Employee Reward. May 2010

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1 Chartered Institute of Personnel and Development Professional Development Scheme Generalist Personnel and Development Employee Reward 12 13:50-17:00 hrs Time allowed Three hours and ten minutes (including ten minutes reading time) Answer Section A and SEVEN of the ten questions in Section B. Please write clearly and legibly. Questions may be answered in any order. Equal marks are allocated to each section of the paper. Within Section B equal marks are allocated to each question. If a question includes reference to your organisation, this may be interpreted as covering any organisation with which you are familiar. The case study is not based on an actual company. Any similarities to known organisations are accidental. You will fail the examination if: you fail to answer seven questions in Section B and/or you achieve less than 40 per cent in any section. 1

2 SECTION A Case Study Note: It is permissible to make assumptions by adding to the case study details given below provided the essence of the case study is neither changed nor undermined in any way by what is added. Elovator is an e-commerce company that specialises in selling online jazz music. Their web page provides not only jazz music to download but a wide range of jazz products including CDs, DVDs and books. Distinctive features of the site include online specialists who help you find your product, interviews with jazz musicians worldwide and contests about your knowledge of jazz. Employing 300 people, Elovator has grown into a worldwide distribution network, centered at a major warehouse complex in Essex, where most of the employees are based. The warehouse has three distribution lines that package the CDs etc, and prepare them for posting. While the work is not difficult, a week s training is required because it takes time to understand the package and postal systems. This is particularly so with the online product retrieval system that identifies where all the products are located. The training is provided on-the-job by permanent experienced staff. The reward strategy is clearly focused on performance and the pay package for permanent staff at the warehouse includes base pay and a variable pay element linked to individual performance targets, together with a wide range of employee benefits. Performance is linked to target numbers of CDs, DVDs or books packaged and distributed per employee, per week. Elovator calculate that the average employee s individual performance-related pay (PRP) on achieving the target should increase their base pay by a minimum of 10%, making their pay comparable with other employers in the area. Despite the company performing well in its niche market, it has had particular problems with high levels of labour turnover. This in turn has meant that the company has had to use temporary agency workers to make up the short fall, particularly in peak periods. It now employs more temporary agency workers than planned. Further problems came to light when an internal employee survey identified low employee satisfaction with employee rewards: 81% of employees rated base pay as either unsatisfactory or very unsatisfactory; only 23% felt that the PRP system motivated them; and 55% felt that senior managers cared less about their staff and more about productivity. In short, employees felt they were not receiving a fair return for their contribution to the company. The survey results were a surprise to senior managers as pay rates had recently been reviewed against local market rates and confusingly, 69% of employees felt that their contribution was recognised by their line manager. 2

3 Investigating these issues further, all line managers thought their permanent staff were hard working but that agency staff varied in quality and invariably took much longer than usual to understand the systems; had more accidents and breakages; made more mistakes; and lacked the right attitude to the job. The feelings of the permanent staff were summarised by one commenting, PRP is doubled at peak times but we have little or no chance of hitting targets with the amount of staff taken on and training given. Drawing on recent research and current good practice, draft a report to the Chief Executive of Elovator including: 1. An analysis and explanation of why the present reward strategy has failed to attract, motivate and retain employees. 2. Justified recommendations to improve the reward package that provides appropriate solutions to the attraction, motivation and retention problems in the firm. 3. A detailed action plan for your recommendations showing how they will be implemented in the short and longer-term. It is recommended that you spend 50% of your time on task 1, 30% on task 2 and 20% on task 3. PLEASE TURN OVER 3

4 SECTION B Answer SEVEN of the ten questions in this section. To communicate your answers more clearly you may use whatever methods you wish, for example diagrams, flowcharts, bullet points, so long as you provide an explanation of each. 1. A new colleague in your human resources (HR) department has been asked to review your organisation s sources of information on pay and benefits. She seeks your advice on the sources available. What sources would you recommend and why? 2. Your line manager asks you to outline the main stages required in a formal job evaluation review procedure and why each stage is important. Justify your response. 3. A fellow CIPD student tells you that employees in his organisation have recently had a successful claim for trade union recognition for collective bargaining over pay and conditions of work. Explain, making reference to research, the likely impact collective bargaining will have on employee reward in the organisation. 4. Your Chief Executive Officer is considering introducing a broad-banding pay structure in your organisation. He asks you What are the major objections to broad banding? What would be your response and why? 5. Explain the differences between the following share option schemes and identify the benefits to the employee of each: Share Incentive Plans (SIPS) Save-as-you-earn Schemes (SAYE) 6. You decide to recommend performance review as a non-financial way of motivating employees. Providing evidence of research and organisational practice, explain how you would justify this recommendation. 7. Your Head of Marketing and Sales is considering changing the reward package for sales staff from salary only to commission only pay arrangements. She seeks your advice on the comparative advantage to the employer of each arrangement and asks when it is more appropriate to use them. Draft your response. 4

