MASTER OF BUSINESS ADMINISTRATION

SEMESTER 4

COMPENSATION AND BENEFITS

Unit 14

Reward Management in Service Sector at

Micro Level

Table of Contents

SL No	Topic		Fig No / Table / Graph	SAQ / Activity	Page No
1	Introduction		-	-	3
	1.1	Objectives	-	-	3
2	Concept of Reward System in Service Organisations		-	1	4 - 10
	2.1	Need for reward system	-	-
	2.2	Types of rewards	-	-
	2.3	Optimise the Benefits of a Rewards and Compensation Strategy	-	-
3	Elements of Reward System		1	2, I	11 - 14
4	Designing Reward Systems		2, 3, 4,	3	15 - 18
5	Recognising and Rewarding Service Excellence		-	4	19 - 22
6	Reward Strategy and Performance Management in Insurance Company		-	5, II	23 - 25
7	Summary		-	-	26
8	Glossary		-	-	27
9	Terminal Questions		-	-	27
10	Answers		-	-	28 - 29
11	Case Study		-	-	30 - 32

1. INTRODUCTION

In the earlier unit, you studied the concept of reward management for service sector at macro level where you concentrated on the topics of reward management definition, its policies and strategies and the total reward approach etc.

As you know that success of service organisations around the world depend on the capabilities, performances and proficiencies of their employees. A firm thrives only when it provides its customers the required and right kind of services. The question that you need to answer here is how to ensure that there are right people doing right things at right cost for serving the customers seeking the benefits of your services. Organisation use the concept of Reward Management to keep its people connected, engaged and productive. This unit concentrates on the micro concepts of reward management designed at firm level to meet various objectives of a service organisation.

In this unit, you will analyse the concepts of reward system and its elements, the process of designing reward system, the ways of recognising and rewarding service excellence.

1.1 Objectives:

After studying this unit, you should be able to:

❖ Discuss the concept of reward system

❖ List the various elements of reward system

❖ Describe the process of designing reward system

❖ Discuss about the recognition and rewarding of service excellence

❖ Explain reward system in Insurance Company

2. CONCEPT OF REWARD SYSTEM IN SERVICE ORGANISATIONS

Reward management for service firms as stated in the earlier unit is concerned with the processes, strategies and policies which are needed to make sure that the service rendered and contribution made by the employees to the firms is determined and recognised by way of monetary and non – monetary means. The main objective of reward system in a service organisation is to reward people consistently, fairly and equitably as per their worth and values to the firm so as to attain the strategic goals of the organisation in providing efficient services to its customers.

Rewards such as fringe benefits, pay, promotions and status symbols are important because the way they are given to people have a profound effect on the organisational effectiveness as well as on the quality of work life. Therefore, reward management helps the service providing organisations in:

• Motivating people to join the firms

• Motivating people to perform effectively and efficiently

• Motivating individuals by showing their responsibilities as per their position within the firm’s structure

• Motivating and retaining employees to continue to work

You may find two types of rewards in the organisation which are necessary for generating the satisfaction in job with respect to performance.

2.1 Need For Reward System

An efficient reward system well placed in an organisation serves several purposes in a service organisation. These are:

1. An effective reward system helps a firm operating in service industry to be more competitive, to retain key employees and also helps in reducing the turnover.

2. It also enables an organisation to enhance the motivation of employees and to reinforce the organisation’s image in mind of its key stakeholders and prospective employees.

3. Retaining best and brightest employees stands as a tedious task for managers specifically in public sector service organisation where limitations are imposed on providing financial rewards with flexibility.

4. Moreover, retaining efficient employees through effective reward system saves money on retaining cost.

5. It also improves consistency of services and allows development of strong relationship between customers and the organisation.

6. It also reduces absences in the organisation that cause innumerable problems for the managers.

7. An effective reward system can also improve employees’ performance.

8. An effective utilisation of rewards also motivates employees to gain new knowledge and skills necessary for their self and organisational growth. It can also result in enhancing their desire to continue being part of the service firm.

9. Affective commitment that is when an employees does not only shows up to work but also is excited to be part of organisation, can be strengthened using an effective reward management system.

