CIPD Podcast 17 - Rewarding performance

Date: 26/02/08 Duration: 00:22:25

In this podcast Adrian Furnham, Professor of Psychology at University College London, Charles Cotton,  John Marsden, Samantha Gee and Janet Fleming, specialists from various sectors and organisations, discuss issues in reward. These include trends in reward management, rewarding performance in tougher economic times and the psychology of reward. There is also an insight into the latest CIPD Reward survey.


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Philippa Lamb: Hello and welcome to the CIPD podcast series. In this programme, we’re focusing on reward. We’ll be hearing from rewards specialists from some very different organisations and sectors from the latest CIPD rewards survey. 
But first, we caught up with Adrian Furnham. He’s professor of psychology at University College London and an expert on psychology in the workplace. I asked him about the role reward plays in engaging and motivating people at work. 
Adrian Furnham: I think what a number of workers find is that there is a mismatch between what the organisation says its values are and, indeed, what the values turn out to be in terms of various forms of rewards. So, they’ll talk a great deal about work-life balance and then insist that you stay until the job is finished – that sort of thing. Now, the interesting thing about rewards systems is personal performance related rewards. That tends to have a serious effect on team work and so you’ll have a value like the organisation says team work is very important, cooperation and so forth, and yet the rewards system directly means that you’re likely to compete with your colleagues and so there is a good example of the values of an organisation and the rewards strategies being incompatible. 

PL: So how should rewards specialists respond to this, then? I see the problem, what’s the answer? 

AF: Well, my feeling is that organisations, when they put up their mission statements and values, pay a little more attention to what they really do and get some of those in alignment. I think some of them are just serious wish lists. It’s difficult for people who work in reward because it’s a complicated issue. There are many different features and factors associated with rewards and people do trade-offs. They will do less money for more time, higher status for less money or whatever and people will of course differ according to their age and stage and according to their levels. And so to come up with a simple, relatively effective reward policy is very problematic for individuals. And of course economies change all the time. As the economy appears to be going down, then certain things will be more important than others. You certainly need to be very flexible these days. 

PL: Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development is responsible for the CIPD’s annual Reward Management survey. He’s just finished this year’s report and many of the findings chime with Adrian’s assessments. I asked Charles about this year’s survey. 

Charles Cotton: I think one of the key findings is, to a certain extent, the disjuncture between what organisations are trying to do at the strategic, business level and what they’re actually doing at an operational level, when it comes to reward and benefit. So organisations are focusing on rewarding people according to their contribution, according to their performance, but few organisations are actually following that through when it comes to for instance carrying out an equal pay review. Similarly, many organisations in our sample had an employer brand, but when we asked organisations how well do your reward policies and practices support the employer brand the overall response was they were not sure or they didn’t think it particularly supported it. 

PL: So still quite a lot of evidence that people are doing the right things, but they are not joining them up within their own organisations. 

CC: Yes, it’s almost that you’ve got different realities. On the one hand, you’ve got the business reality, organisations looking at environmental policy, looking at employer branding. And then on the other hand you’ve got what’s going on in another reality, which is the day to day that the reward practitioners, the HR practitioners face. 

PL: What’s the answer here for HR practitioners? Obviously they only control their own area, don’t they? So how can they go about bringing everything together in that coherent way that you’ve just described. 

CC: Well, I think they need to adopt some kind of strategic approach to actually look at what the organisation is doing and look at actually do what we do, when it comes to paying benefits, actually help the organisation or hinder it in this area. They need to start taking up a total reward approach, by looking at all the offering that the organisation has – financial and non-financial. Bringing that together and then considering if it actually appeals to people, regardless of their age, gender, responsibility for children or elders. Organisations also need to start thinking about how they evaluate these policies and services. 

PL: You can find out more about the latest CIPD rewards survey in the show notes that accompany this programme. They’re online at 
John Marsden is HR director for the Honda racing F1 team. He’s working in a pretty unique organisation, employing 600 people across a wide range of roles, many of them working away from home on a regular basis. I asked him how they align the strategy of the business with their reward package. 
You’ve got a whole array of people, from guys on the shop floor actually machining bits for your cars right through to Jenson Button who drives it. How do you formulate a strategy that rewards all of those and actually incentivises all of those people? 