5 8. Providing distinct examples from your own organisation, compare at least two of the following types of benefits and show how they support your organisation s aims and objectives: Personal security benefits Personal needs benefits Financial assistance benefits 9. Evaluate how horizontal integration of reward policies with other human resource management policies is achieved in your organisation and supports organisational objectives. Provide three examples with which you are familiar. 10. Describe the role and function of a public sector Pay Review Body and explain, with reference to research and/or organisational practice, how effective these bodies have been in managing pay in the public sector. END OF EXAMINATION 5

6 Introduction The improved performance in the November 2009 examination was viewed then as a consequence of the examination time being increased to three hours with ten minutes reading time. The results for indicate that the progress made in November 2009 has not been sustained. In the overall pass rate has decreased by 6% when compared with November Again in the November 2009 report it was assumed that the very best candidates were able to show, with the extra time, the full extent of their knowledge and understanding of Employee Reward. Significantly, the percentage of candidates achieving distinction and merit grades has also decreased but overall the number of candidates in the higher grades has remained roughly the same since May For many successful candidates, one of the reasons why they are unable to break out of the pass grade is the inconsistency in performance between Section A and Section B. Another reason is their inability to engage with an evidenced based approach that consistently provides up-to-date examples of research and organisational practice whether in Section A or Section B. This is again apparent in the case study tasks and in those questions that specifically asked for this to be included but also in their approach to other examination questions. It is quite clear that candidates will be disadvantaged if they are unable to bring evidence to support their arguments and more work needs to be done by candidates and within centres to improve on this particular aspect of examination performance. Performance In the Employee Reward examination, 43 centres put forward 429 candidates to sit the examination. The overall number of candidates was higher than in May 2009 when 382 candidates sat the examination. Prior to moderation, 276 achieved a pass mark or higher resulting in an overall pass rate of 64%. This is a decline in overall performance of 6% when compared with the pass rate in November However, the pass rate in the May 2009 examination was also 64%. This can be viewed as disappointing when one takes into account the increased examination time available to candidates. In, it seems likely that some candidates have not taken the advice provided in previous examiner s reports and/or were less prepared for the examination than in November However, not only is this overall performance disappointing but in addition, the percentage of candidates who passed with a merit or distinction grade fell by 7% when compared with November Again, it was assumed in the examiner s report of November 2009 that the increase in time allowed to sit the examination had given the most able candidates the opportunity to show the depth and breadth of their knowledge and understanding of Employee Reward. Clearly in this has not been the case and the combined pass rate for the higher grades has fallen to the position before the time allowance was introduced, for example, only a 0.3% increase compared with the performance in May This poor performance in the higher grades can again be attributed to too few candidates being able to present their answers backed up with sufficient knowledge of up-to-date research and organisational practice. As in previous examinations, for those questions that specifically asked for such evidence, many students were again ill-prepared to answer such questions with sufficient research 6

7 evidence and/or relevant examples of good organisational practice. It was also noted that there were fewer outstanding answers to either the Section A case study or some Section B questions, particularly questions 3 and 10, and this is why so many only gained a pass grade. There was also a lack of consistency in performance for many between the case study answers and the Section B answers. The overall performance is also marred by a quarter of candidates in this sitting achieving a fail grade. This high level of failures (5% up on May 2009) is of particular concern and can only be attributable to insufficient knowledge and understanding of Employee Reward and/or preparation for the examination. One can only reiterate the comments in the last examination that the longer examination time seems to have had little effect on the weaker candidates and that more needs to be done by these candidates to achieve the standards required in Employee Reward. Grade Number Percentage of total (to 1 decimal point) Distinction Merit Pass Marginal fail Fail Total The figures shown are simply calculations based on the number of candidates sitting the examination in, whether for the first or a subsequent time, and are for interest only. They are not to be confused with the statistics produced by CIPD headquarters, which are based on the performance of candidates sitting the examination for the first time. It is from these figures that the national average pass rates are calculated. Section A Knowledge Indicators: 1.1, 3.1, 8.1, 9.1 In Section A candidates were expected to show, within a private sector e-commerce context, knowledge and understanding of strategic capability and business orientation in employee reward by successfully addressing three tasks. The case study considered the strategic direction of the company and key employee reward issues in Elovator, an e-commerce SME. The company had particular problems with attraction, motivation and retention that were clearly related to the pay strategy. To resolve these problems the company had resorted to employing agency workers to cover for those who could not be recruited or retained under the existing pay arrangements. The employment of agency workers caused as many problems as it had resolved and are an expensive option for the 7

