented, aiming to contain cost and offering a stable range of products) and Analyzers (which are somewhat in between Prospectors and Defenders) are insignificant.

Boyd and Salamin’s (2001) investigation also revealed that, differently from bonuses, factors influencing base salary are quite limited. Even though it is recognised to base salary a slight strategic value, more than being influenced by strategy in fact it is mainly set according to individuals’ features (age, position, gender). Base salary is, hence, likely to be more static and more difficult to manage at strategic level. On the other hand, bonuses represent the most strategic component of pay and, being acknowledged regardless of personal characteristics, can be adapted and flexed rather easily. Since coherence and flexibility represent the most important and, at the same time, the trickiest objectives to attain by means of pay systems, Boyd and Salamin (2001) suggest to use base pay to achieve consistency and bonuses to endorse flexibility.

Indeed, findings of the different studies analysed by Boyd and Salamin (2001) (Rajogopalan and Finkelstein 1992 vs. Balkin and Gomez-Mejia, 1990; Napier and Smith, 1987 vs. Pitts, 1976) provided conflicting results, so that they concluded, consistently with Trevor (2008 and 2009) suggestion, that although the assumption that businesses align pay system to corporate strategic orientation has been widely supported, outcomes have actually been scarcely assessed. They also admitted that aligning compensation systems to corporate strategy is more intricate and elaborate than believed and that the kind of hierarchy in place within the different firms plays a relevant role on designing pay systems, regardless of being aligned to the business strategy or otherwise.

Findings of a recent survey carry out by the CIPD and Benefex (2012), instead, tend to recognise a certain level of effectiveness to strategic alignment of reward. More in particular, the investigation revealed that “careful reward management”, enabling employers to retain staff and curb individuals’ concern over pay, contribute to improve relationships between businesses and staff. This result, as it will be further seen below, is actually in stark contrast with the findings of Trevor investigation, according to which strategic compensation is, instead, cause of conflicts between employers and employees.

The study also revealed that private sector organizations adopting different business-level strategies also adopt sensibly different reward strategies. In line with the findings of Boyd and Salamin’s (2001) investigation, CIPD survey shows that businesses having recourse to Prospectors strategies make decisions about compensation system on the basis of the information gathered in the market and offer financial reward packages mainly based on performance-related approaches. Additionally, Prospectors are much more likely to link managers’ base salaries to managers’ abilities and skills rather than to individuals’ length of service.

Defenders, on the other hand of it, are likely to resort to more prudent approaches to financial reward, offering salary on the basis of shareholders indications and firms’ ability to honour the promised payments. Contrary to Prospectors, Defenders are also less likely to offer their managers financial reward packages based on performance-related pay approaches, whereas length of service is the most widely used yardstick for pay progression decisions.

Overall, Prospectors seem to achieve better level of employee relations and remarkably better level of productivity, whose standard has noticeably increased during the last three years. Defenders, by contrast, have recorded lower level of productivity vis-à-vis their competitors and have also seen, during the last year, increasing pay-related disquiet amongst employees.

In general, findings of the investigation reveal that businesses are actually pursuing, also in practice, the alignment of their reward system to the overall business strategy. Additionally, consistently with Trevor’s (2008) investigation findings, the best fit approach emerges as the favoured method used by employers. Reportedly, all of that produces considerable positive results in terms of HR outcomes, in particular better level of productivity for managers and non-managers positions within Prospectors employers, despite individuals covering non-managers positions receiving lower median total earnings.

Businesses having experienced problems with their staff because of the financial reward system in place are likely to use individuals’ potential, value or retention as a reference for pay progression and are less likely to introduce performance-related pay approaches.

One of the most important indications emerged by the CIPD (2012) investigation is that, despite the long and intense debate about the effectiveness of performance-related pay approaches, this method still holds a widespread favour within the UK organizations. It must be highlighted the circumstance that its effectiveness is proven at strategic level, which basically supports the idea that performance-related pay have to be implemented as a strategic choice wherever and whenever there are the right conditions and requisites for introducing it. To put it another way, performance-related pay, as well as any other decisions about a reward system, has to be implemented as a matter of strategic choice and not just because it has proven to work well within a competitor or in other organizations.

Longo, R., (2012), Strategic extent of reward management, HR Professionals, Milan [online].

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Total Reward as a HRM model

2012-09-29T12:23:00.000+01:00

It could be said that, essentially, total reward was born as a further means to help businesses to satisfy their most important needs, i.e. attract, retain, motivate and engage staff not just by means of salary increases, bonuses, golden handcuffs or other kinds of financial rewards, but in a more effective and compelling way capable of producing long-lasting results.

