Trends in reward management

KEY POINTS

the recent rapid growth of IPRP schemes has almost certainly ceased, at least in the private sector;

the relative drop in the attractiveness to employers of IPRP follows the trend in reward strategies generally: pay systems become fashionable only, at best, to be substantially modified, or at worst, fall into disrepute;

new economic and competitive pressures are emerging that are affecting the contemporary reward agenda, with many organisations modifying or discarding their IPRP arrangements;

in some cases, they are being supplemented by competency-based arrangements to determine salaries (sometimes referred to as contribution-related pay);

additional non-consolidated performance-linked payments are becoming common to overcome the fact that the low inflationary climate has resulted in IPRP pay awards that are too small to motivate staff to make significant changes to the way in which people work;

skill shortages and relatively high levels of labour turnover are leading to IPRP arrangements being modified through the incorporation of labour market comparisons to determine pay levels;

modifying pay rates on the basis of market forces is a far cry from how IPRP was generally applied in the 1980s and 1990s, when the emphasis was very much on individual performance with little reference to external salary movements or local labour market conditions;

slow pay progression is a mounting problem and many organisations, especially in the public sector, have altered their existing IPRP arrangements to accommodate faster movement;

broadbanding has become popular as a way of introducing the necessary flexibility into many IPRP arrangements;

job family structures are increasingly common and are being attached to broadbanded systems to overcome the perception among many employees of a lack of structure in broad bands and poor promotion prospects;

skills-based pay is also part of the drive for flexibility, basing part of an individual's salary on their attainment of additional skills helps to produce a more multiskilled workforce;

team rewards, typically in the form of group bonuses, are a feature of some reward packages, some of which are also principally IPRP arrangements and are often intended to promote a degree of cooperation in an otherwise individualised approach to reward; and

financial participation, from profit sharing to share ownership schemes and offering employees a choice over some of the benefits they receive, are increasingly being added to the total reward package of growing numbers of UK workers.

Individual performance-related pay (IPRP), sometimes also referred to as merit pay, re-emerged in the mid-1980s to become the dominant mode of remuneration in many industries, especially in the financial services sector and for clerical and administrative staff generally. Figures from the Pay and Benefits Bulletin's annual surveys of pay over the past eight years show that the proportion of companies operating some form of IPRP system - defined as where all, or part, of a salary award is based on an assessment of performance - rose each year between 1993 and 1997, when the number peaked at seven in 10 of all firms in the private sector before declining to just over half the sample (see figure 2.1).¹

Figure 2.1: Trends in pay systems

Using (%)
Reward strategy	1996	1997	1998	1999	2000
Merit pay	62.6	70.0	61.5	58.0	53.8
Market-based pay	51.9	47.9	38.1	48.7	45.6
IR profit-related pay	33.3	41.3	31.2	24.3
Broadbanding	26.6	31.7	25.5	17.7	11.9
Incentive pay	28.1	30.0	22.9	28.3	28.1
Competency-based pay	11.5	18.8	13.9	14.2	12.5
Profit sharing1	23.0	18.3	19.51	17.7	20.0
Skills-based pay	18.1	14.2	10.0	11.5	13.8
Team reward	6.6	8.8	6.1	4.4	5.0
Gainsharing	2.2	2.9	3.0	2.2	3.1
Flexible benefits			3.5	5.3	5.0
Unconsolidated lump-sum			17.7	18.6	16.3
All employee share schemes				24.3	18.1
1 Approved, savings-related, cash bonus
Planning (%)
Reward strategy	1996	1997	1998	1999	2000
Merit pay	14.1	12.9	10.8	13.3	13.1
Market-based pay	10.7	6.7	6.1	9.7	6.9
IR profit-related pay	19.6	3.3	2.6	1.8
Broadbanding	10.4	14.6	17.3	16.8	17.5
Incentive pay	6.6	7.5	7.8	6.6	6.3
Competency-based pay	17.7	18.3	30.3	23.0	20.0
Profit sharing1	5.5	6.3	7.41	6.2	4.4
Skills-based pay	7.4	7.9	8.7	9.7	9.4
Team reward	13.7	12.1	14.3	7.5	10.0
Gainsharing	2.6	2.5	3.5	3.5	1.3
Flexible benefits			29.4	24.3	30.0
Unconsolidated lump-sum			7.4	4.4	7.5
All employee share schemes				5.3	13.1
1 Approved, savings-related, cash bonus
Source: Pay and Benefits Bulletin

A survey of performance pay by the Chartered Institute for Personnel and Development (CIPD), published in September 1999, claimed that in the previous 15 years there had been a "deep and rapid growth in the use of performance pay systems". Specifically, the survey reported that 40% of the 1,158 organisations participating in the research operated IPRP for managers, and 25% used it for non-managerial employees.² The largest examination of UK workplaces, the 1998 Workplace Employee Relations Survey (WERS), suggests that 35% of enterprises operate merit pay for non-managerial staff.³ According to WERS, IPRP was most popular in financial services, with 85% of non-management employees covered by some form of merit pay. The financial services sector was followed by wholesale and retail (55%) and electricity, gas and water (49%).

However, fashions in pay, as in most other things, change and the recent rapid growth of IPRP schemes has almost certainly ceased, at least in the private sector which, having taken its lead from the US, is normally the forerunner of reward strategies later embraced by the public sector. Evidence of the decline in the popularity of performance-related pay comes from PABB's annual survey of pay prospects and the IRS pay databank: in the 2000 survey, the magazine reported the third consecutive fall in the number of companies operating a merit-based pay scheme, and in the 12 months to August 2000, the proportion of pay settlements based wholly, or partly, on merit assessment recorded by the pay databank was one quarter - a figure that has remained largely unchanged for three years.⁴

FASHION CONSCIOUS OR STRATEGIC RESPONSE?

The relative drop in the attractiveness to employers of merit-based pay arrangements simply follows the trend in reward strategies generally over the past 50 years: pay systems become fashionable only, at best, to be substantially modified, or at worst, fall into disrepute. Ian Kessler, a leading HR academic specialising in reward, has suggested that employers' "pursuit of the 'perfect' pay system has assumed something akin to the search for the Holy Grail and has often been reflected in pay fads, fashions or cycles".⁵ John Stredwick, in the foreword to his book Cases in reward management, refers to team pay, flexible benefits, competency-based pay and broadbanding as current pay fashions.⁶

Kessler argues that "pay systems have broadly been used in an ad hoc manner to address specific managerial problems or goals generated by particular social, economic and political pressures." He uses the example of piecework to illustrate his argument, claiming that its popularity in the aftermath of the Second World War was to boost UK production and prevent an influx of cheaper foreign goods.

Use of IPRP became widespread because it fitted the social, economic and political demands of the time. Two factors coalesced to make merit pay a practical and appealing alternative to the existing pay arrangements, in which cost-of-living rises and incremental progression were the norm, irrespective of individual performance or contribution. First, trade union influence came under ideological and legislative attack designed to foster a direct relationship between management and the individual. Weakening trade union power enabled employers to restructure relations with employees. IPRP wrested away from unions their role in pay determination at the same time as strengthening managerial control because pay decisions were placed firmly in managers' hands. As a result, the proportion of UK employees covered by collective bargaining - whereby pay is the result of negotiation between the employer and the workers' representatives - fell from 71% to 54% between 1984 and 1990 (by 1998, the share had declined to 40%).³ Second, heightened competition and a difficult economic climate gave rise to wholesale corporate restructuring to improve organisational efficiency and effectiveness, which in part entailed keeping firm control of overheads, including payroll costs. IPRP allowed companies to contain payroll costs because directing the bulk of salary increases at the "best performers" was cheaper than across-the-board, or service-related, rises.