10. Finally, reward system also helps in reduction of recruitment efforts.

2.2 Types Of Rewards

In a service organisation an essential part for the management is to understand how employees perceive and value different rewards. Therefore, information about following types of rewards must be essentially communicated:

1. Extrinsic versus intrinsic rewards: Extrinsic rewards can be defines as the external rewards that are tied to certain employees behaviours, time, skills or roles played in an organisation. Employee’s perception about these rewards determines the effectiveness of their performance. Therefore a manager must understand how much value every single employee places on these specific extrinsic rewards.

However, in designing the rewards the manager must see its effectiveness to motivate employees.

Example: If you give opera tickets to an employee who hates seeing opera show will not act as motivator but giving him football match tickets if he is a fan of football game will surely be a biggest extrinsic motivation for him.

Intrinsic rewards are those rewards which do not have an obvious external incentive that is the employees do not perceive these as tangible rewards whether it is in form of time off or money rather they are rewards which provide a sense of internal satisfaction to employees. Intrinsic rewards compared to extrinsic rewards are often highly valued and tend to be more effective overtime. Intrinsic rewards are associated with employees feeling good about the job that they perform, the efforts put forward by them or the role played by them in a project. Intrinsic rewards in service industry come from the job itself therefore a manager must aim at enrichment of the jobs thereby resulting in employee satisfaction.

2. Monetary versus non-monetary rewards: Monetary rewards are the most common form of rewards given in the form of increase in pay, bonuses or benefits such as health care premiums or pension.

Monetary rewards are divided into the following two categories:

❖ Direct compensation: It consists of increase in hourly pay, increase in salary, merit pay based performance, seniority pay based on time with family and bonuses on the basis of achievements by individual, group or organisational objectives.

❖ Indirect compensation: It includes increases in benefits or additional benefits like a dental plan. It may also include paid leave in form of vacation days, days off for training or a longer time off, paid leave for illness or child or elder care, a gym or games room and confidential counselling for employees engaged in providing services and their families.

On the other hand, you can call non-monetary rewards as the rewards which directly do not improve the financial position of the employees but result in motivating them to yield high performance. Providing employee with a new high-end laptop or providing excellent training facilities to sales person, a good office location, choice of furnishing, specialised parking places etc are all examples of non-monetary rewards. These nonmonetary rewards are often visible rewards ad may result in creation of inequality among employees ad therefore must be strategically planned.

3. Performance base versus membership based rewards: Performance based rewards as the name suggests are rewards tied to the ability of an individual, group, team or an organisation to meet some pre¬determined standards of performance. Such rewards are based on evaluation of contribution and are thus, allocated on the basis of such evaluation.

Membership based rewards are the rewards which are provided to employees solely for being part of a group or team within a service organisation. Cost of living and support for equity policy are few examples of such rewards. Membership based rewards are often attached to the length of time with organisation.

Example: After spending say seven years in the debt collection department a certain percentage of increase in pay or other benefits may be done.

4. Non-Traditional Rewards: The importance of use of non-traditional rewards in service industry is growing day by day. Time is often considered as a key constraint and for many service sector employee work is also a major time commitment. Ways in which employees individualise their work schedules have become an important reward. The non-traditional rewards thus include:

❖ Reduced work week

❖ Staggered daily schedule

❖ Flextime

❖ Working from Home

2.3 Optimise the Benefits of a Rewards and Compensation Strategy

The main objective of compensation strategy is to give the right rewards for the right employee behaviors. Compensation is an important motivator when you reward achievement of the desired organizational results. There are not many second chances in running an organization. A misstep can cost thousands of dollars to correct. For instance, not setting up your compensation strategy correctly can mean you’re not able to attract the talent you need. By contrast, your overall rewards and compensation strategy is one area where you get a second chance. Many organizations set up an employee rewards systems after they set up a wage or salary system. But, by coordinating the two into a comprehensive rewards and compensation strategy, you can boost your profits and workforce productivity. Even better, by implementing an employee rewards system you get a second chance to optimize your overall compensation package. Keep in mind that some employee rewards systems are surprisingly cheap –even free. As organization people, we have the same motto in common: free is good.