8 company. Therefore, there was a clear need to resolve their continued employment. Further issues came to light with the employee survey that pointed to the failure of the reward strategy to motivate employees and the inability of employees to achieve the required performance targets. The failure to reach agreed targets, increased levels of discontent with the pay system and how it worked was also exacerbated by increased training responsibilities. The best candidates recognised that temporary agency workers were an issue and assumed that they were likely to be paid a fixed rate and possibly higher than full time staff and some candidates rightly assumed that they may be paid by the agency and not the firm. The consensus was that unlike permanent staff they were paid only a base wage and not the variable element tied to performance targets. Thus the agency workers rewards were not integrated into the organisation s reward strategy and hence not into the performance related pay (PRP) scheme. This would mean that performance is not a key feature of their rewards and went some way to explain why targets, breakages, accidents and mistakes are of little importance as they would be rewarded just the same. Hence, where agency workers are employed on the lines overall staff performance is likely to decline. Also, permanent staff have particular grievances in that they have to train and probably supervise agency workers for at least a week or more which may impact upon their own performance and hence their levels of take home pay. Candidates also realised that the base rate for full time staff was below the market rate and that comparable pay with the local market rate could only be achieved with the variable element. Falling performance would mean falling below the local labour market rate for most employees. Should these effects continue in the long term, their pay could be consistently incompatible with the local labour market rate and, therefore, employees would tend to seek alternative employment elsewhere in the local labour market In addition, the local reputation of the company as a good employer would decline and recruitment would suffer. High levels of turnover and low motivation among permanent staff could reasonably be linked to these problems. However, the better candidates went beyond this analysis and either argued that the reward strategy itself had failed because it was founded on an individual PRP scheme or the implementation had failed but not the strategy. The former argued that individual PRP schemes are known to de-motivate staff when targets are not met; they damage cooperation and team work; they can be used as an alternative to manage performance properly; and they can undermine intrinsic interest in work. The latter tended to point to the fact that pay is not a motivator and focused on the need for implementing intrinsic rewards to create a total reward strategy. Task 1 Generally the answers to this task were adequate and the majority of candidates clearly identified the salient issues building their analysis and explanation of the problems on what was available in the case study. However, many candidates were able to identify the problems with individual PRP and training but had no consideration of the problems with the issue of agency workers, with a surprising number of candidates failing to mention them at all. The best candidates were able to set the problems in the context of some recent research or theory but others produced lengthy 8

9 descriptions of theory that replaced analysis rather than supported it. Most came to the conclusion that the strategy had failed which was not necessarily the case. Indeed, some candidates argued that the strategy was appropriate but the implementation was at fault and more focus was needed on intrinsic aspects of reward. Task 2 In this task, many candidates showed some knowledge of a range of appropriate reward interventions to address the problems of attraction, motivation and retention of permanent staff. Recommendations included the abolition of individual PRP; the introduction of team based pay on the lines or other pay solutions that promoted cooperative working and intrinsic satisfaction in the job; the agency workers could be included in the performance element or the best recruited to permanent staff; those who delivered the training should be rewarded for it and this would help compensate for the loss in performance pay or alternative training arrangements made. What was missing from some of the weaker recommendations was the lack of focus on the problem of agency workers particularly the cost of these employees. Also, some of the weaker candidates were unable to develop their answers beyond a recommendation. For example, some candidates made reference to team based pay or reforming the PRP but they were unable to justify this change in the payment system or give much of a clue as to how this would work in practice. It is important that candidates provide more information on what might be involved in the initiatives they recommend. The very weak answers made no specific recommendations at all but threw in a number of possibilities or, in some cases, recommending three or four payment systems to be introduced. Task 3 The greatest weakness for all candidates, even for those who scored highly in tasks one and two, was the action plan. Many provided a table but did not take time to make sure of its contents and its presentation. For others the information provided was often simply a repeat of the recommendations from the previous task and little else. Some did not even consider time scales as important. This is clearly an area for further improvement and development. The plan provided an opportunity to discuss the process and issues that might arise on implementing their recommendations but few provided this. Good action plans prioritised the recommendations as well as identifying costs, potential risks and issues. Some good candidates also adopted a SMART approach Section B Question 1 Knowledge Indicator: 5.1 Many candidates found this a straightforward question and the majority were able to provide an appropriate answer. They were able to draw on and identify a number of external sources of reward information and intelligence available to organisations and candidates clearly had some knowledge of these. However candidates who failed this 9