Against the backdrop of a decline in trade union influence, increased competition and a growing need to control costs, IPRP was considered by many employers the best fit with managerial and organisational goals - often the overriding reason why employers choose one payment system over another and the rationale for which is based on contingency theory. Chiefly, merit pay could be explicitly linked to business strategy since corporate goals generally cascade down throughout the organisation to inform the personal objectives of staff. Individuals' success or otherwise in achieving their goals determines the level of salary rise. Personal objectives flowing from business plans also help employees to identify with the company, thereby boosting employee commitment. Merit pay systems were also adopted in the belief that doing so would facilitate organisational change, especially the transformation to a more market-oriented culture. Management Review 4 - Cultural change - found that more than 70% of companies surveyed used reward as one of its interventions to support cultural change.⁷ A CIPD study in 2000 of broadbanded and job family pay structures found that: "New pay structures are frequently being introduced as part of a business strategy for cultural change. In a number of the organisations covered by the field work, the importance of integrating reward and business strategy was fully appreciated so that reward processes supported, even led, cultural change."⁸

Kessler believes that, aside from companies that simply followed the herd and installed IPRP without any rational assessment simply because others were doing so, employers have implemented merit arrangements to pursue two sets of objectives:

"One set related to the traditional objectives of pay systems related to recruitment, retention, motivation and fairness, and typically the concern of labour market analysis. The second concentrates on organisational change where pay systems are used as one means of 'transforming' the organisation to satisfy the entrepreneurial needs of the 1980s and 1990s."⁹

BRAVE NEW WORLD OF PAY?

New economic and competitive pressures are now emerging which are affecting the contemporary reward agenda, with many organisations modifying or discarding their IPRP arrangements. In many ways, the gloss is coming off IPRP because it is no longer as appropriate in today's workplaces.

In some cases, it is being supplemented by competency-based arrangements to determine salary progression (sometimes referred to as contribution-related pay): individuals are still being assessed and rewarded for their performance, but the evaluation not only includes their success in achieving predetermined and agreed objectives, but also in their ability to display and acquire particular role-related competencies. This is because how individuals achieve their objectives is every bit as important as what they accomplish. This is imperative as levels of customer service increasingly become the defining factor in business success and failure. By way of an illustration, someone working in customer services may be proficient at answering telephone calls within the prescribed time, but if their handling skills are poor it may result in lost custom. A survey of merit pay arrangements by IRS, which was conducted in 2000, found that 29% of employers had altered their existing IPRP systems to reward competencies or skills, with a further 56% planning to do so.¹⁰

The new agenda is moving in favour of rewarding the whole of an individual's contribution rather than his or her ability to achieve three or four objectives. Evaluation of an individual's whole performance is used by 44% of companies participating in the IRS survey of merit pay to determine rises.¹⁰ By contrast, preset objectives partially, or exclusively, inform pay decisions in 78% of cases.

Bank of Scotland is one organisation that has attached a competency framework to its IPRP arrangements for its 7,000 strong supervisory and managerial group.¹¹ The scheme consists of a set of 18 "individual competencies" (six are core competencies and the other 12 are role-specific) and was introduced in January 1999. The framework, which follows a similar structure established in 1996 for customer service staff, enables the bank to record and reward the skills and behaviours demonstrated in the workplace. In addition, the new approach is designed to provide staff with a much clearer indication of what is required of them if they are to move through the pay and job structure.

Variable pay

There are other factors working against IPRP as it has been applied over the past decade or so. In the context of the low inflationary climate, performance differentials have narrowed and the link between pay and performance has become blurred. As a result, pay awards are too small to motivate staff to make significant changes to the way in which they work. IRS found that this was the case in 65% of organisations participating in the survey on merit pay.¹⁰ Analysis of the UK financial services sector shows that pay budgets of between 3.5% and 4.2% a year for merit rises have been the norm over the past five years. Although higher increases for some employees are cross-subsidised by low awards for under-achievers, the relatively small budgets have limited the scope for substantial rises for better-than-average performers.

Hence, additional non-consolidated performance-linked payments, typically bonuses paid as a percentage of basic salary, are often a feature of reward packages in which changes to base pay are determined by an assessment of performance. This enables companies to retain the performance link and control fixed costs, while at the same time awarding good performers a potentially large one-off payment. Many of the UK's major banks, for example, operate some form of bonus scheme, generally linked to corporate performance and with awards in some cases dependent on individual contribution. The following two examples from the sector illustrate the potential lift to annual incomes from such awards and how this compares with general merit-based salary rises:

Team leaders and line managers (grades B5 to B7) at Barclays Bank receive bonuses of up to 20%, and up to 10% for lower grade staff (grades B1 to B4). These bonuses are based on employees' individual performance. In the second stage of a three-year pay deal at the bank, staff received individual pay awards of up to 4.4% depending on employees' current salary position and performance assessment from April 2000.¹²

HSBC Bank (formerly Midland Bank) operates an incentive scheme linking payments to personal and corporate performance for its 30,000 clerical staff. The incentive plan sets out expected "on-target" awards for staff depending on their grade and the nature of their jobs. These target awards are paid to staff if both their individual performance targets and the bank's financial goals (ROE) are achieved. The actual amount paid is determined by the application of a personal performance factor (ranging from 0.0 to 2.0) and a corporate performance factor (ranging from 0.0 to 1.5) to these target levels. The maximum bonus can reach up to 36% of salary. In April 2000, merit awards ranged from nil to 6%.¹³

The war for talent

Demographic change, which will limit the numbers of youngsters entering the labour market, coupled with unemployment falling to its lowest level in a generation, is putting pressure on companies to retain and attract the best talent. Pay has a crucial role in achieving these twin aims. Retention in today's business climate found that "invariably employers experiencing high levels of staff turnover or the loss of key employees turn to financial rewards to remedy the problem".¹⁴ This conclusion is supported by several pieces of research. A 1998 survey reported that eight in 10 organisations believe the primary remuneration issue facing them is to use rewards to retain staff.¹⁵ A survey of the UK finance sector by Remuneration Economics found that in 2000 a third of companies experienced recruitment difficulties, with salary levels cited as the prime reason.¹⁶ The 2000 PABB survey of pay prospects in the private sector reported that recruitment and retention difficulties were the second most significant pressure on employers stimulating higher salaries.⁴ Two-fifths of respondents (40%) said recruitment and retention factors were likely to be an upward pressure on pay awards in the coming 12 months - a 10% increase on the previous year's figure. This pressure is particularly acute among service companies, with almost half (49.4%) respondents in the sector anxious about the impact of labour shortages on future pay levels.