Many organizations set up an employee rewards systems after they set up a wage or salary system. But, by coordinating the two into a comprehensive rewards and compensation strategy, you can boost your profits and workforce productivity. Even better, by implementing an employee rewards system you get a second chance to optimize your overall compensation package. Keep in mind that some employee rewards systems are surprisingly cheap - even free. As organisation people, we have the same motto in common: free is good. Compensation strategies can reinforce the organizational culture that you desire. This is an enabling organizational culture under which pay is linked to performance. By providing the right combination of benefits which are non-cash compensation your organization can motivate employees and make them stay to help in its progress.

Case Let

Employee Service Awards Program:“Iowa Telecom’s Personal Touch”

Iowa Telecom is the second largest local telephone company in Iowa. They work hard to provide their customers with reliable dial tone, long distance and Internet services every second of every day. They provide telephone service to over 440 communities across the state. Their 600 + trained professionals are working across the state to provide reliable service with a personal touch That personal touch is not only conveyed to their customers, but to their employees as well. With the large number of employees and diverse

interests they have, Iowa Telecom was faced with trying to consolidate their service anniversary awards program, to a streamlined, single awards program. After considering a variety of different awards, Iowa Telecom decided to utilise Springbok’s prepaid Service Awards MasterCard.

Since the fall of 2002, Iowa Telecom has been awarding their employees for length of service, celebrating the employees’ anniversary during the month it occurs. Each calendar year, an employee file is sent to Springbok to manage the program and order the prepaid MasterCard. Orders are placed for people whose anniversaries are in the following month.

That schedule, gives Iowa Telecom plenty of lead time to verify the employee’s status and provide payment for the order. Orders are fulfilled and the prepaid MasterCard cards are bulk shipped to Iowa Telecom’s human resource department. They utilise the “service awards” branded card to reinforce what the incentive is for and the card is personalised with the employees name for that special recognition.

To show appreciation to these loyal employees, Iowa Telecom President, Alan L. Wells, includes a letter of appreciation acknowledging the employees loyalty for service. This personal touch is consistent with the pleasant work environment and efforts to recognise and reward employees for their achievements.

The program has been running over 4 years and employee feedback has been positive with regard to receiving the prepaid MasterCard card as it provides them the flexibility to choose their own reward by purchasing what they want, from millions of places, wherever MasterCard debit cards are accepted.

3. ELEMENTS OF REWARD SYSTEM

The elements of reward system and the interrelationships between them are shown in figure 14.1 below:

Figure 14.1: Elements of Reward System and their Interrelationships

The various elements of reward system which are interlinked with each other as shown in the figure are as follows:

1. Business strategy: The first element of reward system is to establish the strategy for business which sets out the objectives of the firm and identifies business drivers. These drivers include innovation, high performance, customer service, profitability, quality; cost/price leadership, high performance etc.

2. Reward policy and strategy: Reward policy covers the matter such as attaining equal pay, use of job evaluation, levels of pay, market surveys, flexing incentives, contingent pay approaches etc. The strategy of reward flows from the analysis of business drivers which define long term intention in the areas like employee benefit, pay structures etc.

3. Basic pay: Basic pay is the fixed wage or salary which constitutes the rate of job. It may differ as per the job grades; degree of competencies required etc. which are expressed in hourly, weekly or annual rate.

4. Contingent pay: It is an extra monetary reward which is added to the basic pay such as cash bonuses which are described as variable pay.

5. Employee benefits: Employee benefits comprise of insurance cover, pensions, company cars, sick pay, annual holidays etc.

6. Allowances: Allowances are compensated in addition with the basic pay for a special condition such as living in New York, etc. or features of employment like working unsocial hours. Main types of allowances are overtime allowances, location allowances, stand out or call by allowances, working condition allowances, shift payments, etc.

7. Total earnings: It is also known as monetary rewards and comprises of the value/worth of all the cash payments.

8. Total Earnings = Basic Pay + Allowance + Contingent Pay

9. Total remuneration: It comprises of the monetary rewards which are depicted by value of benefits received by employees in addition with total earnings.

10. Job evaluation: It is systematic process of identifying the relative value of the job within the firm so as to create internal relativities and give the basis for developing and designing an equitable structure of grade.

11. Market rate analysis: It is a method of recognising similar pay rates in the labour market so as to inform decisions on pay levels and pay structure within the firm.

