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«Cambridge University: Philip Stiles and Jonathan Trevor Erasmus / Tilburg University: Jaap Paauwe and Elaine Farndale Cornell University: Patrick Wright ...»

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23 / 52 With the exception of very few companies, all companies within the sample employ a variety of performance based pay systems to drive complementary behaviours and motive employees towards goal achievement. Less clear as a leading practice is the deliberate linking of individuals pay to performance or the linkage of pay to division and / or company performance. Existing evidence suggests that incentives are most powerful when individually based allowing for a clear line of sight between the individuals goals and the performance pay outcomes. However, a number of case study firms, including Oracle, BAE Systems, Unilever, Infosys, Samsung, TCL, Matsushita and Shell, have found establishing the individual performance pay linkage especially problematic. Indeed, gearing variable pay to individual performance alone requires extremely robust performance management systems, the risk being that the incentives encourage the wrong type of behaviours (i.e. those not conducive to business performance or those deemed not-in-line with organisational values) or becomes a demotivator, discouraging productivity and performance. Moreover, the sole focus on individually based incentives does not establish a line of sight with overall company performance. Accordingly, the majority of the firms within the sample are moving towards using incentives emphasising not purely individuals’ performance, but also team, divisional and company organisational performance (though the survey revealed that the linking of pay to team or group based performance was relatively low at present – see Table 4). As such, these incentives align individuals to a number of meaningful performance measures and encourage a focus on performance at multiple-levels of the organisations. However, collectively based incentives e.g. based on company performance outcomes, may serve more as means of communicating what’s important to the organisation in performance terms e.g. overall corporate performance, rather than acting a directional tool through which management are able to elicit specific behaviours. The use of collectively based incentives also serves to reduce or, in rare cases, remove the fixed costs of employing labour. By making a degree of employee compensation the fixed costs of nonvariable pay are mitigated. Operating on the basis of mutuality and typically emphasising the notion of ‘shared responsibility’, employees stand to do well if the firm performs well and vice versa.

Similarly, all firms offer a package of incentives comprising both short and long term incentives for middle to senior management and the executive population. Long terms incentives are typically geared around measures such as total shareholder return, earnings per share and other measures of shareholder values as opposed to corporate financial measures such as net sales value, profit etc. Approximately two thirds of firms within the case study sample also offer variations of a generic model of all employee share ownership programme (AESOP). AESOP typically allow employees to purchase company stock at a reduced rate or on the basis of ‘buy one get one free’ i.e. corporate contribution.

Whilst the majority of variable pay schemes applied to particular occupations e.g.

sales force pay, or levels of employee e.g. executive, case study firms Infosys and TCL offer separate variable based reward schemes for high potential candidates and functional experts.

Market benchmarking and positioning

24 / 52 Where pay is not collectively bargained, as is the case for managerial grades in some Western European and Japan for white collar and junior managerial grades, pay is in all cases benchmarked against a defined labour market or industry peer group. Firms within the sample choose to either typically benchmark specific measures of pay e.g.

base pay and bonus opportunity, or benchmark the employee’s package overall on the basis of total cash compensation (all cash elements of the package combined) or total remuneration (cash and the private market value of equivalent benefit purchase).

Depending upon the emphasis placed upon variable pay as a proportion of pay, the majority of firms choose median competitive market pay for clerical and junior to middle management grades and upper quartile market competitive pay for senior management and executive levels.

Total rewards models

Approximately half of the organizations within the sample use a total rewards model that is articulated in corporate communications as a cornerstone element of the overall employment proposition. The total rewards model typically emphasise not only financial rewards such as base pay, incentives and benefits, but also elements of the employment proposition such as career advancement, learning and development opportunities, stimulating work and the working environment. The underpinning philosophy is that financial rewards are easily replicable by competing firms, the inclusion of additional non-financial opportunities renders rewards relatively immune from emulation. Moreover, the conscious bundling of both financial, development and environmental elements of the employment package is recognition that such an approach is needed in order to attract and develop top talent. In essence, financial rewards alone are not enough.

