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in partnership with
REWARDMANAGEMENT
2012Annual survey report supplement 2012Aligning strategy and pay
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CONTENTS
Foreword 2
Summary of key findings 5
1 Introduction and theoretical background 9
2 Business strategy and pay management 11
3 Workforce characteristics and pay management 16
4 HR outcomes 23
Conclusions and implications 30
Background to the report 33
References and further reading 35
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FOREWORD
Welcome to the supplementary report based
on the data from the CIPD 2012 annual Reward
Management survey. While the 2012 Reward
Management survey report was based on
descriptive analysis of the figures, this report is
based on an inferential analysis of the numbers.
This report allows us to examine pay policies,
organisational strategy, workforce characteristics
and HR outcomes and to explore whether a
certain pay practice is associated with a certain
business strategy or HR outcome.
For instance, one of the findings from the report
concerns the use of performance-related reward,
incentives and recognition schemes. The analysis
reveals positive associations between increased
usage of such schemes and better employee
relations and reduced levels of employee
discontent with pay.
However, while the research identifies an
association between performance-based reward
practices and employee relations and employee
pay discontent, it does not show that performance-
based pay will drive these outcomes. It could
be that employers that have better employee
relations are more likely to be able to successfully
introduce and operate performance-related pay.
Or, it could be that both performance-related pay
and good employee relations are interdependent
and you cannot have one without the other.
While one aim of the analysis is to identify some
of the positive and negative associations between
pay policy, business practice, HR outcomes and
workforce characteristics, the other is to help
practitioners to consider why the associations may
exist and what it means for their organisation and
its varied contexts.
This analysis is not a one-off. We will examine
these associations over time to see if they change.
We will also explore other aspects as well, to see
what other relationships we can uncover. This,
taken together with other CIPD research, will help
indicate what works and, over time, why.
Once again, I would like to thank all those
reward and HR professionals who helped develop
the questionnaire, those that filled in our
questionnaire, those that have reviewed this report,
the team at the University of Bedfordshire, London
Metropolitan University, the University of Sydney
and the University of Melbourne that helped create
the report, and our sponsors Benefex.
Charles Cotton
CIPD Performance and Reward Adviser
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Benefex is pleased to be working alongside the
CIPD on the supplementary report which is based
on the data from the CIPD 2012 Annual Reward
Management survey.
The survey results have enabled the CIPD to
explore the question of strategic alignment by
identifying the variety of factors that appear to be
influencing managerial practice in 2012.
The results show links between particular HR
outcomes and certain reward management
practices, for example, there appears to be a link
between transparent pay arrangements and a
positive employee relations environment.
One of the survey findings shows that careful
reward management appears to make a difference
by creating positive relationships between
employers and employees, reducing reward-
related disquiet, and retaining talent.
The definition of careful reward management
will vary from company to company, but in
addition to having a clearly articulated and
robust reward strategy, it is likely to include the
successful execution and on-going management
and administration of reward programmes.
This includes continuous communication on
how reward programmes work, effective
communication in respect of changes to
employees reward packages such as base-pay
increases, bonus awards and so on.
Therefore, line managers need to be equipped
to have open, honest and meaningful discussions
with employees on how reward is managed within
their organisation. Increasingly, technology is
playing a key role in the successful execution of
reward policies and programmes as a means of
communicating and engaging with employees.
We look forward to working with the CIPD to
examine the various associations between pay
and HR outcomes over time to see if they change
and what the impact of these changes are.
Matt Waller
CEO, Benefex
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ABOUT US
CIPD
The CIPD is the worlds largest Chartered HR
and development professional body. Were a
globally recognised body with more than 135,000
members across 120 countries including 84,000
professional members.
Our members include the next generation of
HR professionals, and many of the worlds most
influential senior HR leaders from world-class
organisations.
We set global standards for best practice in HR and
its specialisms. Its our aim to support and develop
professional capability: shaping thinking, leading
best practice and building HRs profile in business.
cipd.co.uk
Benefex
Benefex are one of the most successful online
reward and benefits providers based in the UK.
We specialise in the creation, delivery and support
of strategic employee benefit solutions, providing
everything you need under one roof.
We deliver fully integrated reward and benefit
portals including total reward, flexible benefits,
savings, education, broking and our new
auto-enrolment solution Enroller, which
provides an outsourced, complete end-to-end
auto-enrolment service.
The Benefex service proposition is unique in the
market, seamlessly combining the design and
implementation of employee benefit solutions
with the provision of fully integrated reward
and benefit portals, delivering and administering
client-tailored schemes online via the companys
own RewardHub technology platform.
Every aspect of Benefexs solutions, from consulting
to communications and employee support, are
delivered in-house. As a consequence, the company
enjoys an unrivalled reputation for exceptional
service and delivery, and breadth of capability.
