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#Ppmahr18 lets talk transformation reward strategies - ies peter reilly

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Let's Talk: Transformation - Reward Strategies

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#Ppmahr18 lets talk transformation reward strategies - ies peter reilly

  1. 1. The march of the market: pay determination in a changing context Peter Reilly, Principal Associate, IES For further information contact: peter.reilly@employment-studies.co.uk
  2. 2. Changing context Business environment challenges:  competition  regulation  globalisation  uncertainty  scrutiny
  3. 3. Changing context (2) Business strategic positioning:  cost reduction  quality improvement  search for innovation  productivity pressures  performance culture
  4. 4. Changing context (3)  Reduced collectivism  A litigious society  Low inflation  Slow economic growth  Public sector austerity  Tight labour market  New working (contractual) arrangements  Focus on the gender pay gap
  5. 5. A cultural shift in people management Activity Outcomes Mediocrity Excellence Post Person Central Local Control Flexibility Collective Individual Internal External
  6. 6. 96% 92% 88% 76% 63% 54% 36% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Recruiting/retaining key staff Employee engagement and motivation Keeping labour costs in check Making sure pay is aligned with market Dealing with skills shortages and/or anomalies Linking pay to productivity Aligning pay rises with inflation %ofrespondents 'Very important' or 'important' issues for reward strategies in 2014/15 External environment: strategic reward priorities Source: IDS
  7. 7.  Ability to pay  Fixed to index (eg RPI)  Collective bargaining  Individual negotiation  Regulated  Market benchmarking • with/without underpinning job evaluation Ways of determining base pay levels At organisational or sector level
  8. 8.  Pay supplements and allowances • Recruitment • Retention  Rewards for qualifications  (Performance) bonuses  Emphasis on benefits Remuneration options (beyond base pay settlement)
  9. 9. % use of pay supplements in public sector LGA survey 2015/16 NHS Employers 2017 0 10 20 30 40 50 60 Shire District Councils recruitment difficulties retention difficulties market supplements 0 10 20 30 40 50 60 70 80 children's social workers adult social workers mental health social workers planning officers legal professionals Single and upper tier councils recruitment difficulties retention difficulties market supplements 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Central functions Hotel, property and estates Senior managers Managers Nursing Scientific and technical NHS: Recruitment and Retention payments
  10. 10. Spectrum of pay comparability approaches Source: Aon, 2013
  11. 11. Declining importance of formal JE? The use of market rates (underpinned by job evaluation) to determine pay “appears to have fallen sharply”. “The organisation’s ability to pay is the most important factor” CIPD Survey on Reward Management 2014/15 But a lot of sectoral variation:  Public sector services 50% more likely to use JE than others  Third sector dominated by the ability to pay  Private sector equally likely to use market with/without JE
  12. 12. The push towards market pay Internal equity External equity Relative internal value External value
  13. 13. The push towards market pay/lighter JE Internal equity External equity Relative internal value External value Formal JE schemes Looser job levelling
  14. 14. Perceived weaknesses of JE  Some systems complex to develop and costly/time consuming to implement/maintain  Can appear to be scientific and objective when it is judgmental  Can lead to slow, inflexible responses to recruitment/retention/recognition difficulties  Potentially unresponsive in fast changing situations  JE factors do not accord with what is really valued by the organisation  Fits some jobs better than others: poor for specialists?  Internal valuation not external – does not reflect the market
  15. 15. Weaknesses of JE (2)  Can be used to reinforce existing hierarchies  Less useful where role flexibility is prized  Process based on only a superficial understanding of jobs under review  Conventionally does not address how job is done  Theoretically job not incumbent focused but overly influenced by job holder in practice  Can produce gaming of system especially where close connection between £s and points  Challenge of meeting demand for transparency but wish to preserve sanctity of process
  16. 16. Competing organisational pressures (1) External relativities • skill shortages • intense competition • market alignment Internal relativities • felt fairness • traditional hierarchies • equal pay drivers
  17. 17. Flexibility • job change • market change • rewarding contribution Order • wage drift • inconsistency • discrimination Competing organisational pressures (2)
  18. 18. Balancing priorities! External equity Internal equityPay system Economic logic Psychological logic ● market alignment ● supply and demand ● rate for the job ● open/transparent ● felt fair ● justifiable
  19. 19. A job evaluation fightback? Prominence of equal pay Link to talent and career management Use as an OD tool Leadership development programmes Facilitate a merger (other integration) To facilitate reward management
  20. 20. External market pricing issues  How do you pitch ‘core’ workforce against external market: • who are the comparators – sector, size…? • which jobs used? • which market positioning sought? • which geographies apply (local, regional, national, international)?  How homogeneous/heterogeneous a workforce?  Do specialists (or other segments) differ?
  21. 21. External market pricing issues, cont.  What matching process is used? • Public data or bespoke? • Job description or title based?  Comprehensive or limited remuneration data? • Base pay, total pay and benefits? • Average pay and structures?  How reliable is the market data quality?  Is there a proper market to analyse?  Can you defend it publicly?
  22. 22.  ‘Mimetic wage’ systems - simplistic pay matching as a defensive retention strategy Risks with market based pay systems
  23. 23. Sectoral convoys in reward management Arrowsmith and Sissons
  24. 24.  ‘Mimetic wage’ systems - simplistic pay matching as a defensive retention strategy  Ignoring internal cultural requirements? Risks with market based pay systems
  25. 25. Internal culture issues?  Does the culture demand fairness?  How much difference can be tolerated?  And on what basis are differences justified?  What is the relative importance of: • procedural justice? • distributive justice?  How transparent does the pay system have to be?  Is there a bias against complexity?
  26. 26.  ‘Mimetic wage’ systems - simplistic pay matching as a defensive retention strategy  Ignoring internal cultural requirements?  ‘Self-serving bias’ in data collection and analysis  Complaints against JE in favour of market pay based on ‘tautological arguments’  Liable to import gender biases from the market Risks with market based pay systems
  27. 27.  Avoid false scientism in market benchmarking & JE  Focus on business goals being met  Ensure your JE & pay systems meet that requirement  Balance internal & external equity in wage setting  Be market ‘informed’ rather than market ‘driven’  Use RRPs as short term measure whilst more helpful interventions (career, learning) bear fruit  In JE management balance commitment to the core system with process flexibility  Use JE in a ‘supportive way’ (where broad banding)  Evaluate the effectiveness of your policies Solutions
  28. 28. Testing reward effectiveness A six step model: 1. Set goals 2. Identify evaluation criteria 3. Select an evaluation method 4. Collect and analyse data 5. Interpret findings 6. Develop and implement improvements Scott, McMullen and Sperling, 2006 • Organisational impact? • Effectiveness? • Efficiency? • Unique, hard to imitate?
  29. 29. Useful reading https://www.gov.uk/government/publications/a-review-of- pay-comparability-methodologies http://www.employment-studies.co.uk/news/external- market-pay-and-internal-job-evaluation-hybrid-approach- emerging https://www.gov.uk/government/publications/review- of-theuse-and-effectiveness-of-market-pay- supplements-november-2017
  30. 30. www.employment-studies.co.ukwww.employment-studies.co.uk Thank you