John Marsden: They way we look at it is that we try and reward people, if you like, on a level playing field. We don’t really recognise a difference for people who travel. We don’t want this difference between the race team and the rest of the factory. We don’t want primadonnas within the company. So the guy who is working on the machine, to us, is just as important as the mechanic who is doing a pit stop. We’re probably paying a premium for the sort of people we need and the commitment we need – about 20 to 25 per cent against the general labour market place. We don’t pay people for over time, we expect them to do an awful lot for the team and, as I say, we like to take care of them when they’re with us. 

PL: That leads to my next point actually. You have a very strong emphasis on including the family within your reward structure, don’t you? Why is that? 

JM: Well, I suppose, really, I mean it’s basically in our own self-interest because we demand an awful lot of people. We have some incredibly talented people and we want them to be focused on the job and we would not want to have people, if you like, having in the back of their minds any issues about, for instance, in a lot of businesses I’ve worked for people will come to you and say they want their son to do work experience and there’s always been a hoo har about whether it can be accommodated and stuff like that. We always do it, we just make it happen. We feel that’s a duty we owe to our people and they guys feel good because they know that with anything like that, we’ll make it happen. But it is basically in our own interest because when people are away from home, for instance – and that’s only of they’re racing and you have guys working 50 or 60 hours a week at this time of the year – we really need to make sure that their whole mind is concentrated on the job. 

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PL: There’s a lot being said and written about the prospects for an economic slowdown. I asked Adrian Furnham about the implications for reward professionals and particularly for his assessment of the impact on the psychology of employees. 

AF: I think, first of all, they will value security more. Secondly, people won’t change jobs anymore. I was speaking to an HR head hunter and he said we’re having difficulty getting people to move. They go for security and security means steady as we go. 

PL: Do you think that there will be more emphasis on pay packets rather than softer benefits, that they will just be more interested in cash because, as you say, they’re concerned about their mortgages going up. 

AF: It’s difficult to say. I think that it differs from sector to sector, from level to level. I think if employees say there isn’t any money, and in some instances there genuinely isn’t, then they will go for softer options because the softer options are more available to them. For instance, one could have a sexier job title and some people would go for that. It’s surprising, in some organisations, the extent to which people trade off money for job title. It’s a form of self esteem, of self identification and so you might find that that will occur in harder times, whereas in more successful time, there’s more money sloshing about and it’s easier to get the cash. 

PL: So how will employers respond to the prospect of changing expectations from employees? I asked Charles Cotton what he was expecting to see. 

CC: I think there will obviously be an issue about wanting to retain and engage high performers, and in which case I think there will be a more targeted approach to reward rather than, kind of, smearing it across all employees. To a certain extent that is already being reflected in the private sector service firms, where fewer organisations are making an across the board pay increase. Instead they’d rather focus it on an individual’s contribution, looking at performance, how long they’ve been with the organisation. 

PL: Do you see that as a widespread and growing trend, this focus on paying people for what they actually do, what they give the organisation, rather than across the board? 

CC: I think organisations are increasingly aware that the payroll is a large proportion of their total expenditure. So if you’re in the service sector, it could actually be that up to 80 per cent of total expenditure is accounted for pay and benefits so organisations are saying well, actually, what benefits are we getting from this huge amount of investment? 

PL: So they are going to be more inclined to tie it strictly to performance? 

CC: I think they will be a bit more savvy than in the past when organisations just looked at individual performance. I think they will look at a wider definition. Perhaps rather than just looking at the output, they will also look at the inputs in terms of competencies, in terms of skills. 

PL: What are bear traps here for HR professionals? What are the really damaging things that they can do to undermine the psychological trust contract between employer and employee? 

CC: The greatest problem with that in my view, without any doubt, is the measurement of performance. If you have any form of performance-related reward, which many organisations try for, then you have to measure performance. Now, if you’re selling widgets, you can measure the number of call, sales and so forth. But for most of us, that’s very problematic. How do you measure performance and how accurate is that measure of performance? If you’re going to incentivise me and reward me for my performance, then first of all I need to value the reward you’re going to give me. But, equally, I have to feel that that performance is well measured and well evaluated. Now, whether one is going to do this through a points system or do it through some other measure, I don’t know. That’s enormously difficult. I sympathise with anyone in HR trying to do that, but I think work on that first, make sure that you try and have robust, sensitive and manifold measures of performance and you’ll do better. 