10 question were unable to provide an evaluation of the source chosen and state why they would recommend it to the new colleague. Most candidates were unaware of either the reliability or validity of the source of reward information they had recommended and some weaker candidates only discussed internal organisational sources about pay and benefits available to employees. Question 2 Knowledge Indicator: 4.1 This was a popular question and many candidates did well interpreting it as either reviewing the introduction of job evaluation scheme or the procedure for reviewing the scheme after it had been introduced. From either perspective, the answers were very descriptive and tackled by listing the various stages of introducing/reviewing a job evaluation scheme. Nonetheless, some candidates spent too long describing the differences between types of job evaluation schemes rather than focusing on the appropriate stages. Even when stages were provided some did not explain why these stages were important in the review. Question 3 Knowledge Indicator: 2.3 This was not a popular question. For the majority of those who did answer this question, either it was not done well or candidates simply ignored the question asked. Many candidates saw this question as an opportunity to inform the examiner about their knowledge of employee relations in an employee reward exam. Discussion ranged from the history of collective bargaining to the role of trade unions in redundancy consultation. There was insufficient focus on research in this area and the substantive difference trade union recognition would make to employee reward practice. However, the good responses seemed to be concentrated in specific centres and some good candidates were clearly informed about this issue. They suggested among others: mark up of pay; increases in women s pay; changes in pay structure including more benefits and smaller differentials; restrictions on the use of contingent pay systems; harmonisation; simpler pay systems and worker participation in rewards. Question 4 Knowledge Indicator: 6.1 Most candidates were able to answer this question competently. Objections included: harder to manager with considerable demands on line managers and HR; employee expectations can be raised but not met; not simple to explain; decisions on movements within bands can be harder to justify; more costly because of less control on pay progression than conventional approaches and equal pay issues. Candidates who fell short on this question wrote only about the benefits of broad banding. Also, the better candidates recommended to the CEO how the objections could be overcome to ensure success. 10

11 Question 5 Knowledge Indicator: 8.1 This was not a very popular question but most candidates who chose this question were fairly knowledgeable and able to explain the differences between Share Incentive Plans (SIPS) and Save-as-you-earn Schemes (SAYE) and identified the benefits to the employee. Many gave some very good examples of the schemes in operation. The weaker candidates struggled to find a suitable answer either providing misinformation about the schemes or making some random guesses linked to savings without much success. Question 6 Knowledge Indicator: 9.1 This question was very popular and clearly liked by many candidates who provided capable answers emphasising that performance management reviews can be used to support non-financial forms of motivation. Suggestions made included recognising employees achievements and praising them; allow for developing the employee s role and skills development; framework for coaching or enhancing learning; discuss career aspirations and seek to improve intrinsic motivating factors through the fulfilment of personal goals and objectives, etc. When candidates did less well it was because of their inability to remain focused on the non-financial forms of motivating employees in the review and focus instead on financial measures. They also failed because of a lack of research and organisational practice to underpin their recommendations or to relate any justification for them. Question 7 Knowledge Indicator: 10.1 Again another popular question and the majority of candidates answered the first part of the question well providing well argued and sometimes comprehensive answers that compared the advantages of salary only with commission only pay arrangements. These included: salary only advantages of promoting long term relationships with customers; protecting salary when sales fluctuate beyond the seller s control and thereby helping to retain staff; commission only advantages of attracting high performing staff; selling costs vary directly with sales and little direct supervision required. When candidates did not excel in this question they failed to give sufficient consideration to when it is appropriate to use them and too many candidate lost marks because of this. Question 8 Knowledge Indicator: 11.1 For most candidates this question posed few problems and they could point to a range of benefits in the categories requested. Often these benefits were generally, if 11

12 satisfactorily, linked to the organisation aims and objectives. More able candidates were able to discuss the link with business and HR objectives. However, some candidates only focused on HR objectives or were not explicit at explaining how the types of benefits support the organisations aims and objectives and some did not make the connection at all. Question 9 Knowledge Indicator: 3.1 Candidates who responded to this question either did very well or performed very badly and it showed that strategic awareness needs further attention by some candidates. The good responses defined horizontal integration, compared it with vertical integration and had a clear understanding of, for example, bundling of policies and practices. They provided three good examples and explained how they inter-related with and supported other HRM policies. However, too many candidates chose examples which did not integrate reward and often if they understood horizontal integration, they did not show explicitly how policies related to each other. In some cases they ignored reward altogether or used three examples of reward policies. Question 10 Knowledge Indicator: 12.2 This question was very poorly answered and clearly caused particular problems for many candidates. Few candidates had a good understanding of the role and function of pay review bodies despite the fact that they influence the rewards of more than a quarter of public sector workers through general reviews of pay. Many candidates thought they were local government advisory bodies or bodies that were attempting to introduce equal pay across the public sector and others thought they were linked to remuneration committees. The good candidates knew that pay review bodies make independent recommendations on pay for specific occupational groups such as the armed forces, doctors and dentists, prison service, school teachers, etc and were able to suggest their effectiveness in terms of managing pay expectations, promoting fair pay, etc. Dr Glenville Jenkins Chief Examiner 12

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