Legal and General plc, one of Britain’s large insurance companies is taking practical steps to devise and implement a Business Strategy for change in its largest sector – Life and Pensions. Their “Vision for the Future” is to change the way people work. They have adopted a framework of change that strips middle management; and results in a shorter chain of command which should ensure future success by increasing the competitiveness of its products reducing administration costs, and improving customer service.
“What will this change mean to Legal and General plc?”
The managers’ perspective on change is results oriented; the employees consider how the change will impact on them personally. If the change is not managed properly, these different values and driving forces clash resulting in unfortunate outcomes for the business.
Legal and General plc adopted a Human Resource (HR) Strategy framework of teams. Teams depend on the culture of the company in which they exist, how people act and interact. If a company’s culture is supportive and trusting then there is a good chance that teams will be successful.
To ensure teams develop in a healthy environment, a favourable reward strategy needs to be implemented. Reward strategy is defined as ‘the intentions of the organisation on the reward policies, processes and practices required ensuring that it has the skilled, competent and well motivated people it needs to achieve its business goals.’1
Reward strategy also implies that the dominant business strategy an organisation adopts should be supported by an over-arching approach to reward, supported by other HR policies and practices. This means constantly challenging the strategy and the way in which it is implemented to ensure that the correct mix and level of rewards are provided and delivered effectively and efficiently, with the ‘right’ message for employees, keeping in mind the Business Strategy of the Organisation. The stages to developing a co-ordinated strategy are:
1. Strategy Formulation
2. Strategy Implementation
2.0 STRATEGY FORMULATION:
The senior management team of Life and Pensions, which includes the HR Director, drew up the new HR Strategy. This is done with a UK based team, with that cultural identity. Thus the specific idiosyncrasies found in any of the other five countries which Legal and General plc operates, may not occur. “Teams are small with a membership (ideally) four to six”.2 Too many people in a team cause the connection between members to be hard to make as the larger the team the more diverse the culture of the individuals involved. At Legal and General plc, employees will work in teams of 10 -15 people; this size can disharmonise the team.
The political, legal systems and accounting practices of participating countries will also differ. This will profoundly affect standard operating procedures.
In the strategy formulation, they opted for changing hours of work and methods of working and formalising pay. European Union Directive ensures that a regulation on working time is issued, to guarantee that workers are given appropriate rest from work. Even though the working week will remain at thirty-five (35) hours, on certain days the work hours will be excessively long. This may cause some disenchantment among the workforce as they may feel their time is not valued.
If managed effectively, where a balance can be found for work and family responsibilities while taking into consideration the various cultures of the participating firms, it can make good sense and staff can be motivated to perform.
The definition of reward in its broadest sense “refers to the benefits employees receive in return for working on behalf of an employing organisation”. 3
They further split these into two main forms: intrinsic such as job satisfaction, recognition and personal development and extrinsic, which take the form of cash payments and employment benefits.
It was Herzberg et al. (1959) who developed these two distinct lists of factors. The first set of factors caused happy feelings or a good attitude within the worker, and these factors, on the whole, were task-related. The other grouping was primarily present when feelings of unhappiness or bad attitudes were evident, and these factors, Herzberg claimed, were due to the conditions that surrounded doing that job. Legal and General needs to address both of these factors.
The Reward Strategy will be related to local rates and will be made up of competency-based pay, plus performance related bonuses. The competency-based approach will be used for all staff in a broadbanded pay structure. “Broadbanding is the compression of a hierarchy of pay grades or salary ranges into a small number of wide bands”.4 A flatter hierarchical structure can be realised with broadbanding, and a manager can more easily encourage his/her employees to broaden the skills and abilities. However, broadbanding is not a universal remedy.
The advantages of broadbanding to the employer are obvious. He has more flexibility in assigning work and getting a job done. Workers can be redeployed to meet changing needs without constant attention to classification issues. For the employees in lower-end classifications, broadbanding can offer improved career development opportunities. Opportunities for horizontal mobility can also expand when tasks previously associated with different job classifications are grouped within the same classification.
