the institute for employment studies
Workforce Segmentation: Back to the Future?
Duncan BrownDirector, Reward Services
Segmentation: what do we mean?
●Decentralisation?●Differentiation? ●Discrimination?
the institute for employment studies
Segmentation: a brief personal history
• By rank/class
• By business unit/department
• By geography
• By performance
• By job family
• By generation
Some segmentation dilemmas
Local authority: department head says he can’t afford to offer Council’s flexible working policies.
Local authority: should we remain within national agreements?
Local authority: should we remove market supplements in the current economic climate?
Uk plc: should we bring our IT function back into the corporate pay and grading structure?
Foundation NHS Trust: should we come out of AfC for hard-to-recruit staff groups, or for all staff?
PLC: should we offer corporate car and benefits policies to a new joint venture in a different labour market?
Major Bank: Decentralise
Start with a grand plan • Adopted a ‘classical’ approach to strategy development• Top down, heavily planned and very rational• Ordered and rigid
The centre has all the answers • What the offer should comprise• Who should get what• What individuals’ pay adjustments should be
Focus on pay • Pay to get people in• Pay to keep people• Pay to increase performance
Result sheep dip package design reward done to you broad brush decision-making
Resulting reward strategy
Design
● Spend much more time talking to people
● Plan for initiatives to adapt in their implementation
● Incorporate inherent flexibility
● Aim for locally owned change
● Introduce comprehensive flexible benefits package
Decision making
● Pay decisions made where the information is
● No centrally dictated pay adjustments or matrices
● Local decisions, central framework
• Initially carried out an EPR and found:
starting salaries tended to be higher for men
part-timers got lower performance scores than full-timers
and men tended to be more likely to receive ad-hoc payments.
• Actions in response:
Training recruiters and line managers to ensure only pay higher starting salaries when objectively justified.
Starting salaries signed off by divisional directors, candidates’ previous salaries checked with their employers.
Ensuring contribution, not service-related pay progression
Improving/extending EPR data and analysis
Or maybe re-centralise: UK FS company
Changes in base pay structures
0% 10% 20% 30% 40% 50% 60% 70%
Mix of broadbands/job families
Career grades
Job families
Pay spines
Narrow graded structures
Broadbands
Individual/spot rates
2008 2006
Emphasis on high performance
Differentiated market pressures
Job flexibility
Emphasis on costsLow inflation
Equal pay
Job family approaches are increasingly common Around a quarter of organisations use them for evaluation/pay/career
management purposes Range is from 2-40; average is 5-8 Complete mixture in terms of basis of definition Key Issue 1: The design reflects the main purpose in using them:
● clarify career progression● reflect market pay variations
Key Issue 2: Managing the balance
Key Issue 3: Balancing the number of “vertical” levels/grades with the number of horizontal levels/families
Key issue 4: equal pay
insufficient market flexibility
lack of local ownership why do it?
expensive to set up complex to
administer/maintain greater internal
barriers/walls
Too Few Too Many
The mix in reward policies and practices in one firm
Policy issues e.g. market stance.
LTI Senior manager arrangements. Pension
Job evaluation system. Pay structure. Performance appraisal.
Recognition awards
Pay rates for all staff recruited locally.
Bonus schemes below grade x
Designed at Centre Designed Locally/ Unit
Operated at Centre
Operated Locally/Unit
Where are the different aspects of reward managed in your organisation?
Operated at centre
Developed at centre Developed
locally
Operated locally
Reward Area• Pay strategy and policy goals;• Job evaluation;• Market definition and stance;• Grade structure;• Pay budgets;• Pay increases;• Bonus;• Pay administration;• Training/support processes;• Pensions;• Performance appraisal;• Salary surveys.
Rewards need to match the organisation structure
Centralised, ‘Tight’
Business Strategy based on integration
and synergies. Predominantly internal growth.
Structure Centralised
HR All managers/staff on corporate
contracts. Generally long service. Career orientation. Career and succession planning
emphasis
Diversified ‘Loose’
Financially-oriented growth strategy.
Growth by acquisition.
Decentralised, small corporate office.
Business-based contracts. Greater emphasis on external
recruitment. Business-based HR and
development.
Countervailing pressures to segment and to unify
Technology Globalisation
Equal pay Cost
Diverse workforce External market pressures Local business/customer ‘fit’ The Choice society
The pros and cons
Common SegmentedGoods
Reinforces ‘one emloyer’Supports mobilityEfficient
Good market/business fitLocal ownershipFlexible
Bads InflexibleLack local ownershipLacks market fit
DivisiveLack of local capabilityExpensive/complex
Building the balance
Achieving the right balance
● At the organisational level and in business strategy: “An appropriate balance lies at the heart of effective
management” . Prof Kets de Vries, ‘The Neurotic Organisation’
“We want to be big and small, global and local” HSBC “Organisations need to be ambidextrous”
Prof O’Reilly & Tushman
“The successful organisations combine the hard and soft, the support and the stretch, the yin and the yang”.