Whatever your strategy, Benefex will help
you design, execute, support and evolve your
employee benefits.
benefex.co.uk
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SUMMARY OF KEY FINDINGS
The focus of this report is the extent of strategic alignment of pay management practices and the resulting human resources outcomes. Intended as a companion piece to, and using data from, the CIPD 2012 Reward Management survey, this study explores aspects of the proposition that alignment of reward practices vertically, with business strategy, and horizontally, with workforce characteristics, leads to positive organisational outcomes.
Results from the 2012 Reward Management survey have provided us with a clear picture of organisations aligning certain reward practices with business strategies and workforce characteristics. We have also found compelling relationships between pay practices and specific human resources outcomes.
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Table 1: Business strategies, reward practices and HR outcomes
In organisations with a Prospector strategy (that is continuous product/service diversification in pursuit of high returns)
In organisations with a Defender strategy (that is cost- and/or quality-based competitive defence in a preferred core product/service market)
Reward practices
Market positioning of reward
Reward levels are likely to be positioned in the top 10% of the market versus competitors.
Base pay structures
Pay structures are likely to be used for managing base pay rather than individualised pay systems.
Broadbanding is likely to be used for management/professional employees (includes senior managers, middle and front-line managers, professional, technical and scientific employees).
Base pay level determination
Ability to pay is not likely to be considered as the most important factor in determining pay levels.
Ability to pay is likely to be considered the most important factor in determining pay levels.
Market rates (with job evaluation) are likely to be considered the most important factor in determining pay levels.
Base pay progression
Competencies and skills are likely to be used as pay progression criteria.
Length of service is not likely to be used as pay progression criteria for non-management employees (includes administrative support, trades and production workers as well as customer service and sales staff).
Length of service is likely to be used as pay progression criteria for management/professional employees.
Base pay review factors
Movement in market rates was likely to have been considered an important factor in general pay award decisions in 2011.
Shareholder views were likely to have been considered an important factor in general pay award decisions in 2011.
Ability to pay was not likely to have been considered an important factor in general pay award decisions in 2011.
Performance-related reward, incentive and recognition
Performance-related reward, incentive and recognition schemes are likely to be in operation.
Performance-related reward, incentive and recognition schemes are likely to be in operation.
HR outcomes
Employee relations climate
There is likely to be a very good employee relations climate.
Labour productivity
There is likely to be far better labour productivity in comparison with competitors.
It is likely that labour productivity has increased considerably in the past three years.
It is likely that labour productivity has decreased in the past three years.
Pay discontent It is not likely that discontent related to pay has been raised by employees in the past 12 months.
Business strategyOur results have shown that private sector firms
using different business strategies in their chosen
product/service sectors, have adopted markedly
different reward management practices.
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Table 2: Workforce characteristics and reward practices
In organisations with high proportions of female employees (in one or more employee category)
In organisations with high proportions of employees under 30 years of age (in one or more employee category)
In organisations with high proportions of graduates (in one or more employee category)
Reward practices
Pay levels (base pay plus performance pay)
The pay of the highest paid individuals is lower.*
The median pay is higher.*
The median pay is higher.*
The pay of the lowest paid individuals is higher.*
Base pay structures Pay spines or other service-related structures are likely to be used to manage base pay.*
Base pay progression Length of service is likely to be used as pay progression criteria.*
Individual performance, skills and employee potential/value/retention are likely to be used as pay progression criteria.*
Employee potential/value/retention is likely to be used as pay progression criteria rather than market rates.*
Base pay level determination
Collective bargaining is not likely to be used to determine base pay levels, rates, ranges and mid-levels.*
* in associated employee categories
Workforce characteristics and reward practicesIn organisations from all sectors there are
relationships between the composition of the
workforce and the reward practices employed.
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HR outcomesResults have also shown particular HR outcomes
are associated with certain reward management
practices.
Table 3: HR outcomes and reward practices
In organisations with a positive employee relations climate
In organisations with better labour productivity than competitors
In organisations that have seen labour productivity increase in the past three years
In organisations that have experienced difficulties retaining employees in the past 12 months
In organisations that have experienced discontent relating to pay in the past 12 months
Reward practices
Pay secrecy Pay arrangements are more transparent.
Pay levels (base pay plus performance pay)
The median pay for non-management employees is lower.
The median pay for non-management employees is lower.
The pay of the highest paid individuals in non-management grades is higher.
Base pay structures
Pay spines, narrow grades and job family pay structures are likely to be used.
Individualised and pay spine structures are likely to be used.
Base pay progression criteria
Competencies and skills are likely to be used as criteria for non-management grades.