These additional opportunities, however, requires that the organisation provide centrally determined interventions e.g. development opportunities, where such practices where largely locally determined in the past. It is also recognition that these elements of the employment package are perceived to have the greatest value to potential and existing employees, and the organisation therefore, when bundled and coherently articulately. Whilst it has been noted that all firms within the sample use multiple pay interventions, the degree to which these various individual interventions are integrated into one coherent bundle of complementary measures, is not so widespread.

Flexible benefits

A key element of most total rewards models', the use of flexible benefits is becoming more and more widespread and reflects the move towards greater transparency of benefit provision, economies of scale and cost effective benefit provision and, above all, the injection of personal choice into employee pay and benefit provision.

Typically administered by a third party on behalf of the employer, flexible benefits programmes typically comprise a series of benefits options offered in a ‘cafeteria style’ format. Thus, eligible employees (which are typically all employees) are provided with an array of benefits from which to choose and choice over the level of chosen benefit they wish to receive. In all cases, case study firms offer a standard level of benefit provision centred around core benefits such as pensions, ill-health and death in service benefits.

25 / 52 In BT, Siemens and P&G, employees themselves choose the type and level of flexible benefit they receive via a self completion e-form hosted on a dedicated flexible benefits company intranet site. Again, the emphasis is on the individual taking responsibility for his / her choice of benefits, the presumption being that the employee will choose a combination of benefits that bets suit his or her lifestyle circumstances, therefore the making benefits package offered that much more meaningful. By outsourcing the flexible benefits management to dedicated firms, employers are able to take advantage to the supplier’s expertise, efficiencies (i.e. economies of scales and bulk purchaser agreements) and technology.

Line management takes a direct role in the design and determination of pay policy in IKEA. Using reward to establish a line of sight between corporate objectives and individuals’ goals and to reinforce a high performance working culture, management within IKEA use pay very much as an HR tool. However, the emphasis on designing reward systems that best fit the local context, necessitating the active and continued involvement in the management of rewards – design and execution.

26 / 52


In the field of employee relations (ER), there is potential for both convergence and divergence of practices linked with the increasing degree of globalisation. From the perspective of multinational companies, this raises issues such as how to adopt ER ‘best practice’ across national boundaries; how to handle different trade union recognition patterns; what are the most effective methods of direct individual and collective communication to and from employees; and how to create a fit between employee relations policy and corporate goals and objectives. As companies continue to span different national boundaries where ER traditions differ, questions arise as to what approach should then be taken to employee relations in the host countries?

Equally, does the fact that companies operate across borders actually mean that patterns of ER are changing? In general, employee relations practices are probably the most difficult area of HRM to transfer across national boundaries because of tight national regulations. It is also an area in which corporate executives may have strong principled views, such as upholding the managerial ‘right to manage’ or a conviction in the importance of ‘employee voice’. In the sections below, based on the results of the study, we explore the specific areas of best practice in employee relations being adopted by our flagship multinational companies, and look in detail at responses to handling trade unions and employee communication, as well as considering how ER practices are designed to fit with corporate objectives.

Employee relations best practice

Although the notion of what is ‘best practice’ can be disputed across national boundaries due to the complexities of the national institutional context as described above, there are certain approaches to employee relations which are becoming accepted as good practice in academic and practitioner circles alike.

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4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50

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Table 5a: Extent of usage of employee relations best practices: percentages As can be seen from Table 5 and 5a, the most widespread use is made of reporting results of employee surveys back to the employees themselves, and of equal opportunities policies. Table 6 shows that these practices are seen as very effective by around three-quarters of the companies surveyed. Amongst the acknowledged best practices, formal no-layoff policies are least popular and are not seen as effective.

