editorial

Editorial

Rosemary Lucas, Guest Editor, Special Edition on Performance andReward

The performance and reward of individuals, groups and organisationsunderpin the effort–reward exchange in the employment relationship, as wellas pervade the HRM agenda in complex and contradictory ways. Performance

and reward matter to the major stakeholders in the firm – managers, workers, tradeunions, shareholders and customers. Each of these stakeholders has their ownagenda and does not necessarily share the same expectations or perceptions of anygiven situation, for example, on what level of reward is justified for a given level ofperformance. Performance and reward are also a function of contextual influencesthat relate to society, a particular industry or an organisation. In short, we are dealingwith a pluralist framework of huge potential complexity where conflicting, multiplegoals create a range of strategic tensions.

Examples of prominent issues in recent debates about organisational performanceinclude how to make HRM strategic, what work and employment practices are mostappropriate to strategic HR systems and the extent to which HRM contributes toorganisational performance and, if so, how (unlocking the ‘black box’). As employeeattitudes and behaviours are seen as a critical linking mechanism, there has been muchdebate on how to motivate employees to perform effectively and how to maximisetheir commitment and engagement through performance management andperformance appraisal systems. Major gaps between senior managerial intentionsand line management actions may damage employee attitudes and behaviourand, ultimately, performance outcomes. Two key issues have emerged from this‘rhetoric–reality’ debate – the critical role of line managers and the importance ofemployees’ perceived experiences of, and reactions to, HR initiatives. These havedriven a small, but growing, body of research arguing that the success of HRM canonly be measured by focusing on employees’ perceptions and reactions, rather than onmanagers seeking to justify and defend their intentions. Other contemporary debatesin performance include how to make HRM ethically and socially responsible, and thenature of HRM in customer-service work and in small firms.

None of these performance issues can be divorced from monetary and non-monetary rewards. Organisations have to make strategic choices about rewardsystems and how to motivate people. Managerial choices include how pay is to bedetermined, what is fair pay, whether to have fixed and/or variable paymentsystems and the form they should take, how to relate reward to organisational, teamand individual performance, and how to divvy up the spoils. Current debates on payhave reflected upon how far individualised pay systems are superseding collectivebargained pay and the effect of the former on the latter, linking payment systems toskills development, how to make performance-related pay systems work and howfar they are used as control mechanisms, rather than to motivate employees and

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provide them with genuine enhanced earnings opportunities. Who gets what raisesquestions of fairness and social legitimacy. To illustrate, how can an organisation’sclaim that ‘people are our most important resource’ be achieved by cost-cuttingregimes based on National Minimum Wage (NMW)-level pay, where employees arereliant on tips from customers to achieve reasonable pay? Even if such an approachimproves the financial performance of the organisation, yields big bonuses for seniorexecutives and enhances share value, the fact that this has been achieved atconsiderable personal cost to employees raises important questions about the sociallegitimacy of extreme inequalities of reward. Not only may employees experiencehigh stress levels and emotional burnout from having to perform in such a way asto earn a reasonable rate of pay, but also customers are, in effect, subsidising theemployer’s wage bill.

This special edition of Human Resource Management Journal draws primarily frompapers given at the 4th Performance and Reward Conference (PARC) in March 2007,which was organised by Rosemary Lucas, Carol Atkinson and Gill Homan of theManchester Metropolitan University Business School. PARC is designed explicitly tolink performance and reward; it is a niche event that takes place every two years andattracts international academics from a number of continents, as well as more locallybased practitioners. The two keynote speakers are always a leading practitioner anda leading academic, one of whom addresses performance, while the other focuses onreward. All papers have gone through the normal review process and reflect upona number of issues in contemporary debates that have been highlighted earlier.