Competencies are likely to be used as criteria for managers and professionals.
Employee potential/value/retention are likely to be used as criteria for managers and professionals.
Competencies are not likely to be used as criteria.
Performance-related reward, incentive and recognition
Performance-related reward, incentive and recognition schemes are likely to be operated.
Performance-related reward, incentive and recognition schemes are not likely to be operated.
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1 INTRODUCTION AND THEORETICAL BACKGROUND
HRM theory has identified two distinct approaches
to designing HR strategies and practices in
organisations. A best practice approach, which
suggests that there is one set of superior HR
practices that can be applied in virtually any
context to achieve competitive advantage and
deliver win-win for all parties. Researchers are yet
to agree on a list of best practices (Pfeffer, 1998).
The alternative approach, known as alignment
or best fit, proposes an alignment between an
organisations practices and its strategic purpose,
its external environment and its internal structure,
culture and resource capabilities (Shields, 2007). In
the reward management literature this alignment
model is reflected in the new pay and strategic
reward approaches that have held currency since
the 1990s. Following the logic of best-fit principles,
these approaches propose that by aligning reward
strategy and practice vertically with overall
organisational strategy and horizontally with
internal characteristics, organisations will benefit in
the shape of enhanced individual performance and
ultimately in positive organisational performance
outcomes whether they are quality and customer
service or productivity and profitability. In this report
we examine the relationship between business
strategy and a range of pay management practices.
To operationalise business strategy, this
report draws on Miles and Snows (1984)
market competition typologies: Defender and
Prospector (see Table 1). Defenders operate in
relatively stable markets for their products and/
or services; they offer a narrow range of products
and/or services and invest in maximising efficiency
in existing operations. Process engineering, cost
control and functional structures are characteristic
in Defender-oriented organisations. Prospectors
on the other hand are market leaders, continually
looking for product and market opportunities,
often in completely unrelated fields. The
emphasis on experimentation and innovation
means Prospectors may not always be efficient.
Prospector characteristics include a divisionalised
structure and attention to market research,
research and development.
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Table 4: Defender/Prospector descriptors (based on Miles and Snow, 1984)
Defender Prospector
Maintains a safe niche in a relatively stable product service domain.
Leads in innovations in its industry.
Offers a narrower set of products/services than its competitors.
Periodically redefines its products and services.
Achieves the best performance in a relatively narrow product/service market domain.
Believes in being the first-in the industry in development of new products.
Maintains a limited line of products/services. Accepts that not all efforts invested in developing new products will be profitable.
Responds rapidly to early signs of opportunities in the environment.
The prescriptive reward management literature
suggests that enhanced organisational performance
will result from achieving a good fit between
the business strategy and reward management
practices. If organisations were responding to
this prescription we would expect to see different
reward practices being operated by Defenders
and Prospectors. A Defender-type organisation
might operate clear grading structures, transparent
pay systems and hierarchy-based compensation
while a Prospector-type organisation would
take a more market-based approach to pay and
operate performance-based reward systems (Delery
and Doty, 1996, adapted by Marchington and
Wilkinson, 2008).
In terms of the horizontal alignment of reward
practices with the organisations internal
environment, the alignment or fit model
is predicated on the resource-based view of
human resources and the competitive potential
in an organisation aligning its practices with its
internal workforce capabilities and culture (Wright,
McMahan and McWilliams, 1994).
The strategic reward alignment proposition predicts
that aligning reward strategies and practices with
business strategies and workforce characteristics
will generate better HR outcomes. This report will
examine this proposition by testing the following
questions:
To what extent do private sector firms with
different business strategies adopt different
pay management practices?
To what extent do organisations (from all
sectors) with different workforce characteristics
adopt different pay management practices?
To what extent are different HR outcomes
associated with different pay management
practices?
The statistical analysis undertaken for this report provides a probability value, that is, the likelihood that the result was due to chance rather than a specific effect or phenomenon. For more information, please see the Background to the report section.
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2 BUSINESS STRATEGY AND PAY MANAGEMENT
In order to establish the business strategies of
private sector respondent organisations, we asked
respondents to indicate how their organisations
prefer to operate in their chosen product/service
markets using a list of descriptors including those in
Table 4. From this we developed two scales for the
extent of Defender or Prospector orientation, with 1
indicating a low orientation and 5 indicating a high
orientation. Combining the figures for individual
organisations gave us an average (mean) score for
our sample. Overall the mean scores for private
sector organisations in our survey were 2.93 (
0.72) for the Defender orientation and 3.57 ( 0.82)
for the Prospector orientation, indicating that the
Prospector strategic approach is more common in
our sample.
We analysed the responses to our survey questions
on reward management practices to establish if
there was a difference in the practices implemented
by Defenders and Prospectors. This is what we
would expect to find if organisations were applying
an alignment or best fit approach.