Skill shortages and relatively high levels of labour turnover are leading to IPRP arrangements being modified in a growing number of companies through the incorporation of labour market comparisons to determine pay levels. Management Review's earlier examination of pay - Rewarding employees in the 1990s - found that market factors were considered one of the most important reasons behind corporate decisions to change their reward systems among surveyed organisations.¹⁷ Research indicates that the use of market comparisons is now more widespread. Hay Management Consultants reported in April 2000 that 61% of companies set their pay levels in line with the overall market, and predicted that this proportion would rise to 73% in the future.¹⁸ A survey of call centres - a growing feature of the UK labour market - by IRS found that more than 60% of participants monitor the local labour market to inform pay decisions, while 30% also research the national picture.¹⁹

It is not only private industry that is taking more notice of market conditions in setting pay rates. In the public sector, one the main recommendations for changing payment systems in the civil service following an examination of current practice by John Makinson, was to look outside and base salary levels on the "market rate for the job".²⁰ Elsewhere in the public sector, a new "market forces supplement" has been proposed for the NHS, to top up the pay of staff in areas where there are recruitment and retention difficulties.²¹

For most jobs there is no such thing as the "market rate". This is because individual jobs differ widely from one organisation to the next, even if they attract the same title. Neither is reliable pay information easily obtainable. Nonetheless, market comparisons provide compensation and benefits personnel with benchmarks against which to establish pay levels. In tight labour markets, pitching pay rates at above the local or industry median (the mid-point in the range), for example, can help employers keep and recruit staff. As part of their overall people management practices, and with the principal aim of retaining and recruiting high-calibre staff, some firms have a policy of paying rates that are in the upper quartile of salaries in the sector.

Often market comparisons determine a reference point (sometimes referred to as a mid-point) in the salary range or a target salary for a particular role. At Abbey National, for example, the salary anchor is defined as the market rate for "sustained fully competent performance".²² Increasingly salary midpoints are being adjusted in accordance with market factors.

Modifying pay rates on the basis of market forces is a far cry from how IPRP was generally applied in the 1980s and 1990s, when the emphasis was very much on individual performance with little reference to external salary movements or local labour market conditions. Yet, as the PABB annual pay survey for 2000 reported: there is a definite link between IPRP and market comparisons, with more than a third of respondents operating a combination of merit and market-related pay systems.⁴ Revising pay rates with reference to market factors can limit the discretion managers exercise over the level of awards, which was originally an important aim of IPRP because it forced managers to manage and make tough decisions about pay and performance. Alternatively, the removal of guidelines on pay distribution can provide line managers with a greater degree of freedom than was previously the case to make alterations to pay in line with market rates or local circumstances. This situation appears to be growing.

For instance, in addition to making pay awards based on an employee's performance appraisal rating, unit managers at insurance company Scottish Amicable can also take into account factors beyond this assessment, one of which is the individual's "marketability" (measured in terms of their skills and the demand for them in the local labour market).²³ Barclays operates a similar arrangement. Managers at the bank allocate salary rises from their pay budgets based on the following factors: "performance, potential, current salary level and similar jobs in the external market place".¹²

Increasingly, and particularly for specific groups of staff, additional adjustments to salary ranges based on external relativities are being made outside the normal review process. Royal Bank of Scotland made such awards in 2000, raising salary ranges by up to 8% across the bank and reflecting market comparisons within each separate business unit.²⁴ Similarly, in 1999, Skandia Life, the UK operation of the Swedish financial services business, allocated additional funds to specialised areas to ensure that salaries remained competitive in the market.²⁵

Examples of IPRP pay awards increasingly determined by market factors include the following:

American Express UK, where merit- based salary rises for staff in April 2000 ranged from nil to 7%.²⁶ Yet the maximum level, which is ostensibly to reward individuals who have "exceeded expectations in all areas" in relation to achieving objectives and who is "distinguished" in demonstrating leadership competencies, was awarded only to those whose existing salary was judged at below the market level - those already paid the market level received a 6% rise and staff receiving an "above market" salary got only 4.5%. Also, an additional 1.5% on the paybill was set aside for staff grades (1% for managers) to, among others, fund market adjustments.

National Australia Group Europe, which on 1 January 2000 introduced a new pay and grading structure for its UK subsidiaries, including the Clydesdale, Northern and Yorkshire banks.²⁷ It consists of a performance pay matrix to determine the size of individual pay rises (based on the performance appraisal rating and the employee's position in the salary range relative to the grade mid- point). Competitiveness in terms of salary levels, which was suffering under the previous system, informs the new approach and all salary ranges are based on market compensation data.

Speedier progression

The relatively benign inflation climate, which has led to low pay budgets, has tended to hold back progress through pay bands. Slow movement can only exacerbate the recruitment and retention problems facing employers. Employers can attempt to solve slow progression in one of several ways. One option is to award higher pay rises to staff lower down the pay band, which would speed up movement among this group - much like the market-based adjustments at American Express UK - who are generally more unhappy at their slow progress than higher paid colleagues. A related move is to increase minimum rates by more than the maximum ones to shorten the pay ranges. A further option is for employers to simply make no adjustment to pay band minima and maxima, thereby giving the impression of progress. A similar approach is to attach additional pay points to salary bands so that, in the interim, employees have more realistic targets to aim for. Alternatively, the number of pay points could be cut to ensure quicker movement.

Progression through pay bands has emerged as a major issue in many central government departments. Two-thirds of those who responded to a Council of Civil Service Unions survey were either dissatisfied or very dissatisfied with progression rates in 2000, up from 48% in the previous year.²⁸ Indeed, public sector workers tend to be more critical of merit pay arrangements than their counterparts in private industry, and slow progression has been one of the major elements fuelling this discontent. As a result of this level of dissatisfaction, and from fear of exacerbating the worsening recruitment and retention difficulties, existing IPRP systems covering many Civil Service departments are being modified to speed up movement.

The DSS suspended its performance- related pay awards for the 2000 pay review in order to focus on improving progression through pay bands.²⁹ DSS, which employs 95,000 staff, is the largest bargaining unit in the Civil Service and has introduced a new progression system based on fixed points across the whole organisation. The number of pay points for each pay scale has been cut to ensure speedier movement towards the scale maximum. All scales now have nine pay points between the grade minimum and maximum, except the lowest AA grade, which has seven. As well as ensuring faster progression, the new system meets union requests for a simpler and more transparent process. The DSS has stated that as a "demonstration of its commitment to the new system", the 2001 pay deal will guarantee that all satisfactory performers will move at least one point up their pay scales.

One of the key features of the April 2000 pay awards made to all employees with a "satisfactory" or better performance rating at the Employment Service was a progression element payment.³⁰ These varied from £74 to £157 for the lowest grade of administrative assistant and £372 to £786 for a London-based senior manager. The payment is calculated by splitting pay ranges into four equal parts, and paying the flat-rate increase applicable to the quartile an employee's salary falls into. The service employs 37,000 staff, mostly at Jobcentres throughout the country.

HM Treasury simplified the pay system for its 750 civil servants in April 2000 partly to speed progression and move people up the pay ranges more quickly.³¹ The department introduced a new progression point set at the minimum of the pay range plus 25%. Progression pay is calculated at 20% of the difference between someone's current salary and the new progression point. Employees below this point receive progression pay, while those above it do not.