One major concern in broadbanding is that work will be shifted from higher-level to lower level positions. It can allow management too much discretion and can lead to abuse. A broadbanding plan must include objective criteria for movement within pay grades and clear distinctions between levels within the broadbanded classifications.
Broadbanding also increases the range of tasks that employees may be asked to perform, which may lead to poor performance and increased stress if workers are forced to perform unfamiliar work. Another potential problem is that training opportunities may be provided only to a few “favoured” employees. Thus, assurances need to be made that all workers have equal opportunity to develop skills that will allow them to perform effectively.
Armstrong (1999) discusses non-financial motivation in terms of achievement, recognition, responsibility, influence and personal growth.
See Table 1
Non- Financial Motivation
Legal and General plc
Achievement motivation can be increased through processes and systems such as job design, performance management, and skills-based and competence-based pay schemes.
Financial and non-financial rewards operate mutually to reinforce this form of reward. Recognition is provided by positive and immediate feedback
Levels of responsibility vary because of a corporation’s empowerment and cultural differences.
The size of organisation helps, but internal politics can overshadow employee’s influence.
Important as long as individuals stay and grow. This may be difficult due to change.
Broadbanding often leads to a decrease in the aggregate number of workers and/or higher productivity, due to the versatility of the worker. It is essential that the union negotiate to ensure that workers are appropriately compensated for their skills.
At Legal and General plc pay is based on local and not national market rates. Care has to be taken that in some countries, employees will not be severely underpaid, due to the currency exchange rates. This may cause some amount of displeasure.
Staff will be assessed for their bonus based on individual targets set at their yearly performance appraisal. This can be deemed highly unfavourable because it may be difficult to assess individual performance on a yearly basis when employees are working in teams.
The Performance Related Bonuses (PRB) main goal is to achieve targets. This would be measured, and employees remunerated accordingly. PRB can assist any organisation as it acts as a lever for change, improves individual and organisational performance and helps the organisation to attract and retain people through financial rewards and competitive pay, the latter largely reduces the continued employment of poor performers. At the conclusion of the transition phase, Legal and General plc hopes to offer voluntary retirement, and/or enforced redundancy to ensure that the right employee is matched to the job that he is most suited.
There may be problems in implementing PRB as it is perceived as arbitrary, subjective and therefore lacks justice. The outcome of assessment is mainly based on the subjective view of the appraisal. What makes the process worse is that managers who are responsible for measuring people’s performance may not be well trained and qualified enough to set realistic targets and conduct such performance appraisals.
There is an increased tendency to focus on results and this leads to proving McClelland’s (1967) theory on Acquired needs. He states “pay is important to high achievers because it serves as performance feedback”. 5
3.0 STRATEGY IMPLEMENTATION:
A Strategy Steering Group will implement the change over time in stages. Table 2 identifies the process of implementation.
Strategy Steering Committee
Reviews progress plans, issues priorities
Every Three Months
Programme Management Team
Implements the programme
Once a week
Local Transition Team
Manages the introduction of changes.
Once a month
During the implementation process, the local business vision has to be submitted to the Programme Support Group for approval. This is a delaying factor of the programme, when the Norming, Storming, Forming and Conforming are vastly important. Legal and General has to understand that the opinions of the employees need to be valued if they are to obtain a competitive edge. New job and role definitions have to be drawn up, where each person is appraised against his performance, thus the importance of analysis and evaluation.
A ‘job evaluation does not determine the correct payment level for a job but rather provides a possible ranking of a job relative to other jobs’.6 The job analysis defines ” the process by which the job description is derived, describing the total requirements of the job, which then leads to the person job specifications.’ 7
Legal and General plc indicates that a formal launch, Transition Day ‘T Day’ as the beginning of new ways of working and thinking and feedback will be gained after a formal review is conducted three months after ‘T Day’. If staff is not properly prepared and a comprehensive screening process undertaken the entire process can negatively impact on consumer loyalty and the flow of the business, as it may experience a negative financial growth.