Overall, statistical analysis indicated that there
were specific areas of difference in reward practice
between Defenders and Prospectors.
Market positioning of reward All organisations have a choice, albeit a constrained
one, regarding where they position their reward
levels (base pay, performance pay and benefits with
a monetary value, for example a company car) in
the labour market compared with their competitors.
Some organisations may choose to position reward
lower than the median, in order to minimise labour
costs but with the potential cost of higher attrition
rates. Other organisations may choose to pay above
the median to attract and retain employees.
Figure 1 shows that organisations with a Prospector
business strategy are more likely than not to
position their pay in the top 10% of the market
(p
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Prospectors will be more likely to take decisions
relating to pay based on market information. It
would also suggest that Prospectors are choosing to
pay at the very top of the market to secure the best
talent in order to pursue innovation a decision
that may outweigh concern for cost control.
Base pay structuresOur Defender/Prospector data for the private
sector only show that organisations with different
business strategies take differing approaches to
the management of base pay. Figures 2 and 3
show the mean Prospector and Defender scores for
organisations using different base pay structures.
Prospectors are less likely to use an individualised
approach to base pay for management (p
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2012Base pay progressionIn deciding how to progress employees along a
pay scale or through a pay grade, the 2012 Reward
Management survey found that 78.6% of all
organisations use individual performance as a basis
for pay progression while 56.8% use market rates.
Defenders are more likely to use length of service
as a criterion to progress pay for management and
professional staff (p
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These results are consistent with what we
would expect to find based on the Defender/
Prospector model. Defenders seem to be taking
a more cautious approach to progressing pay
favouring traditional but clear methods of moving
employees along pay scales with predictable costs
whereas Prospectors seem to be incentivising
employees to gain skills and/or competencies;
presumably those which suit their business needs.
Base pay review factorsWe now look at the factors private sector firms
considered most important in determining the
size of the organisations base pay award/review
in 2011. Our results showed that Defender
organisations were less likely to have considered
ability to pay one of the most important factors
(p
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2012This very clear result is consistent with the
alignment model. The model anticipates
that different business strategies will lead to
distinct reward practices such as the linking of
performance (individual, team or organisational)
with pay that is variable and contingent upon
certain criteria.
Figure 7: Mean Defender scores and types of individual performance-related reward scheme for non-management employees
Individual performance-related reward schemes
3.11
2.85
3.16
2.95
2.88
3.00
3.07
2.93
Ad-hoc
Def
end
er s
core
s
Combination Piecerates
Salescomission
Meritpay
Individualbonuses
Othermonetary
Non-monetary
2.70
2.75
2.65
2.85
2.80
3.05
3.00
2.95
2.90
3.20
3.15
3.10
Figure 8: Mean Prospector scores and types of individual performance-related reward scheme for non-management employees
Individual performance-related reward schemes
3.60
3.68
3.33
3.67 3.68
3.53
3.49
3.73
Ad-hoc
Pro
spec
tor
sco
res
Combination Piecerates
Salescomission
Meritpay
Individualbonuses
Othermonetary
Non-monetary
3.20
3.10
3.30
3.60
3.50
3.40
3.80
3.11
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3 WORKFORCE CHARACTERISTICS AND PAY MANAGEMENT
The 2012 Reward Management survey asked respondents to indicate the proportions of women, employees under 30 years of age and graduates in management/professional and other grades. We used this data to examine the extent of horizontal alignment between workforce characteristics and reward practices.
Pay levelsWe asked respondents to provide the total
annual earnings (base pay plus performance pay)
for the lowest paid, highest paid and median
paid individual for each employee category
(management/professional employees and other
employees). Analysing the responses against each
of our three workforce characteristics (women,
young people and graduates) revealed a number
of interesting results.
We found a significant negative correlation
(p
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2012Regardless of the specific reasons, we can deduce
that levels of total earnings in organisations are
related to workforce characteristics; horizontal
alignment is, to some extent, evident here.