Elsewhere in the public sector, HM Customs and Excise introduced in 2000 guaranteed pay progression from the bottom to the top of a pay range within 10 years. It also plans to shorten pay scales radically so that the lowest point will eventually be set at only 15% below the top. At MAFF, a reference point of a new pay range has been set at 60%. Progression pay is calculated at 15% of the difference between an individual's salary and the new progression point, so satisfactory performers should progress to an appropriate rate for the job within a reasonable time. And both the DETR and the DfEE have increased pay range minima by more than the maxima in an effort to aid progression.²¹

Slow pay progression is also a mounting problem in the private sector and several firms have altered their existing IPRP arrangements to accommodate faster movement. Abbey National, for example, made an additional pay pot available to managers in both 1999 and 2000 to accelerate staff towards their salary anchors (midpoint), subject to fully competent performance.²² Another example is Nationwide Building Society, which has established a system of salary progression designed to accelerate individuals to their target salary over three years, assuming they are at least rated good. For those rated excellent or exceptional, salaries increase even faster.³²

Flexible friend

The ability to make market-related adjustments and speed progression through pay bands requires a degree of flexibility in the remuneration system. Broadbanding - that is, pay structures containing a small number of pay bands and wide, overlapping salary ranges - has introduced the necessary flexibility into many IPRP arrangements. If there are recruitment and retention problems, there is flexibility in the system to focus rewards on the areas most in need. Broadbanding not only allows greater freedom in setting wage rates: it also encourages employee flexibility where restructuring has resulted in a less hierarchical organisation. Such arrangements link neatly with IPRP systems because they permit pay rates to reflect individual contribution, rather than the job. Hence it can encourage multiskilling/tasking rather than focusing on a set of specific tasks - something that is often required in today's rapidly changing workplace and business environment - without the need to resort to overly bureaucratic job evaluation or regrading and promotion.

There is no standard definition of broadbanding, but it is a process that condenses the number of pay grades into fewer, but wider, salary bands. There is no uniform approach to the implementation of broadbanding: each organisation tends to develop its own structure. There are some common features, however, that indicate how the system operates (which are discussed in more detail in Career development and staff retention).

Generally, there are fewer than six pay bands, each with a span of between 70% and 100% above the pay range minimum. However, some schemes have up to eight pay bands with spans of 50%. Typically, each pay band consists of a number of pay zones, with an upper and a lower limit indicating the range available. Pay zones are used to prevent costs spiralling out of control - something that can occur if the system is not carefully managed. Normally, the mid-point in the range can be passed only by demonstrating superior performance or contribution.

The CIPD survey of broadbanding found that 74% of organisations operate five or fewer pay bands for their managerial/professional employees; 49% take a similar approach for other staff.⁸ It also reported that, in 1999 when the research was carried out, more than half (53%) of the broadbanded structures were less than three years old. Firms that have recently attached broadbanded pay arrangements to their IPRP systems include the following:

Co-operative Bank established its new broadbanded salary and grading structure in 2000.³³ The new system covers all 3,500 clerical, appointed and managerial staff. According to the bank the broadbanded structure has several aims:

to support its strategic aims, "which require a shift to a more flexible, empowered and pro-active culture";

to encourage staff to develop to their full potential; and

to recognise and reward the development and application of knowledge skills and behaviours.

At the Ministry of Defence, the 60,000 staff transferred to a new pay and grading structure in February 2000.³⁴ Many existing grades migrated into the revised arrangement, which is built around four broadbanded groups, each containing seven pay bands. Every grade is allocated to one of a number of equity share groups of broadly equivalent pay bands.

RoMEC, the facilities division of the Post Office, established a broadbanded pay structure in April 1998 for its 300- strong managerial group because the business needed a more flexible approach that rewarded employees according to performance.³⁵ Pay levels are based on a competency framework, and there are four managerial bands, each with a minimum salary level but no maximum. Under the new arrangement there is now an incentive for managers to excel in their job and gain skills, both factors missing from the previous system that owed much the Post Office's old civil service origins.

Although flexible and versatile, broadbanding has it drawbacks. Job family structures - where a range of jobs or tasks are brought together under one umbrella category exhibiting similar skills and capabilities - are increasingly popular and are being attached to broadbanded systems to overcome the perception among many employees (22% of staff questioned by the CIPD study) of a lack of structure in broad bands and poor promotion prospects (39%). The CIPD study of broadbanded and job family pay structures found that 16% of participants had already implemented job family arrangements, with a further 17% planning to do so by 2001.⁸ Of those which had put in place a job family structure, 42% had fitted it into a broadbanded pay system. Reward specialist Michael Armstrong says that "most organisations with job families use them for all roles and a high proportion fit the families into broadbanded pay structures".³⁶ The CIPD research states that: "Job family structures in particular are giving much greater freedom to pay different rates in each family according to the market."

Companies adopting job family structures include the following:

Nationwide Building Society established its job family structure in July 1999, aimed at increasing organisational flexibility and facilitating employees' career progression.³⁶ There are five levels, each with its own collection of job families, of which there are 11, and each consisting of jobs that are similar in nature. At level one, there are four families: customer, general, specialist and support services. At level two there are three: customer relations (sales force), leading people (team managers) and specialist advice. Level three has two families: professional development and leading implementation (big operational roles). Levels four and five only have one family each. Staff promoted into a higher level move into the relevant job family (see figure 3.5, within Managing reward systems).

Co-operative Bank Service Centres employs 1,300 staff at a call centre in Skelmersdale and operates a separate pay system from the rest of the bank's operations.³⁸ The centre introduced its new pay and grading structure in October 1998, which is based on job categories, job families and job profiles, comprising six levels of customer service adviser (including coach and specialist roles) and four levels of team manager.

The Manchester site of breakfast cereal producer Kellogg implemented a job family structure as part of the development of a more flexible pay system designed to support the company's business objectives.³⁹ The 50 or so individual jobs were placed in three families (operations, technical and business support) within a framework of six levels. Competencies are used to determine the real differences between two similar roles in the same band.

Skills-based pay is also part of the drive for flexibility. Basing part of an individual's salary on their attainment of additional skills helps to produce a more multiskilled workforce, so that they are more adaptable and flexible and can better meet the challenge of a rapidly changing business environment. Companies, such as Severn Trent Water, that operate skills-based pay arrangements tend to link such supplementary payments to the achievement and demonstration of specific skills. In the Midlands-based water company's case, staff in the mains and service layers who achieve the required skills and competencies receive a skills supplement, which in 2000 was worth between £636 and £1,272 a year.⁴⁰

Another firm looking to use remuneration to support its development of a more multiskilled workforce is Delphi Automotive Systems. The US-owned company is the world's largest supplier of automotive technologies and its Ellesmere Port site supplies the nearby Vauxhall plant. To ensure that staff at the site become one of the most widely skilled and flexible manufacturing units in the UK, Delphi offers additional remuneration to employees completing four stages of competency in six activity areas.⁴¹

Championing cooperation

One of the major criticisms levelled against IPRP is that it motivates people to think and act individually, rather than to cooperate and work as a team (see figure 4.4, within Rewarding contribution for a summary of the pros and cons of performance-related pay). Given that the majority of UK workplaces now operate some form of teamworking - 65% of organisations participating in the 1998 WERS research reported that "most employees work in formally designated teams" - it is not surprising that team-based rewards have attracted much attention over the past few years, although actual use is very limited.³ The PABB annual pay survey for 2000 put the proportion of firms using team pay at 5%, with a further 10% examining the possibility of adopting some form of team reward.⁴

