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Buying out bonuses

30th June 1984, Page 37
30th June 1984
Page 37
Page 38
Page 47
Page 37, 30th June 1984 — Buying out bonuses
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Which of the following most accurately describes the problem?

Paper by Bryan Wilson, NFC The expression 'Buying Out Bonuses' is a very emotive phrase. It sounds expensive. It suggests action, perhaps misguided, to rectify an elaborate failure; the action necessary to draw a line where all that went before is forgotten; to turn a clean page. It also has overtones of a penalty where financial implications commence at a more expensive level than they would have been without the experience of recent history.

Buying out Bonuses is an expression that sends shudders down the spine of the average manager. It recognises failure — it cuts losses — and it implies paying out money in the future with no strings or conditions attached.

That is the emotive reaction. A cooler view suggests that it is one alternative open in a scene where action is inevitably required eventually. This recognises that the utility of any incentive scheme starts its decline from the very moment it is imp!emented. It eventually becomes 'a corset' of restrictive practices, a bar to efficient operations.

Here I look at the phenomenon and the solution of 'buying out' so far as it affects drivers, and perhaps, more restrictively, to drivers in the freight transport industry. Although the example used relates to that very special category of men, the considerations undoubtedly apply to a wider population, perhaps even universally. The topic is also taken from a wider view than that which relates to incentive schemes alone and hopefully discusses other alternatives than the pure 'buy out'.

Today's remuneration package of the average driver is very complex and has elements in it of basic wage, overtime and incentive payments. There is then a topping-up by allowances, such as overnight subsistence, and payments to cover the cost of meals and to recognise working hours outside what is considered to be the norm.

On the assumption that some Union demands have been conceded over the years the topup could also include special payments for the higher category heavy goods vehicle licence; for using the tachograph; and for driving higher capacity vehicles.

In this package the number and types of incentive schemes are many and varied. In the early days most schemes assumed that if miles were run there would be a full profit earning load on the back. Early schemes were thus based on miles run or time savings on the total jour

neys (which in theory were then used for other journeys). Since then more complex schemes have evolved. Without attempting to be comprehensive, a flavour of the variety available is indicated by a list of factors upon which schemes have been known to be based.

The Factors

Tank Haulage miles run (increase) journey times (decrease) terminal times (decrease) tank cleaning times (decrease) number of trips (increase) Parcels packages collected/delivered miles run (in combination) adherence to schedules reduction in terminals times commission on monies collec ted packages handled per man hour Trucks miles run

adherence to schedules

Distribution adherence to schedules miles run packages carried Cold Storage (Handling) pallets into and out of store Maintenance measured work (resulting from independent Work Study measurements) time taken, say compared with manufac turers' recommended times Driver/Salesmen commission on sales These very complex arrangements could be replaced by a more simple system whereby average total earnings are recognised and a guarantee of remuneration at this level is given unfettered by conditions. Bonuses (which in this definition include all payments and allowances beyond the basic wage) are bought out.

The immediate advantages of such a system are very apparent. From the driver's viewpoint he knows what to expect and can plan his outgoings on a steady level of income. He can devote himself to the most effective way of doing his job and forget about the spurious methods by which he can incur overtime; earn unjustified 'night outs'; run miles which are not necessary; adopt the many and various ploys available to him to enhance his earnings.

The benefits to the employer in such a simple system is that he has a good knowledge of what his labour costs are going to be and can price his services with more confidence as a result. His ability to evolve flexible working is not inhibited by considerations of the effect of change on incentive schemes and his men's bonus earnings, or the need to provide for those effects to avoid industrial relations difficulties.

The disadvantages are less apparent. Certainly from the employer's viewpoint guaranteed higher level payments make his business more risky and less likely to weather economic recession or hard times. Put more crudely, he cannot transfer some of his losses to his drivers in thE shape of reduced earnings. ThE disadvantages to the driver arE less easy to recognise. ThE system certainly removes thE ability for the financially hard pressed man to maximise hi; earnings in a given period by pulling out all the stops.