Base pay structuresThe analysis of base pay structures and alignment
with workforce characteristics shows that there
is an association between how organisations
structure their pay grades and the proportion of
female managers they employ and also between
pay structures and the proportion of graduate
managers employed (p
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Figure 11: Pay level determination factors and proportion of female employees (non-management grades)
18.918.9
28.4
54.1
22.224.4
26.7
30.1
19.2
23.3
34.2
40.0
16.7
23.3
35.0
12.0
44.0
4.0
48.0
35.6
120%
% o
f re
spo
nd
ents
2140 4160
Proportion of female employees in non-management grades
6180 81100
Market rates (with JE) Market rates (without JE) Collective bargaining Ability to pay
0
20
10
40
30
60
50
Figure 10: Base pay structures and proportion of graduates (management/professional grades)
14.014.015.8
8.8
57.9
16.016.0
28.0
48.0
33.3
22.2
18.518.5
37.0
29.426.5 26.5 26.5
14.7
21.8
18.218.2
25.5
45.5
32.0
120%
% o
f re
spo
nd
ents
2140 4160
Proportion of graduates in management/professional grades
6180 81100
Pay spines/service related
Broadbanded Job family
Individual salaries
0
20
10
40
30
70
50
60
Narrow-graded
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2012Pay level determinationThe analysis of factors used to determine
base pay levels and alignment with workforce
characteristics shows that there is a statistical
relationship between factors used to determine
levels of base pay and the proportion of women
employed (p
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Figure 13: Pay progression criteria and proportion of female employees (non-management grades)
also in frequent use. Conversely, market rates are
also commonly used as a pay progression criterion
in organisations with very low (120%) numbers
of women in non-management grades. Why
organisations with workforces skewed towards
one gender are more likely to use market rates is
not immediately obvious but may be due to their
operation in specific, competitive industries/sectors
(which are also gender segregated) leading them
to pay close attention to market rates in their
particular segment of the industry.
The use of length of service to progress pay is less
frequent amongst organisations with very low, and
low proportions of female managers/professionals,
than those with higher proportions, in line with
the findings for pay spine use in Figure 9. For non-
management grades, skills are a more common pay
progression criterion in organisations with low, and
very low numbers of women than competencies,
which are more frequently used than skills in
organisations with 41100% of female employees.
This result perhaps indicates that skills-based pay
may be more traditionally associated with male-
dominated trade/technical occupations, while
competencies (so-called soft skills) are perhaps
more associated with occupations which are more
gender balanced.
Figure 14 shows that use of individual performance
as pay progression criteria increases as the
proportion of those aged under 30 years in non-
management grades increases. Every organisation
in our sample with very high (81100%) numbers
of under 30s in non-management grades uses
individual performance to progress pay. Skills,
considerations of employee value/retention,
competencies and market rates are all more
common forms of pay progression criteria in
organisations with very high numbers of under
30s than those with fewer under 30s. Length of
service, although low across the board, is lowest in
this category. Here we have an indication that in
organisations where younger people dominate the
35.7
50.0
61.4
20.0
62.9
27.1
39.541.9
65.1
20.9
53.5
37.2
47.1
39.7
61.8
26.5
41.2
32.4
51.7
35.0
41.7
73.3
25.0
36.734.8
30.4
52.2
21.7
13.0
47.8
120%
% o
f re
spo
nd
ents
2140 4160
Proportion of female employees in non-management grades
6180 81100
Individual performance
Competencies Length of service
Market rates
Employee retention
0
40
20
10
30
60
50
90
70
80
Skills
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workforce, traditional service-related progression is
being replaced by pay contingent on performance,
skills and the value the individual employee brings
to the organisation.
Figure 15 similarly shows that in organisations with
very few graduates as a proportion of the non-
management workforce, individual performance is
less likely to be used as pay progression criterion.
In these organisations the market rates approach
is used just as much as individual performance.
Interestingly, the use of market rates is not as
great in organisations with high (6180%) and very
high (81100%) proportions of graduates where
assessment of employee potential/value/retention is
more likely to be used. The results overall indicate
that where non-management employees have
been university educated, individual performance,
potential and value are likely to outweigh market
rate considerations in decisions relating to
progressing base pay.
Figure 14: Pay progression criteria and proportion of employees under 30 (non-management grades)
37.840.0
60.0
26.7
53.3
28.9
46.244.6
66.2
16.9
52.3
27.7
54.3
45.7
65.7
22.9
45.7
40.0
50.0
22.2 22.2
33.333.3
77.8
60.0
80.0
100.0
10.0
70.0
60.0
120%
% o
f re
spo
nd
ents
2140 4160
Proportion of employees under 30 in non-management grades
6180 81100
Individual performance
Competencies Length of service
Market rates
Employee retention
0
40
20
10
30
60
50
90
100
70
80
Skills
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Figure 15: Pay progression criteria and proportion of graduates (non-management grades)
39.341.0
54.1
19.7
54.1
26.2
59.1
50.0
81.8
31.8
50.045.5
51.9 51.9
85.2
14.8
51.9
25.9
45.0
25.0
30.0
75.0
15.0
40.042.9
35.7
71.4
14.3
50.0
35.7
120%
% o
f re
spo
nd
ents
2140 4160
Proportion of graduates in non-management grades
6180 81100
Individual performance
Competencies Length of service
Market rates
Employee retention
0
40
20
10
30
60
50
90
70
80
Skills
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Employee relations climate Respondents were asked to rate their
organisations general employee relations (ER)
climate as: very good, good, somewhat strained
or very strained. Over half reported that employee
relations in their organisation were good, over
a quarter said relations were somewhat strained
while one in eight said the employee relations
climate was very good and roughly one in twenty
admitted it was very strained.