Prof Sumantra Ghoshal
• Marketing: the McRice Burger, Intel and HSBC – tailored global campaigns
• “Advertisers are simultaneously exhibiting both the global reach and the local resonance of the brand…globalisation is associated with the new dynamism of relocalisation”
Jackson and Andrews• In HR and rewards.
Trying to get the best of both worlds in reward
Highly uniform rewards
-Reinforces one firm behaviour
-Supports mobility
-Efficient to run
-Fair for similar jobs
-Inflexible
-Lacks market fit
-Loss of ownership
Unit specific rewards
-Good market alignment
-Local ownership
-Flexible
-Restricts mobility
-Limited local expertise
-Less efficient to administer
Intermediate
-Flexible and efficient
-Best of both worlds
-Overly complex and confusing
-Loss of responsibility/control
Reward Principles in one firm
Strategy-driven - Use rewards more effectively to create strategic differentiation
Pay-for-performance - Provide incentive- Reward high performance- Variable cost flexibility
Market-aligned - Recruit- Retain
Total rewards - Create engagement- Enhance appeal and value- Provide personal choice
One firm - Fair, non-discriminatory treatment- Prevent internal barriers
Open and honest - Adult/adult relationships- Promote understanding
The one-firm principle
• We use a one-firm approach, wherever possible: • We have a firm-wide benefits package• We will work towards common terms and conditions such as
overtime and TOIL.• We will consider and manage the relationships of the rewards
for people with common skills and roles across the firm, such as support staff.
• We will have consistent eligibility criteria for variable pay across the firm and some consistency in its structuring.
• We recognise that we operate in some very distinct and divergent labour markets, and also the value of reinforcing team and business unit identity.
A “Mid Atlantic” Approach in a Scandinavian multinational
• “Our philosophy is to provide market competitive rewards to our employees worldwide through a flexible structure, addressing the needs for personalisation, empowerment and commitment”.
• Integrated Compensation Planning and Review System.• Country pay values based on global methodology but local
market data.• Global stock target/values.• Benefits principles eg DC pension, but cognisant of local
practice
Example of the reward policy balance: a major oil company 1. Top 1500
● Common bands, but local market pay ranges;● Common incentive approach (North America and ROW);● Local benefits but common approach for international staff
cadre;● Executive development.
2. Senior Managers (next 4000)● Common bands with job evaluation, local ranges;● Locally designed incentives to meet specific criteria;● Local benefits but common approach for international staff;● Executive development for high potential/international staff.
3. Other Staff● Core principles;● Local management;
The balance in HR roles and responsibilities in one employer
Level of HR Staff
Senior Management
Managers and Professionals
Staff
HR at Corporate HQ
Design, operation and control of pay
Guidance via principles and advice. Agree to and audit actual systems.
Guidance via principles
HR at Regional HQ
Administer pay Design pay systemsOperate for HQ employeesAdvise and audit for country employees
Agree to and audit actual systems
HR at Country Operating
Level
Operate and administer for local staff
Design systems, operate and administer
Types of Employees
Total rewards can contribute to that balance
• Can act as ‘fog’ and ‘glue’
• By providing a common framework within which necessary variations between different parts of the organisation can operate.
• By allowing irrespective of organisation structure for the ultimate level of segmentation:
individual choice.
Conclusions on the common/segmented reward balance
“Organisations are finding it essential to introduce a balance between the standardisation of corporate practice – to communicate a common strategy and provide corporate ‘glue’ – while at the same time being responsive to the needs for differences in terms of cultures, values and market practice”.
Professor Stephen Perkins
Reward strategy is all about managing the balance
Ease of Entry/Change
Ease of Entry/Change
Reward Strategy
Reward Strategy
Business Strategy/
Needs
Business Strategy/
Needs
Long Term Aims
Long Term Aims
Scale of Impact
Scale of Impact
Internal Employee/T
UNeeds/
Expectations
Internal Employee/T
UNeeds/
Expectations
Immediate Demands
Immediate Demands
External Pressures
• Market• Equal Pay• Legislation
External Pressures
• Market• Equal Pay• Legislation
Organisation needs
Organisation needs
Local Needs
Local Needs
… thank you
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