12. Pay and grade structure: The pay structure is influenced by the market rates and the pay range is attached to the grades which gives the possibility of pay progression based on his/her service, contribution, performance and competence.

13. Performance management: It defines individual performance and contribution expectations, assess performance against those expectations, provide for regular constructive feedback, and result in agreed plans for performance improvement, learning and personal development.

14. Non–financial rewards: This type of element arises from the work itself such as autonomy, achievement, opportunities for career development, recognition, high quality leadership etc.

15. TOTal reward: It comprises of monetary as well as non–monetary rewards which are given to the employees.

4. DESIGNING REWARD SYSTEM

The overall framework of the performance relies on the design of the appropriate reward system around the overall performance of the employees. This is regarded as one of the motivating part where you may find the combination of both the human capital and actual knowledge so as to give the best possible outcomes.

Most of the compensation packages comprise of the components of long-term benefits which you may find either in cash or which are linked to the share price performance. Further, this can be given either directly by issuing or granting shares or indirectly through call options.

The main issue in designing a good compensation structure is to ensure that the sum of all the reward packages of an individual may lead to the desired behaviour. Thus, the following figure 14.2 depicts the broad procedure of the reward system of an organisation:

Figure 14.2: Diagram of Reward System

A good information system, which assigns performance to different segments of the firm, must hold the means to attain the targets for the success of the management. Such system allows a significant segmentation of the overall performance and targets.

Therefore, a reward system, which offers various benefits in order to meet the targets allotted by the organisation, plays a vital role for the framework of the overall performance management.

A research conducted by the Charted Institute of Personnel and Development on rewarding customer service staff in UK took 18 moths and encompassed 15 organisations and 22 locations in UK consisting of variety of industries and sectors like banks, building societies, insurance companies, telecom firms, utilities etc. This research provided an insight to Rewards and HR practices. The research showed the following pay patterns for managers and customer staff:

Table 14.1 Pay Patterns for Managers and Customer staff

Most of the employees got the opportunity to progress their base pay on the basis of their performance or competencies. Moreover all forms of performance related pay and recognition scheme were used to increase performance by high-performance organisations. The best firms recognised that when it comes to providing outstanding services staff perception and management reward practices are important. This stud also provided a summary of relationship between HR and Reward Policies, employees attitude and customer service performance as stated in figure 14.3 below:

Figure 14.3: Relationship between HR and Reward Policies, Employees, Attitude and Customer Service Performance

Example: Reward system in KPMG is its important ingredient to recruit and retain right people and increasing their motivation. Their reward system includes:

• Base pay

• Short-term incentive like performance related bonus

• Long-term incentive like stock option plan

• Benefits like pension schemes, medical programs, cards and cars etc.

5. RECOGNISING AND REWARDING SERVICE EXCELLENCE

With the beginning of Industrial and Commercial organisations, development of a wholeheartedly and enthusiastically supportive workforce has always remained a key issue for managers. This quest has become even more important in modern service organisation which faces a dynamic and costly workforce and demanding customers.

In forming an effective reward system, the service organisation aims to find the answers to the following questions:

• How to create a committed and motivated workforce?

• Who should be rewarded and recognized – individual, team or company as a whole?

• Why to recognise them – For providing improved customer service or outstanding performance?

• When should the rewarding be done – should it be a continuous process or on a oneoff?

• What form it should take – financial or non-financial?

• How to administer the reward scheme – what should be the method of providing rewards and recognitions?

Now you will understand with the help of practical exercises, the criteria for rewarding the employees for their good service in the firm are as follows:

1. Analysing and surveying of staff: Conducting the surveys is regarded as one of the most critical challenge for the firms when it comes to motivate their employees. For this the firm must deeply understand their employees as well as their culture. Thus for this, they have created “Culture Critique” by using the staff focus groups and also oneto-one interviews for both current and existing employees.