Our keynote practitioner speaker at PARC 2007, David Fairhurst, provides acontemporary and highly practical case study of how McDonald’s sought to enhanceemployee performance by implementing HR practices designed to improve poorlevels of employee engagement. As Fairhurst stresses, many organisations would nottolerate resource inefficiencies of unreliable computers or a production line thatproduces substandard products, yet all too often fail to address workforcedisengagement. McDonald’s recent campaign to make employees more activelyengaged was based on sets of measures designed to motivate and reward employees.Having identified attitude, competence and confidence as the key elements ofemployee motivation, steps were taken to achieve improvements in engagementthrough the implementation of three complementary sets of practices. The first ofthese was the introduction of an assessment tool to assess candidates’ attitude inrecruitment, the second was an investment of £14 million in the development ofemployee competences and the final measure was a campaign to change the public’sperception of ‘McJobs’ in order to enhance employees’ sense of self-worth. Theseinitiatives were buttressed by a new reward strategy at individual, team andcompany level based on the need to improve recognition, citizenship, growth andrespect. For example, managers now demonstrate daily recognition of goodperformance, while the use of Friends and Family Contracts enables colleagues withcomparable skills to swap shifts without seeking management’s permission. Theconsequence of placing an emphasis on what’s right with people is that McDonald’sstaff now feel better about themselves, are very satisfied with their jobs and arehighly engaged.

The paper from our keynote academic speaker, Paul Marginson, co-authored withJames Arrowsmith and Molly Gray, focuses on reward from a study that considers

Editorial

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the little explored relationship between variable payment systems and the extent towhich they erode collective bargaining in unionised environments. The case studyresearch, located in retail banking services and the manufacture of machinery andequipment in the UK, seeks to address whether variable payment systemsundermine, leave in place, reconfigure or even strengthen collective bargainingarrangements. The study finds that the nature of variable pay schemes, the level atwhich they operate and sectoral factors shape collective bargaining in a variety ofways across the range of possibilities noted earlier. The threat of individual merit payand profit-related pay are not routinely confirmed. Although appraisal pay is largelyabsent in manufacturing and equipment, in most banks unions have been able toredraw the lines of collective negotiation around the size of the pay pot and itsconcrete distribution. The prevalence and relevance of profit-related, companyperformance bonuses has not diminished, despite the withdrawal of fiscal incentives,and may be insidious for unions where their significance to total earnings is growing.Not only does this limit the pay pot in banks at a time of consistent record-breakingprofits but also serves to reinforce a unitarist management discourse.

Even so, the union response is quite different in both sectors. Unions haveachieved greater success in securing their preferences for flat-rate increases inmachinery and equipment, where variable payment schemes are less individualisedand comprise a smaller proportion of total earnings. In contrast, the more complexnature of pay and performance management systems has made it much moredifficult for banking unions to contend with substantive and procedural issues. Suchdifferences are explained by product market competition, as well as by workplace-level factors which drive more individualised ways of working in banking and morehighly integrated and collaborative arrangements in machinery and equipment.Although the proportion of remuneration not determined by collective bargaininghas grown, variable pay has not deflected collective bargaining from its core focusof delivering inflation-based pay increases, and unions have been able to blunt theeffects of individual performance on total reward.

Annette Cox, Damian Grimshaw, Marilyn Carroll and Anne McBride consider twonew strategies for improving the pay and skills development of health care assistantsand cleaners in 13 National Health Service (NHS) Trusts in the UK. Although thenew national pay system Agenda for Change has yielded substantial one-offimprovements in pay, the introduction of the ‘Two-Tier Code’ has helped give greaterequity in employment conditions between NHS workers and workers supplied bysubcontractors to undertake NHS services, and this has stemmed the downwardpressure on pay. Nevertheless, considerable uncertainty regarding the extent, depthand durability of these gains casts doubt on the sustainability of Agenda for Changeover the longer term.

Although the new strategy for skills development, the Skills Escalator, hasstimulated some creative local projects, stronger management choice andorganisational strategy in the implementation of the new strategy have given riseto more variability in pay progression for the acquisition of new skills andqualifications. Access to career development for lower-skilled staff depends partly ongeographical location and local management choices. Although cleaners mayprogress to health care assistants and supervisory roles and health care assistants canmove to new paraprofessional and professional roles, opportunities were often

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limited by financial constraints. State influence has proved much more significant forpay than skills development, although both strategies have helped redressfragmentation and dissolution of internal labour markets.

Christina Sweins and Panu Kalmi’s paper addresses how communication,performance feedback and membership length are related to profit-sharingknowledge and how profit-sharing knowledge is related to profit-sharing satisfactionand organisational commitment. The data are collected from 750 employees in 31companies in Finland that operate personnel funds, which are deferred profit-sharing schemes, and over 60 interviews with the managers and chairmen of thefunds. Personnel funds are established and administered by employees, do notincrease wage differences with the firm because payouts are proportional to wagesand do not create direct competition between employees. While they find thatprofit-sharing communication enhances profit-sharing knowledge, performancefeedback is not positively related to profit-sharing knowledge, but membershiplength is. While profit-sharing knowledge is positively related to profit-sharingsatisfaction, profit-sharing knowledge is not positively related to affectivecommitment. Profit-sharing satisfaction is positively and significantly related tocommitment when profit-sharing knowledge is controlled for, whereas profit-sharingknowledge is not significantly related to commitment when profit-sharingsatisfaction is controlled for.