Our results show a direct relationship between
the extent of pay transparency and the quality of
the employee relations climate (p
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Figure 17: Employee relations climate and operation of performance-related reward
Figure 17 shows a clear association between
employee relations climate and operation of
performance-related reward, incentive and
recognition schemes (p
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70.066.766.7
23.3
43.3
36.740.4 40.4
70.6
12.8
61.5
40.4 41.0
45.0
66.0
12.0
60.0
38.0
13.3
26.7
46.7
26.7
13.3
46.7
Far better%
% o
f re
spo
nd
ents
Somewhat better Average
Labour productivity (compared with competitors)
Below average
Individual performance
Competencies
Skills Market rates
Employee retention
0
40
20
10
30
60
50
70
80
Length of service
Figure 18: Labour productivity (compared with competitors) and pay progression criteria for non-management grades
Figure 19: Labour productivity (compared with three years ago) and pay progression criteria for management/professional grades
54.5
83.1
64.9
14.3
53.2
70.1
43.4
37.4
85.9
13.1
57.6
50.5
42.2
32.8
84.4
12.5
56.3
50.0
41.7
54.2
83.3
16.7
75.0
66.7
Increased considerably
% o
f re
spo
nd
ents
Increased slightly Remained same
Labour productivity (compared with 3 years ago)
Decreased
Individual performance
Competencies
Market rates
Employee retention
0
40
20
10
30
60
50
70
80
90
100
Length of service
Skills
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Figure 20: Difficulties retaining employees in past 12 months and base pay structures (management/professional employees)
26.1
39.1
26.1
17.4
47.8
16.8
28.8
16.8
49.6
17.921.2
15.9
3.3
55.0
5.6
To a great extent
% o
f re
spo
nd
ents
To some extent Not at all
Retention difficulties in past 12 months
Narrow graded
Broad-bands
Job family
Pay spines
Individual salaries
0
20
10
40
30
50
60
Results also show that decreased labour productivity
is correlated with higher median total earnings for
non-management grades (p
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2012Results show an association between employee
retention difficulties and base pay structure for
management/professional employees (p
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discontent more commonly use competencies
as base pay progression for both employee
groups, and skills as pay progression criteria for
managers. This group is also less likely to use
employee potential/value/retention as criteria for
progressing pay.
Extent of pay discontent is also associated
with whether or not organisations operate
performance-related reward, incentive and
recognition schemes (p
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2012HR outcomes and business strategyResults show that Prospector firms (Figure 25) are
more likely than Defenders to have better labour
productivity than their competitors (p
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CONCLUSIONS AND IMPLICATIONS
A number of years ago we asked a sample
of UK-based multinational employers about
the influences they perceived on their reward
management strategy (Perkins, 2006). We were
intrigued to discover that while claiming that
respondent businesses prioritised shareholder
value creation and customer satisfaction, these
factors did not universally correlate with how they
set reward strategy: instead uncontrollable factors
such as economic climate and what competitors
were doing came to the fore (Brown and Perkins,
2007). So there were some strategic choices
being made in simple terms, to accommodate
environmental factors although not the ones
prescriptive reward management commentary
would have predicted.
The design of the present study has enabled us
to pursue the question of strategic alignment in
more granulated detail, teasing out the variety of
factors that appear to be influencing managerial
practice in 2012. The study has also illuminated
the likely consequences of competitive strategy,
workforce composition and reward practice in
terms of HR outcomes. What we have discovered
is that many UK-based organisations are choosing
actively to manage rewards, using base and
incentive pay in ways their corporate focus would
imply, influenced not only by sectoral big picture
factors, but also by the characteristics of the
workforces particular employers may assemble.
And there is clear evidence from what survey
respondents have told us suggesting that careful
reward management does make a difference
in some respects surprisingly so in terms
of creating a positive climate of relationships
between employer and employees, reducing
reward related disquiet, and retaining talent.
These findings offer HR practitioners an evidence
base from which to engage their corporate
managerial colleagues in a dialogue for the
purpose of systematically weighing choices of
how best to apply scarce resources matched to
an understanding not only of what the business
wishes to achieve, but also the circumstances
within which to organise proactively.
We structure our concluding comments around
the three questions posed in the introduction:
To what extent do private sector firms with
different business strategies adopt different
pay management practices?
To what extent do organisations (from all
sectors) with different workforce characteristics
adopt different pay management practices?