Example: Lloyd’s Broking Group, despite having major growth in its business, initiated its employee survey so as to assess the unease among its staff members. The main reason for this is the poor channel of communication which was determined as a demotivator among managers, employees and even between different operating divisions. Here, the employees realised that their managers must show:

❖ More understanding

❖ Identify, recognise and reward the hard work

❖ Improve working environment

❖ Promote team spirit

❖ Provide fairer and clear working conditions

Over the next four years, objectives were made to survey likes and dislikes so as to form an agenda for the action plan. Thus, follow-up questionnaire showed the drastic change ad improvement in communication as well as more consistency and unity is shown among the staff members.

2. Build up a checklist of service quality: As checklist may differ from firm to firm according to their size and internal factors, today many firms are using Business Excellence model as a diagnostic tool. This tool helps the organisation in showing how the customer satisfaction is linked to people issues.

Example: A financial services call center had the following practical criteria which are as follows:

❖ Demonstrated knowledge staff

❖ Delivery against promise

❖ Response to their customers

❖ Quality and speed of resolution of issues

❖ Translating the needs and requirements of their customers into action

❖ Written correspondence against the defined time scales

3. Creating a motivational environment by providing training to the managers: Many service organisations provide training to their managers in motivation and leadership with the help of following five steps:

❖ Making the workplace fun

❖ Providing the specific and copious recognition for the task which employees perform

❖ Offering targeted and frequent rewards

❖ Making communication influential and credible

❖ Rewarding the loyalty of employees

4. Giving positive feedback: A ‘well done’ and ‘Thank you’ from managers is very influential for the employees than token or monetary reward.

Example: FedEx rigorously champions managers as servicing their employees to service the customer.

5. Establishing a league table of service performance: Nowadays many organisations especially retailers such as Pizza Hut use survey for their customer satisfaction as well as use mystery shopping so as to examine their outlet’s performance. Pizza Hut brings out the outcomes in league tables of customer service performance and finally feedback the outcome to the restaurant within five days. . The most successful are those where appreciation is given not just to the top performer employees but also to those employees who make the best improvements over time in their firm.

6. Feedback to the compliments and comments of customers: Kwik-Fit keeps a customer correspondence folder in each Depot reception area, publicizing positive letters customers has written. It rings up customers on a daily basis and publicises the results internally.

7. Issue Achievement Certificates: An achievement certificate such as token award can become highly prized when employees achieve defined standards of customer service and skills level.

8. Link Bonuses to customer satisfaction: Not only for the managers but also for the service staff, bonus payment which is a variable element becoming a very vital component of organisations. Bonuses are often linked to the Profit Achievement.

9. Implement 360 degree appraisal method: As satisfied customers are closely linked to the satisfied employees, many firms are encouraging input by employees as well as customers into a manager’s all round 360 degree feedback.

10. Develop customer service competencies as well as include customer service in performance management: The first step in setting out well-defined development and improvement targets is to define the service competencies. Customer Service is becoming more widespread as a valuable transferable qualification. Customer service is also regarded as a key measurement in performance appraisal.

Example: Sales assistants are assessed on two critical competences, being pro-active in

securing sales and building positive relations with customers.

6. REWARD STRATEGY AND PERFORMANCE MANAGEMENT IN

Insurance companies follow different policies in terms of fixed and variable pay to reward its employee’s performance. Typically, in insurance sector, most of the firms follow a particular type of basis for giving fixed pay bonus, long-term and variable pay. There are some firms which give a very high fixed pay, selected long-term and no bonuses.

However, you can also see some companies giving sharper variable pays. Most of the insurance firms give fixed pay and incentives linked to performance in India, especially for the areas of sales management. Performance incentives are linked to individual performance.

Example: ICICI prudential follows a policy of performance bonus for building quality organisation and the decisions to choose between team-built firms or internal competition, lies with the employees.

For most of the Insurance companies, the wage count in terms of fixed and variable pay is 30-40% of total operating expenses. Many of the firms have not even reached their breakeven point. Therefore, operating cost being a big element of the total cost creates a significant pressure on HR and firm to drive maximum value from this. With increase in wage cost profitability is hit.

Therefore, you can find firms following a balanced strategy of fixed pay being used to attract talent but retention can be gained using long-term pay only. ICICI prudential has moved to long-term and deferred cash creating a pressure on total wage cost, thus, creating a balance between fixed and long-term pay and performance variable. Since firms will not reduce or give increments, people will have to maximise their productivity.