The relationship between profit-sharing knowledge and commitment to the firmis mediated by profit-sharing satisfaction. Hence, firms can increase employees’profit-sharing knowledge by increasing communications of profit-sharing, and this isbetter achieved in direct communications than by increasing general feedback onperformance. On a practical level, the key finding is that knowledge of the paysystem is important for an efficient pay system because it affects satisfaction andorganisational commitment. Employers are urged to take a more active role ininforming employees about the company and fund-related matters on a face-to-facebasis. Future research could usefully determine how employers could communicatepay systems and company targets more efficiently.

The final paper on the theme of performance and reward was not presented atPARC, but has been through the normal review process, like the other two papersthat follow in the remainder of this issue. Rosemary Lucas and Shobana Keeganidentify the need to better understand the basis for age-related pay practices in theknowledge that pay discrimination claims on the grounds of age may now bemounted (unless firms adhere to the structure of the NMW), and that employersfacing such claims will have to justify why workers of different ages are not paid thesame wage. They first highlight why theoretical predictions neither adequatelyexplain young workers’ lower pay nor suggest why younger workers, often part-time students, are so important to small hospitality firms. It is much more difficultto observe whether the wage is set using objective criteria when pay setting is afunction of factors that include informality, managerial discretion and subjectivity,little or no training provision, and the skills set comprises ‘soft’ and ‘aesthetic’ skills.In these circumstances, wage setting is likely to be more open to discriminatoryfactors. The application of formal job evaluation techniques is virtually impossible inthe absence of formal job descriptions, and there is no clear separation of the jobfrom the person doing it.

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From their study of low-paying hospitality firms in North Wales, Lucas andKeegan conclude that human capital theory has very limited relevance for youngerworkers, adding further support to the case that reliance on the criterion of trainingto differentiate pay for workers of different ages may be flawed. Younger, mainlystudent, workers bring major productivity and efficiency advantages to these firmsbut their contribution may not be adequately rewarded, a finding that has not beensufficiently acknowledged in theory. This study adds further support to the case forreviewing the position of 18- to 21-year-olds under the NMW, not the least toreaffirm the Low Pay Commission’s consistent recommendation that the full rate ofthe NMW should be applied at age 21. The managerial implication is that amechanism needs to be developed to assess the validity of pay differences that is inkeeping with contemporary notions of jobs and skills, if employers are tosuccessfully defend claims that their employment practices are not discriminatory.

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5th Performance and Reward Conference

New Directions in Performance and Reward

Manchester Metropolitan University

1 April 2009

Call for Papers

This one-day conference will provide a forum for academics, practitioners,consultants and doctoral students to debate current international issues andchallenges in the broad area of performance and reward. Papers are invited thatcontribute to any aspect of performance and reward and may be conceptual,empirical or case based. The conference organisers would welcome contributionsfrom a range of disciplinary domains and those that have an internationaldimension. Doctoral and practitioner papers are especially welcome. Discussions arecurrently underway with the editor of a leading journal with the view to being ableto publish selected papers in a special edition of the journal in 2010.

Keynote speakers:Professor Stephen Wood, Research Chair of Institute of Work Psychology atUniversity of Sheffield, ‘Where is the HRM–performance debate going?’

The other speaker will be a senior reward specialist from a leading organisation.Abstracts of 300 words for review should be received by 1 December 2008, with

outcomes notified by 19 December 2008. Final papers must be received by 2 March2009.

Abstracts/papers can be emailed to [email protected] or sent to PAR 2009Conference, Business Development Centre, Manchester Metropolitan University,Aytoun St, Manchester M1 3GH, UK.

Conference organisers: Rosemary Lucas, Carol Atkinson and Gill Homan.Further details of the conference, including booking arrangements can be found onhttp://www.business.mmu.ac.uk/parc

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mailto:[email protected]

http://www.business.mmu.ac.uk/parc

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