Армстронг

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Evaluating results is obviously easier when they can be quantified. However, it is not always easy to prove the contribution to improved results made by training as distinct from other factors and, as Kirkpatrick says: ‘Be satisfied with evidence, because proof is usually impossible to get.’ Perhaps the most powerful method of demonstrating that learning programmes pay is to measure the return on investment, as discussed below.

Return on investment as a method of evaluation

Return on investment (ROI) is advocated by some commentators as a means of assessing the overall impact of training on organizational performance. It is calculated as:

Costs of training (£)

Kearns and Miller (1997) believe that only this sort of measure is useful in evaluating the overall impact of training. They argue that particular hard measures should be used to evaluate specific training; for example, if development aims to bring about greater awareness of customers then it should still be measured by the eventual effect on customer spend, customer satisfaction and number of customers.

The pressure to produce financial justifications for any organizational activity, especially in areas such as learning and development, has increased the interest in ROI. The problem is that while it is easy to record the costs it is much harder to produce convincing financial assessments of the benefits. Kearns (2005a) provides a response to this concern:

All business is about the art of speculation and the risk of the unknown. The trick here is not to try and work to a higher standard of credibility than anyone else in the organization. If accountants are prepared to guess about amortization costs or marketing directors to guess about market share why should a trainer not be prepared to have a guess at the potential benefits of training?

He recommends the use of ‘a rule of thumb’ when using ROI to the effect that any training should improve the performance of trainees by at least 1 per cent. Thus if the return on sales training is being measured, the benefits could be calculated as 1 per cent of profit on sales.

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Use of evaluation tools

Research by The Industrial Society (2000) has shown that the Kirkpatrick model was used by 35 per cent of the 487 participants. Research by Twitchell et al (2000) found that many US organizations use levels 1 and 2 evaluations for at least some programmes, fewer than half even try level 3 and only a small percentage use level 4 evaluations.

The number of respondents to the IRS 2004 training survey using different types of evaluation is shown in Table 41.2.

Table 41.2 Use of evaluation tools (Source: IRS, 2004f)

Application of evaluation

As Reid et al (2004) comment: ‘The more care that has been taken in the assessment of needs and the more precise the objectives, the greater will be the possibility of effective evaluation.’ This is the basis for conducting evaluation at various levels.

Like the similar levels of evaluation suggested by Hamblin in 1976 (reactions, learning, job behaviour, impact on unit and organizational performance) the levels defined by Kirkpatrick are links in the chain. Training produces reactions, which lead

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to learning, which leads to changes in job behaviour, which lead to results at unit and organizational level. Trainees can react favourably to a course – they can enjoy the experience – but learn little or nothing. They can learn something, but cannot, or will not, or are not allowed to apply it. They apply it but it does no good within their own areas. It does some good in their function, but does not improve organizational effectiveness.

Evaluation can take place at any level. In the Kirkpatrick scheme it is easier to start at level 1 and progress up with increasing difficulty to level 4. It could be argued that the only feedback from evaluation that matters is the result in terms of improved unit or organizational performance that training brings. But if this is hard to measure, training could still be justified in terms of any actual changes in behaviour that the programme was designed to produce. This is based on the assumption that the analysis of learning needs indicated that this behaviour is more than likely to deliver the desired results. Similarly, at the learning level, if a proper analysis of knowledge, skills and attitude requirements and their impact on behaviour has been conducted, it is reasonable to assume that if the knowledge, etc has been acquired, behaviour is likely to change appropriately. Finally, if all else fails, reactions are important in that they provide immediate feedback on the quality of training given (including the performance of the trainer), which can point the way to corrective action.

Part IX

Rewarding people

This part is concerned with the process of rewarding people in organizations. It starts in Chapter 42 with a general review of reward management, which includes descriptions of its application for directors and executives, sales staff and manual workers. This is followed in Chapter 43 with an examination of the concept of strategic reward. The rest of Part IX deals with the following aspects of reward management:

Chapter 44 – Job evaluation

Chapter 45 – Market rate analysis

Chapter 46 – Grade and pay structures

Chapter 46 – Contingent pay

Chapter 47 – Employee benefits, pensions and allowances

Chapter 48 – Managing reward systems

42

Reward management

This chapter provides an overview of reward management. The concept of reward management, its strategic and detailed aims and its philosophy are discussed initially. Reference is also made to the economic factors that affect levels of pay. This is followed by descriptions of the elements of a reward management system and the concept of total reward. The chapter ends with descriptions of particular applications of reward management for directors and executives, sales staff and manual workers.

REWARD MANAGEMENT DEFINED

Reward management is concerned with the formulation and implementation of strategies and policies, the purposes of which are to reward people fairly, equitably and consistently in accordance with their value to the organization and thus help the organization to achieve its strategic goals. It deals with the design, implementation and maintenance of reward systems (reward processes, practices and procedures) that aim to meet the needs of both the organization and its stakeholders.