By that very simple analysis with advantages far outweigh. ing the disadvantages, the case for change appears unanswera. ble. The picture is of a very conservative industry clinging tc outmoded practices and beinG less efficient than it ought to bE in consequence. The question aE. to whether this charge is wellfounded can only be answerec by a fuller analysis whict involves an understanding of thE driver and his motivations.

So what do we know about thE driver. Undoubtedly he is E member of the human race, sc perhaps the first step is to look a what social scientists are sayinG to us about motivation. DespitE the time which has elapsec since, the work of Maslow, Herz. berg and MacGregor in thE 1960's still appeals to me as be ing the most tenable explanatior of this area of human behaviour A recent article in 'Personne Management' suggests that ir this he is not alone, despite thE fact that more academic materia on motivation is being publishec now than at any time previously May I remind you of their theories.

Taken together and expressec simply, which will no doubi annoy the academics, the work of the aforesaid gentlemen suggests that factors influencing motivation can be segregatec into five overlapping elementE which gives a hierarchy ol needs.

Maslow found that man was a continually wanting animal anc that these needs and wantE operate in a hierarchy of urgency: First level — 'Physiological Needs'. These are needs that man must satisfy to keep alive,

eg food, drink, sleep, temperature control, rest and oxygen. Second level — 'Security and Safety Needs', ie protection against danger; job and life security; a generally ordered existence.

Third level — 'Social Needs', ie acceptance by social and work groups; belonging; a feeling of identification.

Fourth level — 'Ego Needs', ie self-esteem; recognition; status; respect of others.

Fifth level — 'Self-fulfilment Needs', ie creativity; selfrealisation; need for self-fulfilment.

In applying this theory to practice it should be noted that: 1. The lowest unsatisfied need First Level through to Fifth Level at any time overrides the other needs and motivates the behaviour of a person to satisfy that need.

2. A satisfied need is no longer a motivator.

3. A Fifth Level need (the need for self-fulfilment) is the highest. This is the desire to become everything that one is capable of becoming.

Striving to attain these needs is what causes individuals to motivate themselves to take action. An organisation can thus achieve its chosen objectives if their achievement is related to the satisfaction sought by its employees.

This is the basic premise behind most wages incentive schemes. The organisation wants work done, the employee wants money to satisfy physiological and security needs (and perhaps other needs). The organisation thus closely relates the work to money, usually by incentive schemes.

Successful organisations also cater for the other satisfactions desired. Work groups are cultivated to make people feel they belong. Work group ethics give a stricter code of discipline than anything imposed from above. Praise is bestowed generously when justified, building up the individual's self-esteem. Status symbols are offered along the promotional ladder to satisfy ego requirements.

The most successful organisations are those which also allow individuals the opportunity to maximise their creativity and self-realisation in their work. When relatively speaking the individual has all the money he wants, has a place in society and has achieved a position in life and the badges of status to prove it, all he has left is this urge to have the satisfaction of a job well done. Whether or not this satisfaction comes from his job; his home, his hobby; politics, his trade union, depends greatly on the climate the organisation has created for him to work.

Another behavioural scientist, Herzberg, summarised his thinking by grouping factors into two categories:

(a) Hygiene Factors — which keep people from leaving but don't bring job satisfaction. These are the things like pay and conditions of employment, relationship with colleagues, relationships with supervisors. They very much cover Maslow's Level One to Level Three satisfactions.

(b) Motivators — the factors

which cause positive atti tudes and high performance amongst subordinates. If they are not present indi viduals are not likely to re sign but will not do more than they perceive to be the minimum: examples are achievement, interest!ng work, advancement, re cognition, responsibility. In other words Maslow's Level Four and Five satisfactions.

Is this thinking relevant to the driver? He does certainly have significant differences from the normal human being, either he (or the nature of his job) gives a person who is alone for the main period of his working day, without supervision, making his own decisions on how, when and where his task will be accomplished. This makes a special person, one that might be called a 'loner'.

Does this mean that group belonging or status have no relevance? It is not thought so. My school of thought suggests the very nature of the job intensifies the other opportunities he has to belong.

Whilst being fiercely independent he is very loyal to his fellow worker, to his trade union, and maybe to his company. He is certainly proud of his status symbol, his vehicle.

