Editorial

Abstract

The performance and reward of individuals, groups and organisations underpin the effort–reward exchange in the employment relationship, as well as pervade the HRM agenda in complex and contradictory ways. Performance and reward matter to the major stakeholders in the firm – managers, workers, trade unions, shareholders and customers. Each of these stakeholders has their own agenda and does not necessarily share the same expectations or perceptions of any given situation, for example, on what level of reward is justified for a given level of performance. Performance and reward are also a function of contextual influences that relate to society, a particular industry or an organisation. In short, we are dealing with a pluralist framework of huge potential complexity where conflicting, multiple goals create a range of strategic tensions. Examples of prominent issues in recent debates about organisational performance include how to make HRM strategic, what work and employment practices are most appropriate to strategic HR systems and the extent to which HRM contributes to organisational performance and, if so, how (unlocking the ‘black box’). As employee attitudes and behaviours are seen as a critical linking mechanism, there has been much debate on how to motivate employees to perform effectively and how to maximise their commitment and engagement through performance management and performance appraisal systems. Major gaps between senior managerial intentions and line management actions may damage employee attitudes and behaviour and, ultimately, performance outcomes. Two key issues have emerged from this ‘rhetoric–reality’ debate – the critical role of line managers and the importance of employees' perceived experiences of, and reactions to, HR initiatives. These have driven a small, but growing, body of research arguing that the success of HRM can only be measured by focusing on employees' perceptions and reactions, rather than on managers seeking to justify and defend their intentions. Other contemporary debates in performance include how to make HRM ethically and socially responsible, and the nature 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 reward systems and how to motivate people. Managerial choices include how pay is to be determined, what is fair pay, whether to have fixed and/or variable payment systems and the form they should take, how to relate reward to organisational, team and individual performance, and how to divvy up the spoils. Current debates on pay have reflected upon how far individualised pay systems are superseding collective bargained pay and the effect of the former on the latter, linking payment systems to skills development, how to make performance-related pay systems work and how far they are used as control mechanisms, rather than to motivate employees and provide them with genuine enhanced earnings opportunities. Who gets what raises questions of fairness and social legitimacy. To illustrate, how can an organisation's claim that ‘people are our most important resource’ be achieved by cost-cutting regimes based on National Minimum Wage (NMW)-level pay, where employees are reliant on tips from customers to achieve reasonable pay? Even if such an approach improves the financial performance of the organisation, yields big bonuses for senior executives and enhances share value, the fact that this has been achieved at considerable personal cost to employees raises important questions about the social legitimacy of extreme inequalities of reward. Not only may employees experience high stress levels and emotional burnout from having to perform in such a way as to earn a reasonable rate of pay, but also customers are, in effect, subsidising the employer's wage bill. This special edition of Human Resource Management Journal draws primarily from papers given at the 4th Performance and Reward Conference (PARC) in March 2007, which was organised by Rosemary Lucas, Carol Atkinson and Gill Homan of the Manchester Metropolitan University Business School. PARC is designed explicitly to link performance and reward; it is a niche event that takes place every two years and attracts international academics from a number of continents, as well as more locally based practitioners. The two keynote speakers are always a leading practitioner and a leading academic, one of whom addresses performance, while the other focuses on reward. All papers have gone through the normal review process and reflect upon a number of issues in contemporary debates that have been highlighted earlier. Our keynote practitioner speaker at PARC 2007, David Fairhurst, provides a contemporary and highly practical case study of how McDonald's sought to enhance employee performance by implementing HR practices designed to improve poor levels of employee engagement. As Fairhurst stresses, many organisations would not tolerate resource inefficiencies of unreliable computers or a production line that produces substandard products, yet all too often fail to address workforce disengagement. McDonald's recent campaign to make employees more actively engaged was based on sets of measures designed to motivate and reward employees. Having identified attitude, competence and confidence as the key elements of employee motivation, steps were taken to achieve improvements in engagement through the implementation of three complementary sets of practices. The first of these was the introduction of an assessment tool to assess candidates' attitude in recruitment, the second was an investment of £14 million in the development of employee competences and the final measure was a campaign to change the public's perception of ‘McJobs’ in order to enhance employees' sense of self-worth. These initiatives were buttressed by a new reward strategy at individual, team and company level based on the need to improve recognition, citizenship, growth and respect. For example, managers now demonstrate daily recognition of good performance, while the use of Friends and Family Contracts enables colleagues with comparable skills to swap shifts without seeking management's permission. The consequence of placing an emphasis on what's right with people is that McDonald's staff now feel better about themselves, are very satisfied with their jobs and are highly engaged. The paper from our keynote academic speaker, Paul Marginson, co-authored with James Arrowsmith and Molly Gray, focuses on reward from a study that considers the little explored relationship between variable payment systems and the extent to which they erode collective bargaining in unionised environments. The case study research, located in retail banking services and the manufacture of machinery and equipment in the UK, seeks to address whether variable payment systems undermine, leave in place, reconfigure or even strengthen collective bargaining arrangements. The study finds that the nature of variable pay schemes, the level at which they operate and sectoral factors shape collective bargaining in a variety of ways across the range of possibilities noted earlier. The threat of individual merit pay and profit-related pay are not routinely confirmed. Although appraisal pay is largely absent in manufacturing and equipment, in most banks unions have been able to redraw the lines of collective negotiation around the size of the pay pot and its concrete distribution. The prevalence and relevance of profit-related, company performance 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-breaking profits but also serves to reinforce a unitarist management discourse. Even so, the union response is