Nonetheless, team rewards, typically in the form of group bonuses, are a feature of some reward packages, some of which are also principally merit-based arrangements and are often intended to promote a degree of cooperation in an otherwise individualised approach to reward. Call centre operations, in which IPRP is a fairly common means of reward, offer numerous examples of team-based remuneration. A survey of 79 call centres by IRS found that almost one-third (32.9%) had a team reward mechanism in place.¹⁹

In some cases, team bonuses are paid in addition to individual performance-based salary increases. This is the case at Vertex Data Science, a subsidiary of North West Water, which employs more than 300 at two purpose-built call centres in Warrington.⁴² In 1998, the company replaced its existing pay system with four "role families", described as "the group of roles critical to business success", and traditional grades were discarded in favour of broad pay bands. Individual employees are set performance and personal development objectives, and are expected to acquire a set of role-related competencies. Measurement of these factors affects individual rewards. In addition, bonuses, linked to achievement of personal, team or whole company targets, worth up to 7.5% of salary for customer service representatives, are payable at regular intervals. For frontline agents the bonus is structured as follows:

one-third (up to 2.5% of gross pay) is linked to personal or team objectives. Examples include reducing the average call-handling time and increasing the "tele-economy" (benchmarked performance against other competitor call centres) rating by percentage targets;

one-third (2.5% of salary) is linked to team or whole-centre performance. Examples include answering a given proportion of incoming calls with a target time, and ensuring abandoned calls do not exceed a set percentage of all inbound calls; and

one-third (2.5% of salary) is tied to whole-company performance to ensure that, irrespective of role, employees clearly see the link between their own and corporate performance.

The Makinson report into performance pay in the Civil Service recommended that IPRP be replaced by non-consolidated team bonuses for most employees working in national office networks.²⁰ The report states that payments "should wherever possible aim to reward team achievement" and every employee should have the opportunity to earn a bonus worth at least 5% of base salary. In essence, Makinson believes there is a role for both individual and team-based incentives in all the agencies. But it may be unrealistic to combine the two for employees at the lower end of the salary scale. According to Makinson, team rewards would retain the performance link because the four large government departments he examined - the Benefits Agency, the Employment Service, HM Customs and Excise and the Inland Revenue - are mainly transaction-intensive organisations, so the quality and efficiency of services can be objectively measured by the performance of individual offices. Instead of an assessment of individual achievement, the report says that performance should be measured against clear operational targets (as set out in the public service agreements). In 2000, HM Customs and Excise began piloting the new pay arrangements.

The addition of competencies to IPRP arrangements has also in part helped to promote better cooperation and teamwork between employees. Most corporate competency frameworks include cooperative behaviour as a key competence. Indeed, competencies relating to teamwork, such as "working in a team", "team leadership" and "teamwork and cooperation" formed the most common competency category according to the 2000/01 annual benchmarking survey conducted by the journal Competency & Emotional Intelligence. ⁴³ One company making teamwork an important competency for staff is Pet Plan, the animal assurance arm of Cornhill Insurance, which operates a competency-linked pay system that rewards both individual and team contribution.⁴⁴ Employees excelling in teamworking activities, which comes under the "motivating others" competency, must exhibit the following:

"Supports and trusts others, showing the will and ability to work cooperatively with others, within and across functions towards a common objective. Works with others to solve problems. Shares information and overcomes conflict. Takes a flexible approach when working with others and is willing to change roles. Develops teamwork relationships."

Another company taking a similar approach is Royal Bank of Scotland, which in 1998 introduced competency-based pay for some staff groups, including corporate and commercial "relationship managers".⁴⁵ "People get rewarded for doing what we think is important and this makes for much more powerful performance-management discussions", says the bank. One of seven clusters of competencies is the "leadership/influence" collection, which includes competencies such as "meeting participation" and "teamwork/collaboration".

ACROSS-THE-BOARD PAY RISES

Aside from performance-linked pay uplifts, the other main form of raising salaries is the conventional across-the-board (atb) increase to basic rates for all employees. Despite the spread of IPRP in the 1980s and 1990s, atb salary rises are still popular in many industries, especially those such as manufacturing which employ a large number of manual workers, who are less likely to be subject to individual performance-pay arrangements. Also, atb rises are constantly applied to IPRP systems, typically by raising minimum and maximum salary points. Both the general level of atb increases to basic pay rates and the average amount allocated to merit pots from which individual performance-linked hikes are awarded are normally tied to inflation. As a result, there is little difference between two. Hence, pay systems that provide annual atb salary increases are experiencing some of the same pressures as those influencing modifications to IPRP arrangements, particularly how to motivate staff in the low-inflationary climate that means annual changes to pay rates are barely noticeable.

Supplementary bonuses

Financial incentives have long been a key component of reward packages for many workers to improve their performance. Schemes such as piecework guarantee the employee a minimum hourly rate for meeting a predetermined target. Productivity agreements reward a group of employees - ranging from a team to the whole workforce - for improvements in performance based on the ratio of inputs to outputs. Plant or company-wide incentive schemes attempt to motivate all employees to achieve higher levels of productivity.

There are a wide variety of incentive schemes in operation among employers providing lump-sum non-consolidated payments to staff who would otherwise receive only inflation-linked pay rises. Indeed, many firms which had supplemented annual salary uplifts with Inland Revenue-approved profit-related pay schemes have been grappling with what to replace them with now that the tax benefits have been withdrawn.

One incentive arrangement that has crossed the Atlantic and found favour in a small number of UK firms is gainsharing. The annual PABB surveys of pay in the private sector have over the past five years found that between 2% and 3% of companies make use of this form of incentive (see figure 2.1).

In a gainsharing arrangement, employees share the financial rewards that result from their improved performance. But gainsharing is not profit-related, because there are a host of factors outside the control of employees that can affect organisational performance. Gainsharing systems are used to improve productivity and areas such as quality and customer service that employees can influence. Gainsharing plans have existed in America since the 1930s, but interest in them has been renewed recently because they fit neatly with contemporary ideas about reward strategies that emphasise performance. Payments fluctuate along with organisational performance: they therefore belong in the variable pay category of reward schemes.

Initially at least, incentive systems such as gainsharing offer employees a challenge - a way of beating the system - and, as such, have a motivating effect. Over time, however, their impact tends to decline. Nonetheless, gainsharing schemes can lead to big improvements in performance. Not only do they help to focus employee attention on the key areas that can generate improvements: they also facilitate teamwork, improve cooperation and create greater trust between employers and employees. Significantly, gainsharing is also empowering, because employees gain more control over how they perform their work.

An example of gainsharing in practice is a scheme operated by the Motherwell-based earth-moving machinery manufacturer Terex Equipment.⁴⁶ The scheme offers all 470 employees the chance to receive a potential unconsolidated award worth 5% of salary. This figure compares with the 2.2% atb pay increase agreed in 2000. Payments under the gainsharing scheme, which are paid twice yearly, are dependent on meeting targets in four areas: operating expense (as a percentage of sales revenue), operating profit, inventory value and productivity. The scheme was introduced in 1998 to "provide an opportunity" to increase take-home pay and eventually supersede the IR-approved PRP arrangement.

Several companies operate variations on the gainsharing theme. These include BorgWarner Automotive, which operates a productivity reward scheme based on efficiency savings and offers staff a "sweetener" for not working overtime; and TRW Automotive Seatbelt Systems, which has in place a "Success sharing plan" dividing efficiency savings equally between employees and the company.