PL: At KPMG, they’ve tackled the need for just such a robust system of measuring performance. I asked Samantha Gee, their European head of reward, to explain how they’ve gone about it. 

Samantha Gee: We have nine-box system, so if you can imagine a grid, so that we can, on one axis, look at what somebody has achieved in terms of their business goals, and, on the other, look at how they’ve achieved it. And we adopt an approach of forcing the distribution of ratings within that nine-box to reinforce that performance culture. 

PL: Now, this is quite a controversial thing to do isn’t it? This is the idea that you force managers not to put their people in the middle of the range.
SG: That’s right and you have a certain proportion of people in each box and, in essence, you’re making a relative judgement so who are, relatively, the better people and who are, relatively, not as good amongst your team. 

PL: Now obviously any of these measuring and monitoring systems are only as good as the line managers who actually implement them. How do you go about training them? 

SG: About two or three years ago, we introduced a programme that we call Managing for Excellence. That’s where we have identified who in the firm is accountable for people management so this was a big step forward for us – we actually know who they are now and they know they’re accountable. 

PL: But how many people are we talking about? 

SG: It’s about 400 out of 11,000 employees so typically they’re managers of managers. These people may have a team of 80 or 100 people reporting into them and once we know who we’re dealing with, we can have conferences with that group and we have bi-monthly newsletters and we create presentations for them to use with their teams in team meetings so we can have an avenue into that group of people. 

PL: The prospect of greater reward in return for superior performance at KPMG isn’t just a motivator for those already working there. Samantha told me about the role played by the performance-related element of their package in attracting new talent. 

SG: What differentiates KPMG amongst our immediate competitors is that we have a bigger element of variable pay. So we’ve worked closely with the recruitment team to train them to talk about the bonus and to give them the figures that they might use in talking to a prospective candidate. 

PL: And how do your applicants tend to respond to this? Obviously it’s a difficult thing to quantify, but do you find that by presenting them with what might be perceived as a slightly more entrepreneurial package, in the sense that the more they put in, the more they will financially get out of it, do you find that you’re getting a different sort of applicant? 

SG: That’s the theory. The people that are attracted to that kind of reward environment will be those that think they’ll benefit from it. So they will be those who feel they have skills or a real contribution to make and it will excite some people and those are the people that we feel we want in the firm. 

PL: Based on your experience of the scheme so far, are you finding that these people are estimating their capabilities accurately and that they are actually getting the rewards that they expect to get? 

SG: You’ll always have the dilemma that I think it is something like 80 per cent of people think they’re above average, which doesn’t always fit! If I look at our people survey, we’ve certainly made quite a movement in our employees’ perception of whether we fairly link their performance and their reward. About half of the firm responded positively to that question this year. And that’s probably close to the optimum, I would say. 

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PL: We’ve heard about varied approaches to reward strategy that work for the Honda racing team and KPMG. I asked Adrian how best to go about understanding the reward approach that will work for different employees in different circumstances. 
Looking at this from a completely practical standpoint, how are practitioners to get their arms around that. Should they spend more time surveying their staff and asking them what they want rather than imposing solutions? What is the way to get this right? 

AF: It’s not easy. I think what is clear is that certain sectors will be different. People are motivated more by money by going to the City than they are by a number of other things. Money is associated with a lot of other things as well, but there is a sector difference that’s fundamentally important. Then, of course, there is age and stage. A man I met the other day shocked me profoundly by saying that the best thing about working in his organisation was that he could buy holidays from it - £8 – 10,000 a week or something like that. He was a cash-rich, time-poor individual as a function of his age and so he couldn’t be incentivised by much more money – or he could be, but it would have to be a great deal more money and so I think you’ll find as people get older, time is more valuable than money. As people are younger, money is more valuable than time. 