The components of non-cash compensation are also regarded as rising components as these components are not so much expensive but yet you may find some benefits attached to it.

Many firms are nowadays offering medical benefits to their employees and their families and as medical premiums up to 20%. Due to this, many firms are adopting and designing ‘co-pay’ options where one part is paid by the organisation while other part is paid by the organisation. As the policies of HR is becoming more benefit-oriented and also will recognise the relevance of flexibility such as continuing education, sabbaticals, etc.

Therefore, now it is up to the firms to think about creating the schemes which will enable long time retention of employees. You can see one change in terms of more comfortable and relaxed norms for women staff for maternity. Hence, the organisation faces a huge loss of talent pool if there is no flexibility with respect to leaves for marriage, maternity, etc.

Organisations these days are using two types of vendors to whom they are outsourcing their services. These are:

• Pay consultants

• Payroll processing

Thus, while assessing the performance management along with rewards and recognition, the organisation should be transparent and fair. A person cannot bring in rewards without talent management and performance. The challenge is the perception of fairness. Thus, the main objective of any insurance company is to minimise the biases to a large extent.

7. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• Reward management for service firms is concerned with the processes, strategies and policies needed to make sure that the service rendered and contribution made by the employees to the firms is determined and recognised by way of monetary and nonmonetary means.

• Rewards such as fringe benefits, pay, promotions and status symbols are important because they have a profound effect on the organisational effectiveness as well as on the quality of work life.

• In a service organisation an essential part for the management is to understand how employees perceive and value different rewards which can be extrinsic, intrinsic, monetary, non-monetary or non traditional rewards.

• Business strategy, reward policy, basic and contingent pay, allowances, earnings, market rate analysis and performance management etc are various elements of reward system which are interlinked with each other.

• The overall framework of the performance relies on the design of the appropriate reward system around overall performance of the employees.

• In insurance sector, most of the firms follow a particular type of basis for giving fixed pay bonus, long-term and variable pay. There are some firms which give a very high fixed pay, selected long-term and no bonuses.

8. GLOSSARY

Contingent pay: It is an extra monetary reward which is added to the basic pay such as cash bonuses which are described as variable pay.

Financial reward: It is a payment which is linked with a job that is offered on timely basis that is hourly, weekly, monthly or yearly.

Non-financial reward: It is a form of non cash reward which is given in the form of recognition, praise, autonomy, higher responsibility, personal and career development.

Reward: It refers to rules, procedures and standards which are linked and associated with the benefits and pay of the employees.

Work life: It is a specific set of firm’s policies, practices, programs and philosophy which actively support the hardships and effort of employees so as to help them to achieve success both in professional as well as personal life.

9. TERMINAL QUESTIONS

1. Write a note on the concept of reward system.

2. Why do service organisations need an effective reward system?

3. Differentiate between extrinsic and intrinsic reward system.

4. Explain the different elements of an effective reward system.

5. Write a note on reward system in Insurance Company.

6. What Kind of workforce and customers does the Modern Service Organisation have?

10. ANSWERS

Self Assessment Questions

1. Reward System

2. True

3. (a) Extrinsic

4. Business Strategy

5. True

6. (a) Contingent pay

7. 1:E ; 2:G; 3:I ; 4:K; 5:H ; 6:L ; 7:D ; 8:M ; 9:C; 10:N; 11:B; 12:J; 13:A; 14:F

8. False

9. Long-term Benefits

10. (d) Both (a) and (b)

11. Measures; Attributes

12. (d) Issue Achievement Certificates

13. Business Excellence Model or Diagnostic Tool

14. False

15. Fixed and Variable

16. True

17. (d) Both (a) and (b)

Terminal Questions

1. Reward management for service firms is concerned with the processes, strategies and policies intended to make sure that the service rendered and contribution made by the employees to the firms is determined and recognised by way of monetary and nonmonetary means. For more details, refer to section 2.

2. An effective reward system helps a firm operating in service industry to be more competitive, to retain key employees and also helps in reducing the turnover. For more details, refer to section 2.1.

3. Extrinsic rewards are the rewards tied to certain employees behaviours, time, skills or roles played in an organisation whereas Intrinsic rewards are associated with employees feeling good about the job that they perform, the efforts put forward by them or the role played by them in a project. For more details, refer to section 2.2.