Outside the engineering industry, supplementary bonuses are also popular: food-to-clothing retailer Asda operates its "All Colleague bonus" scheme, which awards eligible staff annual payments worth up to £250 based on the profit performance of individual stores; Pizza Express pays its 6,000 restaurant staff monthly bonuses determined by meeting targets in terms of costs and sales; and ready-made sandwich outlet Pret A Manger runs a "Mystery shopper bonus" arrangement, with payments dependent on the scores awarded to shops by independent "shoppers" based on efficiency, quality and speed of service (see figure 5.1, within Variable pay for further details of all these schemes).

Long-term deals

A marked trend in reward practice over the past decade or so has been the growing proportion of firms agreeing long-term pay settlements with their workforces. This is illustrated by figures from the IRS Pay Databank: in the year to the end of December 2000, more than 8% of the pay settlements recorded were for two or more years, up from just over 6% in 1995. The vast majority of long-term settlements are directly linked to changes in the Retail Prices Index (RPI) in a particular month - normally a period immediately proceeding the start dates. Long-term agreements are popular with employers because they are able to plan ahead, knowing what proportion of financial resources will have to be allocated to the paybill over the next two or three years. And because many atb pay settlements are the result of collective bargaining, long-term deals mean that corporate personnel are not engaged in time-consuming pay negotiations each year. For employees, long-term deals at least guarantee them rises usually slightly above inflation. For these and other reasons pay deals lasting for more than 12 months are likely to retain their popularity. Also it is often the case that once one long-term deal has been negotiated, further long-standing agreements follow.

Long-term pay settlements are especially popular in the car industry. More than a third of the automotive sector pay awards analysed by IRS in 1999 were long-term deals.⁴⁷ Of these, the majority ran for two years and the remainder for three. Inflation-linked agreements were popular; only one of the two-year settlements did not link the second stage of the deal to the RPI figure.

Recent examples of long-term pay settlements are outlined here:

Eaton Transmissions UK agreed a three- year pay deal with the main engineering union, the AEEU, in 1998, and increases salaries twice each year.⁴⁸ The inflation- linked formula used to determine the increase is based on the average headline RPI rise over six months (April to September and October to March). In the first two years of the deal, the inflation figure was rounded down.

International train operator Eurostar agreed a two-year deal for its 1,400 workforce in 1999.⁴⁹ The first stage increased basic rates by 3% in October that year, while employees received an inflation-linked 3.8% under the second phase of the deal - which it had been agreed would be the greater of 2.5% or the September 2000 RPI plus 0.5%.

Ford Motor Company's 7,000-strong non-managerial workforce at its 16 UK plants is covered by a three-year deal agreed in 1999.⁵⁰ In year one, basic rates were increased by 4%; in year two, salaries rose by 3.6% - based on the greater of 3.25% or the October 2000 headline RPI plus 0.5%; and in the final stage of the settlement, pay will rise by either the greater of 3.5% or the October 2001 RPI plus 1%.

FINANCIAL PARTICIPATION

Inland Revenue figures show that in 1998-99, 890,000 UK employees were covered by approved profit-sharing schemes and 990,000 were granted share options under registered Save-As-You-Earn (SAYE) share option schemes.⁵¹ A 1998 study by Proshare, the not-for-profit organisation established to promote wider share ownership, found that more than two-thirds of UK companies, including 90% of plcs, offered some form of employee share ownership arrangement.⁵² The annual PABB survey of pay trends in the private sector has also recorded the upsurge in companies offering staff equity in the companies they work for.⁴ Over the past two years, around one in five of surveyed organisations operate all-employee share option schemes (AESOPs), which were introduced only in 1999. The figures emphasise the extent to which various forms of financial participation are being used in the UK.

For employees, the rewards of financial participation can be substantial. Asda's Colleague Share Ownership Plan allocated its first tranche of shares on 20 July 1998 under an option scheme established in 1995. In the three-year period between 1995 and 1998, the share price doubled, from 96p to around 206p, giving the 26,000 eligible staff an average free shareholding worth roughly £900.⁵³ Tesco staff participating in the company's SAYE schemes shared £123 million when one three-year and one five-year scheme matured in February 2001. Average savers in the three-year scheme, who invested £28 each month, received shares valued at over £2,000, while individuals investing £25 in the five-year scheme were allocated shares worth £5,382 (see case study 3, within Case studies). Profit-sharing payments to staff of the John Lewis Partnership between 1988 and 2001 have averaged more than 15%, equivalent to around eight weeks' pay for each of the company's "partners" (permanent employees), of whom there are 54,000.⁵⁴

Aside from the attractions of the tax incentives available on all Inland Revenue-approved schemes, evidence of the benefits of financial participation to employers - in terms of employee involvement and commitment, organisational performance and attitudinal change among staff - is somewhat mixed, although the impact on the financial performance of companies tends to be broadly positive.⁵³

Charles Leadbetter, author of a booklet on employee share ownership published by the think-tank Demos, outlines six main claims made for employee financial participation:

Cooperation - financial participation creates a common interest between workers, employers and shareholders which reduces conflict and "us and them" attitudes;

Productivity - giving employees a stake in the business helps to raise productivity, improve quality and promote a culture of continuous improvement;

Patience - employees are more knowledgeable about the company and tend to be more patient than external shareholders, so there is less short-termism;

Loyalty - employees are more committed and there is less labour turnover and absenteeism;

Flexibility - employees understand the need for rewards that match the ups and downs of company performance; and

Risk taking - employees understand the nature of the risks taken by owners of capital and how markets work.⁵⁵

Certainly, equity-based incentives are an important feature of the reward packages to staff working for companies in the so-called new economy. SCA Consulting and Futurestep, which produced a study of UK pay in the IT and internet sector in 2000, reported that a critical component of pay in the industry is equity.⁵⁶ In the case of quoted companies, shares can be offered to staff as an incentive. For other companies, a promise of equity or share options is made to employees. This introduces an element of risk into the remuneration package, as the value, if any, of the stock is not known until the firm is sold. Specifically, CSA/Futurestep found that 71% of internet companies offer equity to all employees, and 21% to more than three-quarters of the workforce. A survey by Hay reported that 58% of e-businesses offer employees long-term incentives.⁵⁷ These are most likely to involve participation in a share-option scheme, followed by access to a restricted share scheme.

Cisco Systems, which describes itself as the company that powers the internet, provides an example of the trend among such businesses to offer staff equity in the firm. All permanent staff at Cisco have the opportunity to participate in the company's Employee Stock Purchase Scheme (ESPP) and Approved Share Option Plan (ASOP). New recruits are allocated share options under the ASOP on joining the company, enabling all employees potentially to hold a financial stake in the company. Further allocations under the scheme are linked to individual performance. There are no hard and fast criteria for rewarding staff under this plan. Subsequent share options are granted for, among other reasons, significant promotion or completion of a successful project. The share allocation process takes place annually with a five-year vesting period before employees can cash in all of their options. The EPP scheme is not related to individual performance. Individuals have the opportunity to purchase share options up to the maximum allowance (10% of earnings). The share options are offered for sale at a discounted rate of 15% less than their market value at the time of purchase (see case study 1, Case studies).

