Reward Management and the

Management of Change

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

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 Main messages (1)
• Old fashioned Reward Management
has an image of dullness and
inflexibility
• Reward systems, like business
strategy itself, may not flow
rationally from the top down, but
rather emerge from events, and
through negotiation with
stakeholders such as Trade Unions 3
 Main messages (2)
• Pay systems (e.g. team based rewards)
are often introduced after other
aspects of HR policy
• But NEW THINKING means Reward
Management has become a tool of
change.
• A NEW CHALLENGE to aim for is to
align employee behaviours with
business strategy through strategic
reward management. 4
 A1. Reward Management at Midland
Main Line (1)
• A high speed rail service co., set up in 1993, with
900 people
• Tough business targets to meet: (66% increase in
income, 33% reduction in operating costs, and
various service improvements, while restricting
price increases to below inflation rate).
• The pay structure of the old company (British
rail) was very complex, covering the whole
industry, with 300+ separate components to it.
Local managers had no influence.
• Current pay structure is very different.
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 A2. Reward Management at Midland
Main Line (2)
• Now the pay structure covers fewer people and is easier
to manage.
• The old pay system had a low basic wage and to
compensate for this, the Unions pressed for various
allowances and overtime arrangements. These were
counter-productive: staff were actually rewarded when
trains ran late!
• The new pay system pays a higher basic wage, and there
is no overtime.
• Under the new pay system, there are multi-skilled
teams, which means less delay in waiting for specialists .
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 A3. Reward Management at Midland
Main Line (3)
There is more flexibility
• The job contract specifies 1680 hours maximum per
year (roughly 35 hours per week for 48 weeks). If
people get the job done quicker, they go home quicker.
• Instead of 8 grades of crew staff, there are now just
3 grades, resulting in more flexible customer service
• These changes have also required extensive training &
development
• The mgt want to move to 80% base pay, 20% variable
pay

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B1. Strategic Reward Management:
Key Elements of Reward System
Design (Midland Main Line e.g.)
Business Strategy e.g. higher co. income, lower costs, better quality

Required Employee Behaviours e.g. flexibility & customer care

Reward Strategy

Co. Core Reward Values

Reward System
Process Reward Structure
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 B2. Reward Business Strategy
System should be
congruent with Required Employee Behaviours

other systems

Training
HRM Systems Performance
system
Management
System
Reward Strategy
Job
Design
Co. Core Reward Values

Reward Reward
Process Structure
Org
Structure Reward System
Culture
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 B3. Elements of the Reward System
Core Reward Values
• Five key values that should be honoured (see
next slide
Reward Structure
• How the system is administered; structures
that put reward management values into effect
• Reward System Process
• How the system is communicated
• Whether, and how, employees are involved in
designing it
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 C1a. Reward Management Values - 1

Typical Reward Management values

are
• Paying for performance
– individual performance related pay
– team based rewards
• Equity
– sometimes a trade-off between
external equity (alignment with
external market price of the
labour) and internal comparisons)
– also procedural justice issues
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 C1b. Reward Management Values - 2
More Typical Reward Management values are
• Employees sharing in the organisations’
success
– profit sharing, gainsharing, etc (can be
‘distant’)
• Employee involvement in designing the
system
– a relatively new idea
• Combining financial/non-financial rewards
(see next slide)
– achievement & recognition (we all need
this)
– responsibility, influence, personal growth
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 C2. Reward Management Values -
Reminder on the Limits of Money
• No one quite understands the
link between money and
motivation.
• Money may motivate people to
behave in particular ways some
of the time, in some
circumstances
• Herzberg reminds us that it may
not be possible to motivate
through money, but it is easy to
demotivate, by getting the pay
system wrong
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 D1. Reward Management Structures (1)
To relate pay to performance, many
orgs are adopting this kind of
structure:
• Base pay reflecting the market rate for
the job
• Plus a variable element related to one or
more of: individual, team & org
performance, and skill acquisition

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D2. Reward Management Structures (2)

• This means a move to as much

emphasis on external equity
(the market value of the
employee’s labour power) as on
internal equity (e.g. how he/she
compares with similar
colleagues)
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D3. Reward Management Structures (3)

• Reconciling team based pay

with internal equity is difficult,
so the authors suggest
combining it with individual
performance related pay.