4. Business strategy, reward policy, basic and contingent pay, allowances, earnings, market rate analysis and performance management, etc. are various elements of reward system which are interlinked with each other. For more details, refer to section

5. Insurance companies follow different policies in terms of fixed and variable pay to reward its employee’s performance. For more details, refer to section 6.

6. . The mordern service organisation as dynamic and costly workforce and demanding customers.

11. CASE STUDY

Crown Estate New Total Reward Scheme

Crown Estate is a public body and has a dual role as both guardian of some of the UK’s most important land and as a revenue generator for HM Treasury. This single organisation is responsible for managing over £6 billion worth of land in the UK including Regent Street in London to Windsor Great Park, Portland stone mines in Dorset and agricultural estates in Scotland as well as extensive marine assets.

Valerie Burns, Head of Human Resources explains: “In late 2006 we were experiencing recruitment problems because our reward packages did not reflect the job markets in which we were operating. We had a very traditional public sector pay model which was generalist and inflexible – it simply didn’t allow us to attract and retain the calibre of people we needed to meet our business objectives.” Burns tasked her Remuneration Committee with agreeing a way forward that would lead to a more market oriented reward structure.

They concluded this would require nothing less than a complete reworking of base pay, performance management, bonus, pension and benefits, terms and conditions. “Our strategy,” says Burns “was to redistribute the reward budget rather than increase it. We were spending too much on pension and benefits and not enough on salary and performance incentives.”

Burns initiated a competitive tender to recruit third party assistance as she had neither the resources nor the expertise to execute a project of this scale internally. “We selected Innecto based on their track record of working in both the public and private sector and the confidence they gave us of understanding our needs and what was required to achieve them. Theirs was the only presentation that gave us clear advice on the sheer momentum required to make this project successful.”

Looking at the scale of the project, The Crown Estate HR team and Innecto agreed a phased approach was best. Innecto Director Justine Woolf says: “At the time, this was probably the most complex reward review we had ever considered. Our task was to produce a single reward strategy that could be applied to people working in very different environments and job markets –the difference between the reward requirements of the property management team based in London and Edinburgh are a long way removed from the estate workers who tend woodland or agricultural land. Dividing the project into three phases allowed us to focus on each sector of employment separately and clearly.”

The unique culture of The Crown Estate also presented some interesting challenges. The organisation has three core values: Commercialism, Integrity and Stewardship. With Commercialism rising to prominence, it was important that the other values weren’t sidestepped and would need to be built in as modifiers to the performance management system, for example.

Over the next two years, Burns and Innecto looked at job descriptions, carried out job evaluations and benchmarked against the relevant markets. The result was a total reward programme that included a new pay structure based on a job family framework, a new performance management system linked directly to a new bonus scheme, new pension arrangements and a revised benefits package. The decision was made to create two separate reward packages: one for existing employees, and one for people joining in the future. This meant that The Crown Estate could continue to honour existing pension arrangements and benefits, terms and conditions for current staff while introducing sustainable and more affordable options for new joiners.

At launch, we created an internal brand for the new reward packages with a unique design and colour coding for each area which allowed us to present complex information clearly to help employees choose which of the two reward packages suited them best. All employees were invited to a presentation by the Chief Executive to explain the new packages and were given a handbook to take home as well as a personal letter outlining their own individual position and options. Managers were given training and question and answers to support them in their important role communicating the new structure to their direct reports.” The investment in employee engagement paid off.

Now largely complete, the new total reward scheme is proving to be successful. Valerie Burns says: “It’s been hard work but we are now able to recruit with no difficulties as we are consistent with the commercial markets. It’s also given us a degree of flexibility we didn’t have before. I’d like to thank Innecto for their expert knowledge, project management, technical skills and sensible pragmatic advice which all contributed towards a successful outcome.”

Questions:

1. Identify the weaknesses of reward system followed by Crown Estate during late 2006.

2. Comment on the 3 core values of Crown Estate affecting its reward strategy.

3. Critically analyse the new reward and performance management strategy at Crown Estate.

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compensation and benefits MBA Semester 4 ( reward management in service sector )