THIS YEAR I'LL TAKE THAT, THAT AND THAT PLEASE

Standard provision of benefits is slowly becoming a thing of the past. Not only are employees increasingly being given greater choice in which benefits best suit their individual circumstances, through so-called cafeteria or flexible benefits schemes, in which they make their choices from a menu of options, but the types of benefits are changing constantly. A comparative study of Hay surveys of benefits over the past decade reveals that the proportion of firms offering car allowances, maternity leave over and above the statutory minimum, childcare costs/facilities and membership of health and other private clubs have, among others, all grown substantially. By contrast, the provision of luncheon vouchers and telephone subsidies have both fallen dramatically (see Changing benefits, for more details on the changes taking place in benefits provision). Statutory provision of benefits is also changing what employees are entitled to. For example, employees will shortly be eligible for at least four weeks' paid holiday and have rights to take unpaid parental leave. Also, the introduction of stakeholder pensions will alter provision in this area, while alterations to the tax regime covering company cars have made them less attractive to employees.

Market factors have forced changes to benefits provision as companies vie for talented employees: a good benefits package differentiates firms from competitors, making it more likely they will attract the best people. The benign inflationary climate has put additional pressure on companies to offer more in terms of benefits so as to make the overall remuneration package more attractive to staff who are unhappy with the relatively small upward movement in pay rates. Improvements in benefits run the risk of escalating costs, however. One attraction of flexible benefits schemes is that costs can be controlled, although initially expenditure tends to increase.

There is growing evidence that flexible benefits arrangements, which have been around for a considerable period without really making an impact, are finally on the up. PABB's annual survey of reward in the private sector has recorded an upward trend in the proportion of firms using such schemes over the past three years. Significantly, in both 1999 and 2000 the introduction of flexible benefits was the most popular planned change to remuneration among respondents (see figure 2.1). One reason why flexible benefits schemes are becoming more popular is that new technology has made administering them - one of the biggest drawbacks - far easier and cheaper.

Companies opting for flexible benefits arrangements recognise that no two people are alike in their preferences: whereas help with childcare may be important to one, larger pension contributions may be the priority of another. By placing a cost against the available choices, companies are also better able to communicate the value of benefits - something that neither employers nor employees are generally aware of. Cost is now more important than ever because some benefits, notably private medical insurance, are becoming much more expensive.

However, there is flexibility and there is choice. Some organisations offer employees a choice of specific benefits, such as company cars and medical insurance. This form of choice has largely been dictated by recent changes in the tax regime. Full flexibility is rarer. Examples of companies operating fairly extensive flexibility follow:

Oracle Corporation, which in April 1999 established its "Select" benefits scheme for all 4,000 employees (including senior managers, IT consultants, technicians and support grades) offering the following:

base salary;

a set of core benefits (many of which can be upgraded), including holiday, life assurance, pension, employee counselling and legal helpline and personal accident and long-term disability insurance; and

a choice of flexible benefits, including additional pension contributions, cash conversion, company car, critical illness cover and private medical insurance, plus a number of benefits which were provided for the first time on the scheme's introduction - childcare vouchers, dental insurance, health screening and life assurance for partners.⁵⁸

Zurich Financial Services - Life, part of the Swiss insurance giant, introduced a flexible benefits arrangement to help harmonise terms and conditions for around 4,000 UK employees following the acquisition of Eagle Star and Allied Dunbar in 1998.⁵⁹ Currently, there are only seven benefits that can be flexed. These are:

holiday entitlement (whole days can be bought and sold between lower and upper limits of 20 and 30 days);

childcare vouchers (available for children up to the age of 14; employees must purchase a minimum of £20 worth of vouchers each month);

pension accrual rate on the final salary scheme (the standard rate of 1/60 can be increased to 1/40 or 1/48, or reduced to 1/80);

BUPA health insurance (available in five levels: no cover; employee only [standard entitlement]; employee and partner; employee and children; and employee and whole family);

health screen (available in seven levels: no cover; well man/woman for employee only, or for partner only, or for employee and partner; full screen for employee only, or for partner only, or for employee and partner);

dental insurance (available in four levels: no cover; employee only; partner only; employee and partner only); and

car parking (for employees in Swindon and Cheltenham, who can choose between no provision, park- and-ride car park or town centre parking).

* The First Direct case study (see Case studies) also gives details of the flexible benefits scheme operated by the company.

THE QUESTION OF PAY EQUALITY

The Equal Pay Act became law in 1970 and sex discrimination legislation was passed in 1975. Although the gap between the average hourly wage for full-time men and women has been eroded over the intervening years, recent research by the Equal Opportunities Commission (EOC) Equal Pay Taskforce revealed that women's pay still trails men's by 18% (down from 31% in 1970).⁶⁰ The taskforce believes that between 25% and 50% of the pay gap is caused by pay discrimination. The growth of IPRP could exacerbate the problem if performance assessments are biased - and there is evidence to suggest that this is often the case (see Rewarding contribution).

The taskforce proposed the following five-pronged approach to breaking down pay inequality:

raising levels of awareness and developing a common understanding of what the pay gap means;

reforming and modernising the equal pay legislation;

capacity building to ensure that employers and trade unions know how to implement equal pay;

enhancing transparency and developing accountability for delivering pay equality; and

amending social, economic and labour market policies to complement equal pay measures.

The Government's initial response was to announce the creation of "Fair Pay Champions", whose role will be publicly to promote the benefits of fairness and equality in pay. It has also established a Women's Employment and Pay Review to help build support for "voluntary pay reviews among employers and identify further areas in which awareness and understanding of existing equality law can be increased".⁶¹ In addition, measures are being implemented to speed up equal pay tribunal claims.

The publication of the Equal Pay Taskforce's report, coupled with government initiatives to end pay discrimination, has raised the issue of pay inequality and, with campaigning by trade unions and others, is likely to become an significant feature of the reward agenda in the immediate future. The taskforce aims to reduce the pay gap due to discrimination by 50% within five years and to eliminate it completely by 2009.

Research by the CIPD shows that awareness of equal pay problems is low among employers and that large numbers of organisations have no equal pay policy.⁶² Most (61%) of the 1,900 organisations polled said they did not have an equal pay problem, while 36% reported that they did. The CIPD comments that if employers want to "avoid more legislative action being taken by the government [such as compulsory pay audits] then they need to recognise that equal pay problems may exist within their organisations and that in such circumstances, action will be needed to address those problems".

The CIPD survey also found that organisations were most likely to change practice because of trade union (61%) or employee (35%) pressure. Trade unions are certainly pressing for equality. The TUC launched a campaign in March 2000 - "Fair Pay for Women Now" - and is pressing for a statutory duty on employers - based on the EOC code of practice - to review and equality-proof their pay systems (ensuring they are free of sex bias).⁶³ MSF, which represents professional and white-collar workers in both manufacturing and the service sector, launched its own campaign in 2000 - "Mind the gap - you're worth equal pay" - placing the "elimination of the gender pay gap at the centre of [its] bargaining agenda". MSF was buoyed by its success in securing £12 million in back-pay over a 15-year period for 351 speech and language therapists in May 2000 - the largest settlement of its type.⁶⁴ In the civil service, IPMS also placed equality proofing at the top of its agenda for 2000, while Unison, the largest union in local government, has launched a "Getting equal" campaign and is running a training programme for activists and paid officials to ensure equal pay is placed at the heart of all local and national negotiations with local authority employers.⁶³

One organisation that has responded to concerns about equality proofing of the pay system is the Employment Service. It has brought in an external consultant to examine and report on the agency's pay systems.³⁰ In addition, a joint management-union working group is reviewing a sample of performance appraisal reports and will make recommendations for action.