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 D4. Reward Management
Structures (4)

Typical imperatives in relation to

equity (and building a sense of
community) include:
• To be careful that the directors
are not seen to award themselves
unfairly large pay increases
• Equal pay for work of equal value
by men & women
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 D5. Reward Management
Structures (5)
• Closing the ‘gap’ in benefits between
blue and white collar workers
• Wider pay bands: room to reward
‘good citizens’
– lateral movement across the
organisation without promotion
– reward for multi-skilling & teamwork
– continual rewards for continual
improvement in performance
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 D6. Reward Management Structures (6)
In order that employees may share in the
organisations’ success, companies may adopt
• Profit related bonus
• Employee share ownership options
• Gainsharing (employees get a share of cost
savings required by company strategy and
arising from productivity +/or quality
improvements)

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 D7. Reward Management Structures (7) - 1

To apply non-financial rewards, the

company may
• Publish people’s successes in the in-
house magazine
• Give ‘thank you prizes’ e.g. a
weekend trip overseas
• Train line managers in appraisal,
goal setting, feedback skills
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 D8. Reward Management Structures (8) - 2

To apply non-financial rewards, the company may

• Apply job design theory to make jobs
more meaningful & responsible, and
where people can see the successful
outcomes of their work
• Skill based pay is a financial reward that
may have a big impact on organisational
change. It can be applied both in
manufacturing and service industries
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 E1. Reward Management Processes (1) -
Employee involvement in developing the system
5. Implement, and ongoing monitoring
& evaluation by task force

4. Communication to those effected; plus training

for supervisors and line managers

3. Pilot implementation of the scheme: why not pilot

on the employees who were involved in (2). This pilot
scheme is monitored, is it achieving its aims?

2. Task force of around 12 managers, supervisors

& employees develops a detailed proposal to top mgt

1. Feasibility study: establishes the aims of the scheme

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 E2. Reward Management Processes (2) -
Employee involvement in developing the system
• The process may be preceded by an employee attitude
survey
• Employee involvement isn’t enough on its own: the
system won’t work unless it is ‘technically sound’
• With team based pay, it may be appropriate to award an
overall amount to the whole team, and empower the
team to determine how this is allocated to individual
based on their contribution members
• ‘Cafeteria benefits systems may allow individuals to
choose their own combination of benefits (e.g health
benefits, vs. more leave, vs. cash bonus).

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 E3. Reward Management Processes (3) - the
Issue of Secrecy
• Some companies won’t allow their members to talk
about pay
• The reward system may lack transparency
• This may give management the flexibility they
like, but may lead to rumours and lack of trust
• Transparency versus secrecy about pay is an
important reflection of organisational (culture)
• If the company wishes to create greater
openness in communication a good way to start is
to be more open and transparent about the
reward management system.

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 F1. What has All This Got to Do With
the Management of Change (1)?
• As just noted, companies are very secretive
about reward systems (invoking
‘confidentiality’). More openness about this
can lead to more open communication
generally.
• Strategic Reward Management is a tool of
organisational change.
• Adopting appropriate reward management
values (see slide 10) can remove blockages to
organisational change. 25
 F2. What has All This Got to Do With
the Management of Change (2)?
• Changing the reward structures (e.g.
designing jobs to be intrinsically satisfying,
instituting skill based pay, or adopting
gainsharing schemes) can have a big impact
on employee behaviour and readiness to
learn.
• Developing a new reward system
(strategy, values, structures, processes)
is itself a major organisational change
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Thank you

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