This might be expected given the particularly turbulent time in many national economies and a lack of ability to predict the future requirement for staffing in many companies. What may be slightly more notable is the second least widely used best practice: consultation with trade unions about significant strategic decisions. This is seen as an ineffective practice by 44% of the companies surveyed (see Table 2). The spread particularly of US MNCs across the globe has previously been identified as encouraging a non-union approach to employee relations which appears very much to be the case in the majority of the companies surveyed.

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Table 5b: Effectiveness of employee relations best practices for managing people Table 5b also shows that a number of practices are considered to be very effective, such as work/life balance and equal employment opportunities policies, direct participation of employees, as well as the feedback of employee survey results. These practices are somewhat innovative, recent approaches, which are perceived to be more effective than more established, traditional approaches such as consultation with trade 28 / 52 unions and other formal employee bodies. We might therefore conclude that in MNCs, the pattern of employee relations is changing. This may be because trade unions are mainly effective at the industry sector or national level, and so encounter difficulties in dealing with organisations which transcend these boundaries. In the following section we look in more detail at how companies are dealing with this complex issue of how to approach collective employee representation.

Trade union recognition

Three approaches to employee relations were discernable amongst the companies interviewed: unitarist, contingent and partnership. The unitarist approach, observed clearly in four of the case companies (Samsung, Oracle, Infosys, P&G), involves active non-unionism. The need to become unionised in these companies is being replaced largely by extensive direct employee communications channels, such as townhall meetings, newsletters, and intranet communications. However, P&G, for example, does point out that where legislation requires trade union recognition, this is the route that they will take, rather than an even more active anti-union stance taken, for example, by the well know case of McDonalds.

P&G could actually be classified as taking a more contingent approach to employee relations, however, in Siemens and ABB this contingent approach is more active as there is no central policy on union recognition: unions are only recognised where mandated by law. Siemens were also keen to point out the importance of having the correct HR manager in place to match the ER culture within a subsidiary in order to ensure relationships with trade unions are effective.

This is even truer of the case of the final approach to ER covered here: the partnership approach. BAE Systems, Rolls Royce, BT, IKEA, and Unilever all described their approach to ER as proactively and deliberately involving trade unions in management decisions which impinge on employee working life. Matsushita in Japan also emphasised the importance of developing a co-operative relationship with unions. In this partnership approach, the key to success appears to be the creation of trust relationships between management and trade unions. Examples of this relationship working successfully were found in BT, ABB, and EDF.

The extent of trade union membership and the coverage of collective bargaining agreements were explored in the online survey. The results shown in Table 6 show very low percentages of membership density and CBA coverage, again supporting the earlier finding that non-unionism or low representation is dominant. Where collective agreements are in place, for all grades of employees these agreements are most commonly made at country level (see Table 6).

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Table 7: Level of bargaining arrangements for employment terms and conditions One company, IKEA, found its own innovative solution to the trade union consultation and negotiation requirements being made of it in one particular host country, the Netherlands. In 1992, IKEA Netherlands was being pressured to work closer with trade unions, and at that time decided to establish its own workers association, known as WIM (Werknemersvereniging IKEA Medewerkers), which is not affiliated to the larger national trade union confederations. WIM currently has 2,200 members, compared with the main Dutch trade union FNV which has around 100 members in IKEA. IKEA negotiates the collective labour agreement with WIM on a national level, determining the minimum terms and conditions for all IKEA employees in the Netherlands.

The opportunities offered to companies of various approaches to employee relations have been recognised by a few of the companies interviewed in this study. In particular, the value of individuals participating in employee representative bodies is seen as a good development exercise. For example, in Siemens, works councils are viewed as an employee development tool for future management positions, and indeed a number of current board members were once employee representatives in these councils.

Other companies also recognise the importance of developing the skills of the employee representatives themselves, to ensure that they are effective negotiation partners. Shell provides union members with special training to improve their skills and opportunities for mobility or promotion within the company. In Unilever in the Netherlands, union and works council member training ensures the skills of the negotiating partners. In addition, the company provides funds to the main trade union to help increase membership levels to ensure the representativeness of this compulsory negotiating body1.

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