PL: What motivates different employees is particularly relevant to Janet Fleming. She’s head of the workforce hub for the third sector at the NCVO and she’s an expert on voluntary sector employment. I asked her for her thoughts on the approaches to reward that she thinks works best. 
Would you say you face a tougher challenge in your sector, rewarding your people, than your counterparts in the private and public sectors because it’s just not about money, you have to think harder? 

Janet Fleming: I do think that there are more people now who want more out of their job than money. Seventy-five per cent of people find being valued one of the most important motivators. That’s top of the list of what motivates you, so we have to work cleverly on that, I think. 

PL: How do you set about rewarding them if you come from a starting place where you’re saying we can pay you a reasonable amount of money, but not a vast amount? What else can you do for them? 

JF: I think the sector is quite clever about using non-financial reward. I think moving in to things like flexible working, allowing people work-life balance, we have a much higher proportion of part-time workers than either the private or the public sectors. 

PL: Do you find that you need to concentrate harder on things like helping people shape their careers, giving t hem transferable skills they can take elsewhere, training them and perhaps focusing on that aspect more? 

JF: I do think that’s very important. I think, again particularly in the small organisations that can’t do much apart from be flexible and that have much lower salaries, there are lots of chief executives or senior managers both in the voluntary and public sectors, probably more than the private sector, who learnt their skills doing a managerial job in a very small organisation where you have see three people at once, every day. And therefore you learn to run very fast, much faster than you would in a more structured, richer organisation where you’re given smaller jobs to do, I think. 

PL: Let’s talk about demographics for a moment because I think it’s probably fair to say that working in the non-profit and voluntary sector has become infinitely more fashionable for young people than I think perhaps it has ever been in my lifetime. It’s something that really bright, smart graduates aspire to and they are competing for the great jobs that are on offer. Now, I can see how they arrive very excited about the prospect of having a really rewarding job for not a lot of money and I can see how that works for them in their twenties. When they get into their thirties, then perhaps they settle down and perhaps they have children and a mortgage. How do you keep them onboard? How do you not have a brain drain of those very valuable people when they have to start counting their cash and think really, I could do with a private sector salary? 

JF: I think, within an organisation, that’s probably not possible. It’s not there are no routes up in the sector, and some of them will stay by moving up within the sector in different organisations. Others will move on, but then you have the next tranche coming out. So you have to think of not having a necessarily static workforce – I don’t think that’s necessarily what you’d work for as long as you can keep replacing them. They might have to go out and get a job that pays better during their family years and then in their late forties or fifties, when those responsibilities go down, come back. Because there are a lot of people who move from other sectors back into our sector. 

PL: Indeed. That brings me neatly to my next point actually. What about the other end of the demographic scale? How do you reward people who perhaps come to you, as you say, they either return after a mid-career elsewhere or they come to you for the first time, perhaps from the private or public sector later in their lifetime when they’re still very keen to work, or indeed need to work. How do you manage them? 

JF: Well, I think the challenge that you face as a manager in our sector as a whole, where you are trying to do an awful lot with less money, is in itself a very interesting and intriguing challenge for people at that time in their life because they will have learnt to achieve quite a lot by then. So to be able to bring the kinds of skills and knowledge they’ve got to a more challenging environment, I do think that is a motivator. 

PL: It’s clear that different organisations need different approaches so is there such a thing as a perfect reward strategy? I put that question to Adrian. 
Can a reward strategy ever be a truly good fit for all the people who are subjected to it? 

AF: I think there is no Nirvana like that. When you go around from organisation to organisation as an academic or a consultant, they all want to know about who’s got the right system, where does it work best. And you can say where it works better rather than where it works best. I think that to search for a magic formula, a magic bullet is a hopeless attempt to try and find the Holy Grail. I think that one can try and get better systems and do it better. Sometimes it’s through trial and error, sometimes it’s through having a good, robust, sensitive system. But there’s always going to be fury, there is always going to be angry people and those who are dissatisfied, and I think one simply has to live with that however robust your system is. 

PL: Certainly plenty of food for thought there. Whether it’s trial and error or robust systems that hold the key to developments in the reward strategy in your organisation, I hope you got something out of this podcast. 
Remember, you can find the notes that accompany the programme on 

I’ll be back next month with a new podcast taking a look at the cross-functional challenge of employer branding. Until then, goodbye.


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