To what extent are different HR outcomes
associated with different pay management
practices?
Business strategyOur results have shown that private sector
firms using different business strategies in their
chosen product/service sectors have also adopted
markedly different reward management practices.
Firms pursuing Prospector-oriented business
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2012strategies are taking a more competitive approach
to positioning reward levels in the market versus
competitors; they are more likely to approach
pay decisions prioritising market information as
opposed to affordability, and are more likely to
operate performance-related reward, incentive
and recognition schemes. Prospectors are also
using broadbanded pay structures for managers
and to progress base pay through pay structures,
and they favour using competencies and skills as
criteria rather than length of service.
In contrast, private sector firms pursuing a
Defender-oriented business strategy are taking
a more cautious approach to pay choices
based on the organisations ability to pay, and
shareholder views. Defenders are less likely to use
performance-related reward and are more likely
to use length of service as pay progression criteria
for management/professional grades.
Findings for Prospectors and Defenders in relation
to human resources outcomes would suggest that
their differing approaches to reward management
do lead to different HR outcomes. Prospector
firms are more likely to have a very good
employee relations climate; have far better labour
productivity in comparison with competitors; have
seen labour productivity increase considerably
in the past three years. Defender firms have
seen labour productivity decrease in this period.
Prospectors are also less likely to have experienced
discontent related to pay raised by employees in
the past 12 months.
Implications of these findingsFrom an academic perspective, our findings lend
support to the strategic alignment proposition.
We have found organisations choosing reward
management practices that fit with their business
strategies and, for Prospector-orientated firms at
least, there are indications that these choices may
have positive consequences for HR outcomes.
Implications for HR and reward management
practitioners centre on developing business
awareness, something the CIPD has long
advocated through its thinking performer
model. Our findings beg the question: how can
HR professionals make sound choices about
reward practices and their intended consequences
without fully understanding the strategic business
imperatives their organisation is pursuing?
Workforce characteristicsOur results indicate that organisations (from all
sectors including public and voluntary) differ in
their approach to reward management according
to different workforce characteristics.
Our results showed organisations with high
proportions of female employees have lower
highest total earnings (base pay plus performance
pay). Base pay is more likely to be structured in
organisations with more women managers, and
individualised salaries used less where there are
very low numbers of women. Pay spines are more
common where there are more female managers
and length of service is used more commonly
as a criterion to progress base pay. While we
have speculated that this may be due to large
numbers of women working in public services
where these pay practices are also common, it
was also interesting to see that organisations with
high proportions of women in non-management
grades were less likely to use collective bargaining
to determine base pay levels.
In organisations where the greater proportion
of employees are under 30 in non-management
grades, the higher the median salary is for these
employees. Organisations with high numbers of
younger workers in non-management grades
were more likely to use individual performance,
skills and employee potential/value/retention
to progress base pay and were less likely to use
length of service suggesting a shift away from
traditional forms of pay progression in the
younger workforce.
In organisations with high proportions of
graduates we found higher lowest and median
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total earnings virtually across the board. We
also found an approach to pay progression that
considered employee potential/value/retention as
key criteria rather than market rates.
So what do these results tell us? We find some
support for the alignment model it is clear that
the organisations in our sample were approaching
reward differently according to the different
characteristics of their workforce whether
they were related to gender, age or education
level. And once again there are implications for
practitioners here too. Some of these differing
reward approaches may not always be ethical or
indeed legally compliant. So, while practitioners
might be sensitive to the different reward needs
of different sections of the workforce, they also
need to be mindful of the legal implications of
their pay practices.
HR outcomes Our results imply that transparency of pay
arrangements in respondent organisations was
associated with more positive employee relations
climates. Organisations with good ER climates
were also more likely to operate performance-
related reward schemes but have lower median
total earnings for non-management grades.
For labour productivity, our findings show that
organisations with better productivity than
competitors are more likely to use competencies
and skills as pay progression criteria for non-
management grades. Organisations that have seen
labour productivity increase in the past three years
are also more likely to use competencies as pay
progression criteria for managers. However they
were also more likely to have lower median total
earnings for non-management grades.
Organisations that have experienced difficulties
retaining employees in the past 12 months are more
likely to use pay spines, narrow-grades and job
family base pay structures and have higher highest
total earnings (for non-management grades).
Organisations that have experienced discontent
relating to pay levels or pay systems in the past
12 months are more likely to use individualised
and pay spine base pay structures; more likely to
use employee potential/value/retention as pay
progression criteria for management/professional
employees; less likely to use competencies as pay
progression criteria for both employee categories
and less likely to operate performance-related
reward schemes.