Basically, the “birth” of total reward is, then, mainly due to the ineffectiveness of exclusively-extrinsic-based reward systems and approaches. In fact, although employers have experienced, over the years, that money could reveal to be an effective means to attract talents and quality staff, they have, conversely, found out that money, of its own, cannot help them to retain and motivate individuals, if anything in the mid to the long run. These conclusions are supported by the findings of several studies and investigations which have been carried out over the past and recent years as well.

Additionally, firms also need to deal with the changing labour market conditions, which make it pretty difficult for them to recruit, retain and motivate the staff they need without granting them pay level increases. As suggested by Torrington et al. (2008), in such a situation, employers could either decide to rely on fewer more highly paid people to carry out the required work more effectively and efficiently or capping salaries or simultaneously look for other ways of rewarding staff appropriately. It is just the latter approach which has prevailed and which has led employers to opt for the “total reward” option.

Indeed, total reward can actually be considered an additional means to an, or rather, to “the” end, namely the attainment of an organisation’s intended strategy.

Additionally, as for HR practices in general, it can definitely be said that also for total reward policies the one-size-fit-all approach does not really apply.

As we have seen, one of the most important characteristics of total reward is that it is based on the multiplicative and synergetic effect produced by the bundle approach, which is actually at the basis of all the HRM models.

Terms as alignment, motivation, policies, best/right fit and bundle are actually keywords both of HRM models and total rewards models as well.

When dealing with total reward systems, as well as when deciding on the most suitable HRM practices to adopt and implement within their organisations, business leaders and HR professionals have a set of drivers available to them, which they can and will differently use according to the different aims they want to achieve. When doing so employers should know and should be aware of the fact that they have to use all of the components available to them (but not necessarily of all of the elements composing them). Nonetheless, the most difficult feat HR professionals have to achieve is deciding and determining how and in which measure resort to each of these components, keeping in mind that each component taken in isolation will not enable them to achieve remarkable results, if any.

Analysing each of the components of a typical total reward system in isolation, it clearly emerges that the total reward approach is not actually adding that much to what employers already know and have already available to their hands. HR Professionals, in fact, are constantly striving to formulate and execute HRM policies and practices aiming to attract, retain, motivate and engage staff, differently emphasising, according to the kind of bundle they consider more suitable for their organisation, the role of training and development, job design, job challenge, flexibility, internal mobility and reward.

In its bundle approach, total reward is clearly similar to HRM models, which also are defined by a set of activities aiming to facilitate the execution of business strategies. That is why total reward can basically be considered a HRM model of its own.

Analysing, for example, the People Performance Model (Purcell et al, 2003) it will clearly emerge that it is basically relying on the pillars of training and development, working environment and reward in order to induce discretionary behaviour and increase staff performance standards. Essentially, the same pillars will also be identified analysing other HRM models like the Harvard Model developed by Beer et al (1984), the Warwick Model developed by Hendry and Pettigrew (1990) and other models as well.

Differently from some HRM models and frameworks, nonetheless, although total reward, as suggested by O’Neal (1998), “embraces everything that employees value in the employment relationship”, it does not provide visible links and details of the causal interrelations amongst the different components of the models, at least not in a such systematic way as HRM model in general do.

Armstrong (2006) claims that the total reward approach is holistic, its success relies on the use of all the possible ways individuals can be rewarded and receive satisfaction by their work. Total reward, however, provides just the list of the ingredients which HR Professionals can use, but not the recipe explaining how to use and combine the different ingredients.

The People Performance Model developed at Bath University by Purcell (2003) and his colleagues, just to cite an example, instead, clearly highlights:

- The effects of recruitment and selection to provide organisations with the abilities and skills they need,

- The role of pay satisfaction to motivate and incentivise staff, and

- The direct linkages between teamworking, job challenge and involvement to provide employees with opportunity to participate.

Although, generally speaking, the role of salary to motivate staff can be considered questionable, it must not be neglected the circumstance that in a model where a bundle approach is used, pay could also effectively contribute, in this case in association with involvement and participation, to attain the intended and desired goal. The model also defines the linkages amongst all of its components and the impact, influence and contribution each component is able to produce for the success of the overall process and the achievement of the intended aims.

Originally the analysis of this reasoning led to the conclusion that, although total reward models could be considered sort of HRM models in embryo, they could not be considered to have a HRM model full status. This because they lack of an apparent structure in which all of their components are clearly linked one another in a systematic and logical order and relation (Longo, 2011). This conclusion, on the basis of the founding assumption that total reward aims and objectives are similar to the HRM models aims and objectives, also posited that appropriately developed total reward frameworks could produce valuable effects and reveal to be even more rewarding tools for organisations themselves.