There are also many indications that he gets satisfaction for a job well done. His biggest cause for annoyance appears to be when his organisation places him, as its shop window and in terface with the customer, in the direct firing-line because of a foul-up somewhere else in the operation.

The conclusion then is that modern motivational theory does have relevance to the driver as a generality. However, the perceived differences of the driver from the norm do underline the truth of another part of the theory.

This suggests that one human being is very much like another and such a belief then makes the differences very important. These differences tell us to treat our findings with care for we are treading on very thin ice indeed.

In the driver's case the differences underline the fact that the only person who can moti vate anyone is that person motivating himself. He is alone, unsupervised for most of the time but he does work within a climate created for him by his organisation. This underlines the importance of the task of the manager in creating the climate so that this self-motivation is more likely to happen than not.

Are we then wrong to use money in this climate creation when Herzberg is undoubtedly right in looking on financial rewards as a 'hygiene factor' only, ie with limited motivational power but heavily demotivational if the level of reward is perceived to be too low? It may be of some relief to know that at least one judgement suggests

that money has uses in this direction. It can be a valuable tool in climate creation.

It has been seen that money satisfies physiological, security and social needs. It may also give the individual the opportunity to belong to other groups, perhaps as part of his social life; to achieve status in those groups and to indulge in hobbies and other interests. Money can thus impinge across the total hierarchy of needs.

However, throwing money at a problem does not in itself guarantee that the target will be hit or that the minimum amount really necessary to achieve the purpose in hand will be used.

The importance of these factors need not be emphasised be cause the effect of unnecessary expenditure on competitiveness and on efficiency must be selfevident.

Having, hopefully, established by these arguments that money is a powerful agent for manage ment in climate creation, leading to strong serf-motivation, and that this applies to the driver, it is possible to return to the original question. This asks "Is the present method of giving the driver his financial rewards the most effective way?" Here the answer must be "No!" for it does not maximise the involvement and commitment of the individuals to their work and to their organisation.

The words 'involvement' and 'commitment' are emphasised because all the work on motivation done since the 1960's has concluded that it is involvement and commitment which is important. The major question is how to achieve that involvement and commitment.

The current arrangements give the driver financial rewards but they do so in a way which strengthens the 'adversary' approach to industry which has epitomised the relationship between employers and employed since the Industrial Revolution. There is a school of thought which suggests that it is this approach which has brought the United Kingdom to its current decline.

Whilst management and men have gone about their tribal warefare, the customer has gone elsewhere (usually to obtain his needs from countries around the South Pacific basin). What is true of the UK is true of an individual organisation within it.

The aim must surely be to reduce this adversary approach. Unfortunately the easy, average earnings solution does not resolve the matter either. With payments not being tied or related to anything, the emphasis is still on sharing the given cake. What is really needed is an approach which increases the size of the cake.

So what is the way ahead? Obviously changes involving attitudes to the job will not be achieved overnight. A two-stage approach is proposed. Both work on the premise that additional financial rewards (the rewards above those needed to satisfy the physiological, safety and security needs) can only come from profit and that profit must be realised before payment is made. The approach is thus very much 'payment for results' — not 'payment for promises'.

The first stage is to adopt the profit centre approach and relate incentive earnings to achievement and betterment of given profit targets for the appropriate profit centre. The theory behind most incentive schemes is that maximum impact is obtained by schemes which pay on the results achieved by individuals with no interdependence.

Everyone earns in direct relation to their personal efforts alone. Unfortunately this approach does not recognise the interrelated approach to the organisation of work.

In considering the driver one cannot overlook that his profitable working depends on his supervisor, the salesman, the traffic clerk, the customer service clerk, the accounts clerk and engineering maintenance staff, even perhaps his manager. A wider view than the 'one manone vehicle" approach may be required.

As requirements are so very diverse, this wide view could be based on the individual vehicle; on a group of related workers; on the branch; on the subsidiary company; or on the overall holding company results depending on the circumstances. Such an approach is believed to be relevant for all employees, not only drivers, and to an extent gives all a tangible 'share of the action'. It is a single status approach to employment.