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THE AIMS OF REWARD MANAGEMENT

The aims of reward management are to:

●reward people according to what the organization values and wants to pay for;

●reward people for the value they create;

●reward the right things to convey the right message about what is important in terms of behaviours and outcomes;

●develop a performance culture;

●motivate people and obtain their commitment and engagement;

●help to attract and retain the high quality people the organization needs;

●create total reward processes that recognize the importance of both financial and non-financial rewards;

●develop a positive employment relationship and psychological contract;

●align reward practices with both business goals and employee values; as Brown (2001) emphasizes, the ‘alignment of your reward practices with employee values and needs is every bit as important as alignment with business goals, and critical to the realization of the latter’;

●operate fairly – people feel that they are treated justly in accordance with what is due to them because of their value to the organization: the ‘felt-fair’ principle of Jaques (1961);

●apply equitably – people are rewarded appropriately in relation to others within the organization, relativities between jobs are measured as objectively as possible and equal pay is provided for work of equal value;

●function consistently – decisions on pay do not vary arbitrarily and without due cause between different people or at different times;

●operate transparently – people understand how reward processes operate and how they are affected by them.

THE PHILOSOPHY OF REWARD MANAGEMENT

Reward management is based on a well-articulated philosophy – a set of beliefs and guiding principles that are consistent with the values of the organization and help to enact them. These include beliefs in the need to achieve fairness, equity, consistency and transparency in operating the reward system. The philosophy recognizes that if HRM is about investing in human capital from which a reasonable return is required, then it is proper to reward people differentially according to their contribution (ie the return on investment they generate).

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Table 42.1 Economic theories explaining pay levels

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Reward policies

Reward policies address the following broad issues:

●the level of rewards, taking into account ‘market stance’, ie how internal rates of pay should compare with market rates, for example aligned to the median or the upper quartile rate;

●achieving equal pay;

●the relative importance attached to external competitiveness and internal equity;

●the approach to total reward;

●the scope for the use of contingent rewards related to performance, competence, contribution or skill;

●the role of line managers;

●transparency – the publication of information on reward structures and processes to employees.

Total reward

Total reward is the combination of financial and non-financial rewards available to employees.

Total remuneration

Total remuneration is the value of all cash payments (total earnings) and benefits received by employees.

Base or basic pay

The base rate is the amount of pay (the fixed salary or wage) that constitutes the rate for the job. It may be varied according to the grade of the job or, for manual workers, the level of skill required.

Base pay will be influenced by internal and external relativities. The internal relativities may be measured by some form of job evaluation. External relativities are assessed by tracking market rates. Alternatively, levels of pay may be agreed through collective bargaining with trade unions or by reaching individual agreements.

Base pay may be expressed as an annual, weekly or hourly rate. For manual workers this may be called a ‘time rate’ system of payment. Allowances for overtime, shift working, unsocial hours or increased cost of living in London or elsewhere may be added to base pay. The base rate may be adjusted to reflect increases in the cost of living or market rates by the organization, unilaterally or by agreement with a trade union.

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Job evaluation

Job evaluation is a systematic process for defining the relative worth or size of jobs within an organization in order to establish internal relativities and provide the basis for designing an equitable grade structure, grading jobs in the structure and managing relativities. It does not determine the level of pay directly. Job evaluation can be analytical or non-analytical. It is based on the analysis of jobs or roles, which leads to the production of job descriptions or role profiles. Job evaluation is described in Chapter 44.

Market rate analysis

Market rate analysis is the process of identifying the rates of pay in the labour market for comparable jobs to inform decisions on levels of pay within the organization. A policy decision may be made on how internal rates of pay should compare with external rates – an organization’s market stance. Market rate analysis is described in Chapter 45.

Grade and pay structures

Jobs may be placed in a graded structure according to their relative size. Pay levels in the structure are influenced by market rates. The pay structure may consist of pay ranges attached to grades, which provide scope for pay progression based on performance, competence, contribution or service. Alternatively, a ‘spot rate’ structure may be used for all or some jobs in which no provision is made for pay progression in a job. The various types of grade and pay structures are described in Chapter 46.

Contingent pay

Additional financial rewards may be provided that are related to performance, competence, contribution, skill or experience. These are referred to as ‘contingent pay’. Contingent payments may be added to base pay, ie ‘consolidated’. If such payments are not consolidated (ie paid as cash bonuses) they are described as ‘variable pay’. Contingent pay schemes are described in Chapter 47.

Employee benefits

Employee benefits include pensions, sick pay, insurance cover, company cars and a number of other ‘perks’ as described in Chapter 48. They comprise elements of remuneration additional to the various forms of cash pay and also include provisions for employees that are not strictly remuneration, such as annual holidays.