In brief, our findings for the associations between
reward management practices and HR outcomes
very clearly indicate that the choices organisations
make about rewarding employees and the systems
and techniques they use to do so, are likely to
have significant consequences for organisational
HR outcomes. By way of conclusion, we now
highlight one key choice.
Our findings carry clear implications regarding the
use of performance-related reward, incentive and
recognition schemes. The results for HR outcomes
showed associations between increased usage of
such schemes and a) better employee relations
and b) reduced levels of expressed discontent
with pay. The debates around performance-
related reward have been deep and long running
and we do not intend to reiterate them here.
However, our results may offer some contribution,
suggesting that the use of performance-related
reward practices can have positive associations.
There must be some caveats about the wide
divergence of performance-related schemes being
operated, and statistical correlation between
factors should not be read as indicating causality.
But, despite these qualifications, our results do
point towards the likelihood of performance-
related reward practices having positive outcomes
in UK organisations.
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BACKGROUND TO THE REPORT
The data for this report were gathered as part of
the CIPD Reward Management survey in February
and March 2012. The survey was sent out to senior
reward/HR practitioners in the public, private and
voluntary sectors. The number of respondents was
455 in total.
The following tables provide a breakdown
of percentage of respondents by sector, by
ownership and by size of organisation (number of
employees).
Table 5 shows that 43.7% of respondents were
from private sector services; 15.8% from the public
sector; 20.7% from private sector manufacturing
and production and 12.3% from voluntary,
community and not-for-profit organisations.
This year, respondents were able to indicate
if their organisations operated in more than
one of the four traditional sectors; 6.6% of
respondents did so 63.3% of these operated
in both manufacturing/production and private
sector services; 13.3% operated in public services
and voluntary/community/not-for-profit; 10%
indicated they were representing an organisation
operating in public services and private sector
services; 6.7% were from manufacturing/
production and public services; and 6.7% said their
organisations operated in all four sectors.
In terms of ownership (Table 6), 58.9% provided
responses relating to mainly UK-owned
organisations; 5.9% to divisions of mainly UK-
owned organisations and 31.2% to divisions of
internationally-owned organisations.
Table 5: Survey respondents by sector (%)
Manufacturing and production
Private sector services
Public services Voluntary, community and not-for-profit
Multiple sectors
20.7 43.7 15.8 12.3 6.6
Table 6: Survey respondents by ownership (%)
Mainly UK-owned organisation
Division of mainly UK-owned organisation
Division of internationally-owned organisation
Did not respond
58.9 5.9 31.2 4.0
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Table 7 shows that 44.2% of respondents were
responding on behalf of small and medium
sized organisations (less than 250 employees);
47.9% for large organisations (between 250 and
9,999 employees); and 5.3% from very large
organisations (more than 10,000 employees).
The survey asked respondents about the
demographic breakdown of the employee groups
in their organisations. Table 8 shows the results
from those who provided responses.
Note on statistical analysis The analysis undertaken for this report involved
various statistical tests from which were derived
probability values, that is, the likelihood that a
result is merely due to chance. In these tests the
lower the probability, the more likely it is that the
result is due to a specific effect or phenomenon.
It is conventional to consider results statistically
significant if the probability of the result being
due to chance is less than 5%. If the test shows
that it is 95% certain that a result is not down to
chance, the probability is less than 5% (expressed
in the text as p
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REFERENCES AND FURTHER READING
BROWN, D. and PERKINS, S. J. (2007) Reward
strategy: making it happen. World at Work
Journal. Vol 16, No 2. pp 8293.
DELERY, J. E. and DOTY, D. H. (1996) Modes
of theorizing in strategic human resource
management: tests of universalistic, contingency,
and configurational performance predictions.
Academy of Management Journal. Vol 39, No 4.
pp 802835.
MARCHINGTON, M. and WILKINSON, A.
(2008) Human resource management at work.
London: Chartered Institute of Personnel and
Development.
MILES, R. E. and SNOW, C. C. (1984) Designing
strategic human resources systems. Organizational
Dynamics. Vol 13, No 1. pp 3652.
OFFICE FOR NATIONAL STATISTICS. (2011) Labour
force survey. Newport: ONS.
PERKINS, S. J. (2006) Research report: international
reward and recognition. London: Chartered
Institute of Personnel and Development.
PFEFFER, J. (1998) The human equation: building
profits by putting people first. Harvard, Mass:
Harvard Business School Press.
SHIELDS, J. (2007) Managing employee
performance and reward: concepts, practices,
strategies. Cambridge: Cambridge University Press.
WRIGHT, P. M., McMAHAN G. C. and McWILLIAMS,
A. (1994) Human resources and sustained
competitive advantage: a resource-based
perspective. International Journal of Human
Resource Management. Vol 5, No 2. pp 301326.
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