1. Workforce Segmentation: Back to the Future?
Duncan Brown
Director, Reward Services

2. Segmentation: what do we mean?
Decentralisation?
Differentiation?
Discrimination?

3. Segmentation: a brief personal history
By rank/class
By business unit/department
By geography
By performance
By job family
By generation
Started at vauxhall there were different loos. Then international companies – job for acct frim to intro a pan european pay structure.Then central govt it was devolution of pay and breaking national pay structures. But that only raised issues of should there e more feedom and variation in depts – one study at every level they don’t give us enough freedon from above but don’t trust the people down below. Then (over) in an oil company see the pendulum swing from highly cent to totally decent but then couldn’t move around so used a framework to help us to consider rt balance. More recntly job families used by around 35% orgs to get better mkt fit. Some question if discrim inatory eg barrister. But job families as in government can be lateral unfiying eg lawyesr in govt, as well as divisive. Most recently looking at age factors

4. Some segmentation dilemmas
Local authority: department head says he can’t afford to offer Council’s flexible working policies.
Local authority: should we remain within national agreements?
Local authority: should we remove market supplements in the current economic climate?
Uk plc: should we bring our IT function back into the corporate pay and grading structure?
Foundation NHS Trust: should we come out of AfC for hard-to-recruit staff groups, or for all staff?
PLC: should we offer corporate car and benefits policies to a new joint venture in a different labour market?

5. Major Bank: Decentralise
Start with a grand plan
Adopted a ‘classical’ approach to strategy development
Top down, heavily planned and very rational
Ordered and rigid
The centre has all the answers
What the offer should comprise
Who should get what
What individuals’ pay adjustments should be
Focus on pay
Pay to get people in
Pay to keep people
Pay to increase performance
Result
sheep dip package design
reward done to you
broad brush decision-making

6. Resulting reward strategy
Design
Spend much more time talking to people
Plan for initiatives to adapt in their implementation
Incorporate inherent flexibility
Aim for locally owned change
Introduce comprehensive flexible benefits package
Decision making
Pay decisions made where the information is
No centrally dictated pay adjustments or matrices
Local decisions, central framework

7. Or maybe re-centralise: UK FS company
Initially carried out an EPR and found:
starting salaries tended to be higher for men
part-timers got lower performance scores than full-timers
and men tended to be more likely to receive ad-hoc payments.
Actions in response:
Training recruiters and line managers to ensure only pay higher starting salaries when objectively justified.
Starting salaries signed off by divisional directors, candidates’ previous salaries checked with their employers.
Ensuring contribution, not service-related pay progression
Improving/extending EPR data and analysis

8. Changes in base pay structures
Emphasis on high performance
Differentiated market pressures
Job flexibility
Emphasis on costs
Low inflation
Equal pay

9. Job family approaches are increasingly common
Around a quarter of organisations use them for evaluation/pay/career management purposes
Range is from 2-40; average is 5-8
Complete mixture in terms of basis of definition
Key Issue 1: The design reflects the main purpose in using them:
clarify career progression
reflect market pay variations
Key Issue 2: Managing the balance
Key Issue 3: Balancing the number of “vertical” levels/grades with the number of horizontal levels/families
Key issue 4: equal pay
Too Many
Too Few
insufficient market flexibility
lack of local ownership
why do it?
expensive to set up
complex to administer/maintain
greater internal barriers/walls

10. The mix in reward policies and practices in one firm
Policy issues e.g. market stance.
LTI
Senior manager arrangements.
Pension
Job evaluation system.
Pay structure.
Performance appraisal.
Recognition awards
Pay rates for all staff recruited locally.
Bonus schemes below grade x
Operated at Centre
Designed Locally/ Unit
Designed at Centre
Operated Locally/Unit

11. Where are the different aspects of reward managed in your organisation?
Reward Area
Pay strategy and policy goals;
Job evaluation;
Market definition and stance;
Grade structure;
Pay budgets;
Pay increases;
Bonus;
Pay administration;
Training/support processes;
Pensions;
Performance appraisal;
Salary surveys.
Operated at centre
Developed at centre
Developed locally
Operated locally

12. Rewards need to match the organisation structure
Centralised, ‘Tight’
Business
Strategy based on integration and synergies.
Predominantly internal growth.
Structure
Centralised HR
All managers/staff on corporate contracts.
Generally long service.
Career orientation.
Career and succession planning emphasis
Diversified ‘Loose’
Financially-oriented growth strategy.
Growth by acquisition.
Decentralised, small corporate office.
Business-based contracts.
Greater emphasis on external recruitment.
Business-based HR and development.