quite different in both sectors. Unions have achieved greater success in securing their preferences for flat-rate increases in machinery and equipment, where variable payment schemes are less individualised and comprise a smaller proportion of total earnings. In contrast, the more complex nature of pay and performance management systems has made it much more difficult for banking unions to contend with substantive and procedural issues. Such differences are explained by product market competition, as well as by workplace-level factors which drive more individualised ways of working in banking and more highly integrated and collaborative arrangements in machinery and equipment. Although the proportion of remuneration not determined by collective bargaining has grown, variable pay has not deflected collective bargaining from its core focus of delivering inflation-based pay increases, and unions have been able to blunt the effects of individual performance on total reward. Annette Cox, Damian Grimshaw, Marilyn Carroll and Anne McBride consider two new strategies for improving the pay and skills development of health care assistants and cleaners in 13 National Health Service (NHS) Trusts in the UK. Although the new national pay system Agenda for Change has yielded substantial one-off improvements in pay, the introduction of the ‘Two-Tier Code’ has helped give greater equity in employment conditions between NHS workers and workers supplied by subcontractors to undertake NHS services, and this has stemmed the downward pressure on pay. Nevertheless, considerable uncertainty regarding the extent, depth and durability of these gains casts doubt on the sustainability of Agenda for Change over the longer term. Although the new strategy for skills development, the Skills Escalator, has stimulated some creative local projects, stronger management choice and organisational strategy in the implementation of the new strategy have given rise to more variability in pay progression for the acquisition of new skills and qualifications. Access to career development for lower-skilled staff depends partly on geographical location and local management choices. Although cleaners may progress to health care assistants and supervisory roles and health care assistants can move to new paraprofessional and professional roles, opportunities were often limited by financial constraints. State influence has proved much more significant for pay than skills development, although both strategies have helped redress fragmentation 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-sharing knowledge and how profit-sharing knowledge is related to profit-sharing satisfaction and organisational commitment. The data are collected from 750 employees in 31 companies in Finland that operate personnel funds, which are deferred profit-sharing schemes, and over 60 interviews with the managers and chairmen of the funds. Personnel funds are established and administered by employees, do not increase wage differences with the firm because payouts are proportional to wages and do not create direct competition between employees. While they find that profit-sharing communication enhances profit-sharing knowledge, performance feedback is not positively related to profit-sharing knowledge, but membership length is. While profit-sharing knowledge is positively related to profit-sharing satisfaction, profit-sharing knowledge is not positively related to affective commitment. Profit-sharing satisfaction is positively and significantly related to commitment when profit-sharing knowledge is controlled for, whereas profit-sharing knowledge is not significantly related to commitment when profit-sharing satisfaction is controlled for. The relationship between profit-sharing knowledge and commitment to the firm is mediated by profit-sharing satisfaction. Hence, firms can increase employees' profit-sharing knowledge by increasing communications of profit-sharing, and this is better achieved in direct communications than by increasing general feedback on performance. On a practical level, the key finding is that knowledge of the pay system is important for an efficient pay system because it affects satisfaction and organisational commitment. Employers are urged to take a more active role in informing employees about the company and fund-related matters on a face-to-face basis. Future research could usefully determine how employers could communicate pay systems and company targets more efficiently. The final paper on the theme of performance and reward was not presented at PARC, but has been through the normal review process, like the other two papers that follow in the remainder of this issue. Rosemary Lucas and Shobana Keegan identify the need to better understand the basis for age-related pay practices in the knowledge that pay discrimination claims on the grounds of age may now be mounted (unless firms adhere to the structure of the NMW), and that employers facing such claims will have to justify why workers of different ages are not paid the same wage. They first highlight why theoretical predictions neither adequately explain young workers' lower pay nor suggest why younger workers, often part-time students, are so important to small hospitality firms. It is much more difficult to observe whether the wage is set using objective criteria when pay setting is a function 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 discriminatory factors. The application of formal job evaluation techniques is virtually impossible in the absence of formal job descriptions, and there is no clear separation of the job from the person doing it. From their study of low-paying hospitality firms in North Wales, Lucas and Keegan conclude that human capital theory has very limited relevance for younger workers, adding further support to the case that reliance on the criterion of training to differentiate pay for workers of different ages may be flawed. Younger, mainly student, workers bring major productivity and efficiency advantages to these firms but their contribution may not be adequately rewarded, a finding that has not been sufficiently acknowledged in theory. This study adds further support to the case for reviewing the position of 18- to 21-year-olds under the NMW, not the least to reaffirm the Low Pay Commission's consistent recommendation that the full rate of the NMW should be applied at age 21. The managerial implication is that a mechanism needs to be developed to assess the validity of pay differences that is in keeping with contemporary notions of jobs and skills, if employers are to successfully defend claims that their employment practices are not discriminatory. 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 and challenges in the broad area of performance and reward. Papers are invited that contribute to any aspect of performance and reward and may be conceptual, empirical or case based. The conference organisers would welcome contributions from a range of disciplinary domains and those that have an international dimension. Doctoral and practitioner papers are especially welcome. Discussions are currently underway with the editor of a leading journal with the view to being able to publish selected papers in a special edition of the journal in 2010. Keynote speakers: Professor Stephen Wood, Research Chair of Institute of Work Psychology at University 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 March 2009. Abstracts/papers can be emailed to parc@mmu.ac.uk or sent to PAR 2009 Conference, 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 on http://www.business.mmu.ac.uk/parc