¹"Pay prospects for 1998 - a survey of the private sector", Pay and Benefits Bulletin 435, November 1997.

²Performance pay trends in the UK, (C)IPD survey report 9, Chartered Institute for Personnel and Development, September 1999.

³Britain at work: as depicted by the 1998 Workplace Employee Relations Survey, Mark Cully, Stephen Woodland, Andrew O'Reilly and Gill Dix, Routledge, London, ISBN 0 4152 0637 5.

⁴"Pay prospects for 2001 - a survey of the private sector", Pay and Benefits Bulletin 507, November 2000.

⁵"Reward systems", Ian Kessler (1995), in Human resource management: a critical text, John Storey (ed), Routledge, London, ISBN 0 4150 9150 0.

⁶Cases in reward management, John Stredwick (1997), Kogan Page, London, ISBN 0 749 42127 4.

⁷"Cultural change", IRS Management Review 4, January 1997.

⁸Study of broad-banded and job family pay structures, CIPD survey report, January 2000.

⁹"Performance pay", Ian Kessler (1994), in Personnel management: a comprehensive guide to theory and practice in Britain, Keith Sisson (ed), Blackwell, Oxford, ISBN 0 6311 8821 5.

¹⁰"The truth about merit pay", Pay and Benefits Bulletin 501, August 2000.

¹¹"Moving away from 'Mystic Meg' approach to pay", in "Employers' practice in using competencies for pay, progression and grading", Competency & Emotional Intelligence, vol 7 (1), Autumn 1999.

¹²"Barclays Bank: second year of partnership deal", Pay and Benefits Bulletin 496, May 2000.

¹³"Performance management", IRS Management Review 20, January 2001; "HSBC Bank: merit awards up to 6%", Pay and Benefits Bulletin 496, May 2000.

¹⁴"Staff retention", IRS Management Review 13, April 1999.

¹⁵"Strategic reward", Employee Benefits, April 1998.

¹⁶"Salary survey of financial staff", Remuneration Economics, October 2000.

¹⁷"Rewarding employees in the 1990s", IRS Management Review 3, October 1996.

¹⁸Reward in the 21st century, Hay Management Consultants, April 2000.

¹⁹Call centres 2000: reward and HR strategies, IRS report.

²⁰Incentives for change - rewarding performance in national government networks, John Makinson, Public Services Productivity Panel, HM Treasury.

²¹"Public sector pay in 2000/01", Pay and Benefits Bulletin 510, December 2000.

²²"Abbey National: 2.5% merit award", Pay and Benefits Bulletin 496, May 2000.

²³"Merit moves on", Pay and Benefits Bulletin 416, January 1997.

²⁴"Royal Bank of Scotland: pay awards up to 14%", Pay and Benefits Bulletin 496, May 2000.

²⁵"Skandia Life: divisions allocated 5% merit pots", Pay and Benefits Bulletin 465, February 1999.

²⁶"American Express: 3% merit budget", Pay and Benefits Bulletin 498, June 2000.

²⁷"Integrating pay and benefits at NAG Europe", Pay and Benefits Bulletin 511, January 2001.

²⁸Reported in "Public sector pay awards above inflation", Pay and Benefits Bulletin 515, March 2001.

²⁹"Department of Social Security: merit awards suspended", Pay and Benefits Bulletin 509, December 2000.

³⁰"Employment service: awards worth 4.33%", Pay and Benefits Bulletin 509, December 2000.

³¹"HM Treasury: 5.1% average merit award", Pay and Benefits Bulletin 509, December 2000.

³²"Nationwide Building Society: 4.18% pay pot", Pay and Benefits Bulletin 506, October 2000.

³³"Co-operative Bank: 3% interim pot", Pay and Benefits Bulletin 496, May 2000.

³⁴"Ministry of Defence: 4.5% average performance award", Pay and Benefits Bulletin 490, February 2000.

³⁵"Broadbanding delivers change at the Post Office", Pay and Benefits Bulletin 494, April 2000.

³⁶"Feel the width", Michael Armstrong, People Management, 3 February 2000.

³⁷"Nationwide families", Pay and Benefits Bulletin 495, May 2000.

³⁸"Co-operative Bank Service Centres: new reward structure for call centre staff", Pay and Benefits Bulletin 478, August 1999.

³⁹"Serving up a new business structure at Kellogg", available at www.haypaynet.com/paytalk/country.asp?_file=uk\ News_Detail/Kellogs.html

⁴⁰"Severn Trent Water: 3.5% pay award", Pay and Benefits Bulletin 503, September 2000.

⁴¹"Delphi looks to multi-skilling for the cutting-edge", Employee Development Bulletin 113, May 1999.

⁴²"Hurdles and incentives at Vertex Data Science", in Personnel issues in call centres today - the IRS report, October 1999.

⁴³Competency & Emotional Intelligence, annual benchmarking survey 2000/01.

⁴⁴"Competency-related pay for teams: Pet Plan Group", Competency & Emotional Intelligence, vol 8 (1), Autumn 2000.

⁴⁵"Hardwriting competencies to grades, pay: The Royal Bank of Scotland", in "Employers' practice in using competencies for pay, progression and grading", Competency & Emotional Intelligence, vol 7 (1), Autumn 1999.

⁴⁶""Terex Equipment: new two-year deal", Pay and Benefits Bulletin 495, May 2000.

⁴⁷"Hazardous conditions slow down pay in motor industry", Pay and Benefits Bulletin 466, February 1999.

⁴⁸"Eaton Transmissions UK: inflation-linked rises", Pay and Benefits Bulletin 492, March 2000.

⁴⁹Pay and Benefits Bulletin 495, May 2000.

⁵⁰"Ford Motor Company: three-year deal for staff", Pay and Benefits Bulletin 495, May 2000.

⁵¹Inland Revenue Statistics.

⁵²Employee share ownership research, Proshare 1998.

⁵³"Financial participation", IRS Management Review 11, October 1998.

⁵⁴John Lewis Partnership press release, March 2001.

⁵⁵A piece of the action: employee ownership, equity pay and the rise of the knowledge economy, Charles Leadbetter, Demos (1997).

⁵⁶e-pay: the UK study, SCA Consulting and Futurestep, May 2000.

⁵⁷e-people, e-pay, e-employment and HR issues, Hay Management Consultants, January 2000.

⁵⁸"Oracle's software selection", Pay and Benefits Bulletin 500, July 2000.

⁵⁹"The joy of flex", Pay and Benefits Bulletin 502, August 2000.

⁶⁰Just pay, Equal Pay Task Force, a report to the Equal Opportunities Commission (2001).

⁶¹Employment minister Tessa Jowell, 27 March 2001.

⁶²Employers and equal pay, survey report, Chartered Institute of Personnel and Development, March 2001.

⁶³"And on the agenda is ... ", Pay and Benefits Bulletin 504, September 2000.

⁶⁴Pay and Benefits Bulletin 518, April 2001.