13. Countervailing pressures to segment and to unify
Technology
Globalisation
Equal pay
Cost
Diverse workforce
External market pressures
Local business/customer ‘fit’
The Choice society

14. The pros and cons Common Segmented Goods Reinforces ‘one emloyer’
Supports mobility
Efficient
Good market/business fit
Local ownership
Flexible
Bads
Inflexible
Lack local ownership
Lacks market fit
Divisive
Lack of local capability
Expensive/complex

15. Building the balance

16. Achieving the right balance
At the organisational level and in business strategy:
“An appropriate balance lies at the heart of effective management” . Prof Kets de Vries, ‘The Neurotic Organisation’
“We want to be big and small, global and local” HSBC
“Organisations need to be ambidextrous” Prof O’Reilly & Tushman
“The successful organisations combine the hard and soft, the support and the stretch, the yin and the yang”.
Prof Sumantra Ghoshal
Marketing: the McRice Burger, Intel and HSBC – tailored global campaigns
“Advertisers are simultaneously exhibiting both the global reach and the local resonance of the brand…globalisation is associated with the new dynamism of relocalisation”
Jackson and Andrews
In HR and rewards.

17. Trying to get the best of both worlds in reward
Unit specific rewards
Good market alignment
Local ownership
Flexible
Restricts mobility
Limited local expertise
Less efficient to administer
Highly uniform rewards
Reinforces one firm behaviour
Supports mobility
Efficient to run
Fair for similar jobs
Inflexible
Lacks market fit
Loss of ownership
Intermediate
-Flexible and efficient
Best of both worlds
-Overly complex and confusing
-Loss of responsibility/control

18. Reward Principles in one firm
Strategy-driven
- Use rewards more effectively to create strategic differentiation
Pay-for-performance
Provide incentive
Reward high performance
Variable cost flexibility
Market-aligned
Recruit
Retain
Total rewards
Create engagement
Enhance appeal and value
Provide personal choice
One firm
Fair, non-discriminatory treatment
Prevent internal barriers
Open and honest
- Adult/adult relationships
- Promote understanding

19. The one-firm principle
We use a one-firm approach, wherever possible:
We have a firm-wide benefits package
We will work towards common terms and conditions such as overtime and TOIL.
We will consider and manage the relationships of the rewards for people with common skills and roles across the firm, such as support staff.
We will have consistent eligibility criteria for variable pay across the firm and some consistency in its structuring.
We recognise that we operate in some very distinct and divergent labour markets, and also the value of reinforcing team and business unit identity.

20. A “Mid Atlantic” Approach in a Scandinavian multinational
“Our philosophy is to provide market competitive rewards to our employees worldwide through a flexible structure, addressing the needs for personalisation, empowerment and commitment”.
Integrated Compensation Planning and Review System.
Country pay values based on global methodology but local market data.
Global stock target/values.
Benefits principles eg DC pension, but cognisant of local practice

21. Example of the reward policy balance: a major oil company
1. Top 1500
Common bands, but local market pay ranges;
Common incentive approach (North America and ROW);
Local benefits but common approach for international staff cadre;
Executive development.
2. Senior Managers (next 4000)
Common bands with job evaluation, local ranges;
Locally designed incentives to meet specific criteria;
Local benefits but common approach for international staff;
Executive development for high potential/international staff.
3. Other Staff
Core principles;
Local management;

22. The balance in HR roles and responsibilities in one employer
Types of Employees
Level of HR Staff
Senior Management
Managers and Professionals
Staff
HR at Corporate HQ
Design, operation and control of pay
Guidance via principles and advice. Agree to and audit actual systems.
Guidance via principles
HR at Regional HQ
Administer pay
Design pay systems
Operate for HQ employees
Advise and audit for country employees
Agree to and audit actual systems
HR at Country Operating Level
Operate and administer for local staff
Design systems, operate and administer

23. Total rewards can contribute to that balance
Can act as ‘fog’ and ‘glue’
By providing a common framework within which necessary variations between different parts of the organisation can operate.
By allowing irrespective of organisation structure for the ultimate level of segmentation:
individual choice.

24. Conclusions on the common/segmented reward balance
“Organisations are finding it essential to introduce a balance between the standardisation of corporate practice – to communicate a common strategy and provide corporate ‘glue’ – while at the same time being responsive to the needs for differences in terms of cultures, values and market practice”. Professor Stephen Perkins

25. Reward strategy is all about managing the balance
Organisation needs
Business Strategy/ Needs
External Pressures
Market
Equal Pay
Legislation
Internal Employee/TU Needs/ Expectations
Reward Strategy
Long Term Aims
Scale of Impact
Immediate Demands
Ease of Entry/Change
Local Needs

26. … thank you