MANAGING REWARD FOR SPECIAL GROUPS Many organizations have one reward system applied to all categories of staff below the level of chief executive. However, others find it necessary to cater for the needs of special groups of staff by adopting different reward practices. This is called ‘reward segmentation’ and frequently applies to the methods used for directors and senior executives, knowledge workers, sales and customer service staff and manual workers.

MNANAGING REWARD FOR SPECIAL GROUPS: SESSION PLAN Reward policies and practices for: directors and senior executives knowledge workers sales staff customer service staff manual workers

PAY LEVELS OF DIRECTORS AND SENIOR EXECUTIVES Executive pay is out of control. The reasons are: tournament theory: the increasing demands made on chief executives star culture: the creation of the celebrity CEO the talent shortage pay disclosure in annual reports lead to demands from CEOs to achieve parity The High Pay Commission (2011) recorded that in 1999 the average annual pay of chief executives in FTSE 100 companies was £1,234,983 compared with the average annual employee pay of £17,803, a multiple of 69. Ten years later in 2009 the average pay of chief executives was £3,747,000 compared with the average pay for employees of £25,816, a multiple of 145. The 2011 CIPD reward survey found that 22.5 per cent of respondents indicated that for executives/board members, the maximum bonus available was at least 70 per cent of base salary.

ELEMENTS OF DIRECTORS’ AND SENIOR EXECUTIVES’ PAY basic pay bonus schemes share options executive restricted share schemes Basic pay Decisions on the base salary of directors and senior executives are usually founded on views about the market worth of the individuals concerned Bonus schemes Virtually all major employers in the UK have incentive (bonus) schemes for senior executives. Bonus schemes provide directors and executives with cash sums or shares based on the measures of company and, frequently, individual performance. They are often paid annually but can be deferred for a longer period. Share option schemes Many companies have share option schemes that give directors and executives the right to buy a block of shares on some future date at the share price ruling when the option was granted. Executive restricted share schemes Under such schemes free shares are provisionally awarded to participants. These shares do not belong to the executive until they are released or vested; hence they are ‘restricted’. The number of shares actually released to the executive at the end of a defined period (usually three or, less commonly, five years) will depend on performance over that period against specific targets. Thereafter there may be a further retention period when the shares must be held although no further performance conditions apply.

KNOWLEDGE WORKERS The nature of knowledge work means there is a need for a more flexible approach that pays close attention to levels of competence and skill The overall approach to rewarding knowledge workers should be flexibility within a framework. This means that a common framework of reward policies exists across the organization but within that framework segmentation can take place. Pay arrangements can then be tailored to suit the needs of particular groups of knowledge and professional workers and the individuals within those groups. Pay flexibility could include market rate supplements to attract and retain specific categories of staff and the use of selected market groups (separate pay structures for certain types of staff).

SALES AND CUSTOMER SERVICE STAFF Methods: Salary only Salary plus commission Salary plus bonus Commission only Additional non-cash rewards Sales representatives are more likely to be eligible for commission payments or bonuses than other staff on the grounds that their sales performance will depend on or at least be improved by financial incentives. Many companies believe that the special nature of selling and the type of person they need to attract to their sales force requires some form of additional bonus or commission to be paid. The nature of the work of sales staff means that it is usually easy to specify targets and measure performance against them, and sales incentive schemes are therefore more likely to meet the line of sight requirement (ie that there should be a clear link between effort and performance) than schemes for other staff such as managers and administrators. Sales staff, including those in retail establishments, are often paid spot rates with a commission on sales.

CUSTOMER SERVICE STAFF Customer service staff work mainly in retail establishments and in call or customer contact centres Their rewards need to reflect the nature of their duties, ie enhancing levels of customer service as well as selling Research conducted by West et al (2005) established that most employees in the researched organizations had the opportunity to progress their base pay on the basis of their performance or competence, either through a range or up a pay spine, or between grades/levels of job. Such arrangements have generally supplanted spot rates for service roles in call centres and retail shops. Low base pay/high commission arrangements were rare.

MANUAL WORKERS Paid time rates or by one of the following payment-by-results schemes: Piece work Measured day work Performance-related pay Group or team basis Factory wide bonuses Time rates These provide workers with a predetermined rate for the actual hours they work. Time rates on their own are most commonly used is when it is thought that it is impossible or undesirable to use a payment-by-results system, for example in maintenance work. Payment by result (PBR) These schemes provide incentives to workers by relating their pay or, more usually, part of their pay to the number of items they produce or the time taken to do a certain amount of work.