Indeed, these considerations might possibly be truer in the case of total reward systems represented by means of four-quadrant diagrams. In these cases, in fact, elements are just listed and grouped on the basis of their classification: financial, non-financial, individual or communal components of total reward and no indication is provided about the structured way these elements could be used and eventually interact and support one another. Yet, employers could not obviously use all of the elements available to them in the same way with all of the individuals concerned.

On the other hand, it cannot be denied that amongst the different HRM models developed over the years, some actually are just concerned with the mechanic or the way a process should work, rather than with providing a specific correlation between their elements and the objectives and aims pursued by means of their implementation. In some cases, even though if in an effective way, models are concerned with just describing the process to achieve the final end but not expressing which means should be used to successfully attain the intended objectives. An example of this is represented by the resource-based models (Barney, 1991; Wright et al, 1994 and Hill and Jones, 2001). These models have the unquestionable advantage of showing the clear relationship and linkage existing amongst businesses resources, their strategies and the achievement of competitive edge. More in particular, resource-based view approaches show how developing internal capabilities in an inimitable way helps to shape the most suitable strategies and hence attain competitive advantage, but the recipe to achieve this objective is not actually provided. Having valuable, inimitable and non-substitutable resources, whose competencies and skills can be deemed rare, can be considered as the final objective, the means to the end of achieving competitive edge, but the model does not provide indications about what employers should do to ensure their organizations human capital to gain such valuable features and characteristics.

It can be said that one of the most, arguably the most, comprehensive and detailed HRM model currently available is the above mentioned People and Performance Model developed by Purcell et al (2003). This model, also known as AMO (Ability, Motivation, Opportunity) model, not only lists all of the components and elements necessary to induce employees discretionary behaviour and improve performance level standards, but also details which components, i.e. initiatives and actions, have to be used by employers in order to induce the desired behaviour and help individuals to gain the required skills. Indeed, not all of the HRM models developed so far are actually as descriptive and overarching as this.

These further considerations and the circumstance that total reward systems also tend to pay growing consideration to the contextual factor and to the cultural and strategic alignment of the total reward system, can actually lead to the final conclusion that total reward can be considered as an additional model of HRM.

Regardless of the way by means of which total rewards systems are graphically represented, in fact, it cannot be denied, as it has actually never been, that total reward models encapsulate all of the typical HR models features and components. Although they do not establish and show a clear cause-effect relationship between employers initiatives and their intended objectives, it can be anyhow posited that total reward models can actually be considered as HRM models of their own. In general, it could be said that what essentially differentiate them from the others is the role played in total reward models by financial rewards, which is clearly more relevant or rather more evident than that played in the other HRM models.

Indeed, there is a specific and well justified reason for total reward models not showing a specific correlation amongst the several components forming them, which is, indeed, consistent and coherent with the underpinning assumptions put at the basis of the overall models. Individuals are different one another and have different needs which are, additionally, subject to change with the passing of the time, so that it would even be virtually impossible to draw a model equally valid and applicable for everybody. All of the components and elements are there but they need to be used and mixed accordingly. Total reward models can ultimately be considered as bespoke and tailored HRM solutions capable to fit each individual wants and expectations and adapt to these and to the changing content of individuals psychological contract over the time.

Clearly, in order to gain HRM model status, total reward systems need to be craftily designed and developed and, what matters the most, need to include a relevant number of elements, for each of their components, enabling employers to achieve their intended objectives by means of the multiplicative, synergetic bundle effect. Indeed, this also depends on the complexity of an organization and on the kind of its employees population. Organizations characterized by a rather homogeneous generational population or, more in general, characterized by the presence of people having the same wants, might find it relatively easy developing less complex and less sophisticated, but not because of this less effective, total reward systems. It clearly depends on the circumstances.

As always happens in theme of practices, strategies and policies, the most difficult and crucial factor is represented by the implementation and execution phase. Even state-of-the-art total rewards models can miserably lead to failure if not properly, consistently and effectively executed. So that extra care has to be paid by employers to this activity.

The overall process, from designing to execution, could reveal to be particularly hard and resources consuming, but on the other hand it cannot neither be denied nor overlooked the circumstance that the stake is well worth the efforts and resources it requires.

It is very likely that the ever- and fast-changing external context, which is also sensibly influenced by the economics and financial conditions, will push employers to find increasingly sophisticated and effective total rewards model, where, differently from the past, the word reward will be the more and more associated with diverse meanings. In order to keep the pace, organizations need to pay extra care to this aspect and constantly investigate and study the external and internal environment in order to timely come up with suitable and cutting-edge solutions.

Longo, R., (2012), Total Reward as a HRM model, HR Professionals, Milan [online].

For an extended version of this article and much, much more click here