To ensure a suitable match between workers and jobs, a comprehensive screening process will be undertaken:
* Psychometric Testing
* Role Playing
* Work Simulation Techniques
* Social Monitoring Techniques
Further support is provided after T day and a formal review is conducted about three months later.
The knowledge and skills for managing change that will be required comes from two perspectives on change: the managers and the employees. A SWOT analysis needs to be done in each country looking at the external factors political, educational, social, technological, environmental and legal.
In this arena, Legal and General plc needs to provide tools that employees can use to navigate their way through the change, as shown below:
* Step 1: Think ahead
Legal and General plc has to analyse the potential impact of the change by considering how it will affect people in their pockets and in their jobs. The analysis should indicate what aspects of the proposed change individuals, might support, and which they may resist.
* Step 2: Involve those affected
A key component of the change management process, it gives employees the chance to raise and resolve their concerns and make suggestions about the form of the change and how it should be introduced. The aim is to get employees to ‘own’ the change.
* Step 3: Communicate
There should be open communication among employees in relation to the change, why it is necessary and, importantly, how it affects them. The proposed change should be carefully prepared, worded and documented so that unnecessary fears are allayed.
* Step 4: Train all those involved
Training is necessary to help people to acquire the skills required to manage and participate in the new system. But it is also an invaluable medium for communication for discussion on the issues and problems, which may be created by the new arrangements.
The extent of the company’s resources and how much it is prepared to invest in its people needs be considered in terms of both tangible and intangible rewards.
This implies two key points. First, that reward expectations of individuals now go beyond the tangibles of pure cash and benefits. Secondly, if an organisation is not prepared to consider the intangibles, it must face the potential consequences – in terms of absenteeism, demotivation with its negative effects on performance and effort, staff turmoil and retention difficulties.
To improve this situation, some organisations use 360-degree appraisal to modify the appraisal system, but since the basic problem of appraisal is people, such modification cannot solve the problem thoroughly.
Rethinking compensation or a desire to develop, mobilise and reward people more effectively, leads to varied outcomes. The key internal outcomes are:
* Aligning individual performance with corporate objectives
* Retaining key people
* Recognition by employees that rewards are fair
* Higher levels of motivation and morale
* Attracting high calibre recruits
* Differentiating between high, average and low performers.
These findings set the case for strategic compensation – appropriately interpreted, designed and delivered which usually results in business and organisational benefits.
A well-structured reward strategy aligned to business goals; tailored to the needs of those employees most likely to influence the business; can have a significant impact on business performance. With employees properly engaged, motivated and rewarded, Legal and General plc will most certainly be looking up!
Armstrong, M. 1999, A Handbook of Human Resource Management Practice, London, Kogan Page
Armstrong, M. 1999, Strategies for Human Resource Management, “A Total Business Approach”, Coopers and Lybrand
Beardwell, I., and Holden, L. 2001, Human Resource Management a Contemporary Approach: Pearson Education Limited
Cole, G. 1996, Management Theory and Practice, England, DP Publications
Foot, M., and Hook, C. 2002, Introducing Human Resource Management, England, Pearson Education Limited
Maund, L. 2001, An Introduction to Human Resource Management, Palgrave, New York
Mullins, L. 2002, Management and Organisational Behaviour, Pearson Education Limited, England
Thorpe, R., and Homan, G. 2000, Strategic Reward Systems, England, Pearson Education Limited
Torrington, D., and Hall, L. 1991, Personnel Management: A New Approach, UK, Prentice Hall International Ltd
1 Armstrong, M. (2002), Employee Reward, pp. 47
2 Mullins, L. Management and Organisational Behaviour, pp 468
4 Armstrong, M. (2002), Employee Reward, pp186
5 Cole, G. 1996, Management Theory and Practice, pp 39
6 Foot, M., and Hook, C. 2002, Introducing Human Resource Management, pp 276
7 Mullins, L. Management and Organisational Behaviour, pp 904