So we have an approach of basic salary and incentive payment based on profit achieved by the organisation. All other payments would cease except the overnight subsistence, and here the requirement should be reimbursement against actual expenditure incurred backed by invoices and receipts. The need for meal and other allowances, seen to be incurred by all as a consequence of the nature of the job, should cease. The size of the rewards offered for the achievement of stretching targets will be decided on a judgement of what is appropriate. Some simple guidelines are available: (a) the target should include the cost of the incentive payment; (b) on no account should more than 50% of the improvement be expended in this way and increasingly the aim should be to give a greater retention to the company; (c) the structure of the incentive should be geared to give progressively greater rewards for higher level, more difficult achievement.

Perhaps the greatest requirement is that the culture of the organisation should allow, nay demand, results-orientated remuneration packages. This is a way of life and cannot be introduced for one group of staff alone. The one thing which epitomises the successful organisation is excitement from the risks involved in growing and developing. Remuneration which is results-orientated is a major contributor to this air of excitement.

As the -profit centre" ap proach to management control is the norm nowadays the adoption of this system does obviate the need for special control information for incentive payments. The payment system relates to, and is part of, the very heart of the business. It is also interesting in that experience to date suggests that employees are not greedy when demanding their share of additional profits. This is especially so if, as in the NFC, the practice is adopted of communicating to employees all the financial facts of business.

There is usually an acceptance that capital must be serviced and shareholders rewarded. Whilst the negotiation on size of basic salary and incentive scheme arrangements continues attitudes are different and the "adversary" element reduced.

The evidence in the NFC is that we are ready for this stage and we are taking our first faltering steps on the way. Whilst central negotiations to introduce salaried status for drivers were not successful in 1983 we will try again. In the interim a number of our branches have jettisoned their traditional bonus systems and replaced them by incentives based on branch results — and this came about at the behest of the drivers concerned, at their initiative. This gives us encouragement.

We are not following an act of faith. The system has been in operation for our managers for some four years and our administrative staff for some two years and is, we believe, an integral part of our success. We do believe that drivers are very similar to managers and clerks in this area (one human being being very similar to another) and so we have adopted the approach as our way ahead.

We are conscious that this is not enough. We need even more involvement and commitment from our workforce if we are to meet the market demands of the next twenty years. That is why we have already identified a further stage — stage two.

The second stage builds on and develops the approach adopted in the first stage. The major difference is that quality targets take on much more emphasis. Its adoption has a major stumbling-block. It demands that the organisation concerned moves towards the quest for excellence.

Those of you who have heard my chairman address various conferences will know that we at the NFC believe real productivity to be wrapped up in a package for the customer which satisfies him and which produces more

profit. The overlay for this state of affairs is quality — and attainment of excellence. Our belief is that such a package is more attainable if the workforce — all of them, managers to sweepers — have an involvement at a much deeper and more satisfying level than given by simple productivity schemes.

This is why we see the stage one approach, postulated earlier, applying to everyone and, in effect, giving drivers salaried status. At the end of the day what stage two does is give a situation where although rewards are financial they are only achieved by the individual or unit attainment of profit and quality targets.

This approach demands that the customer is king and service to him matters above every other consideration.

The mechanics of the scheme are very similar to those at stage one. Each individual has a basic salary and is paid additional amounts in recognition for his achievement of profit and quality targets. This does involve more work in establishing the arrangements but rewarding work at that.

The awareness of profit must be total and if it is not the organisation is failing somewhere in its communications or control information. The awareness of quality and of excellence is not so evident. It does demand an examination of what is satisfying to the customer and a tying back of these elements to individuals and to units.

The requirement may commence with a number of commandments for the individual employee, the non-observance of which debars him from payment. For example, in the driver one might require that he is always smartly turned-out; does not smoke on the customer's premises; is always cooperative and pleasant towards the customer and the customer's staff; as well as doing his job dealing with goods and maintaining schedules and operational requirements.

One of our companies which is in the forefront of making a profit, satisfying a very exacting customer, has fourteen such basic commandments, some of which the traditional approach would suggest are totally unacceptable to the normal driver. Our limited experience to date gives the lie to that comment and suggests that there is a great deal of scope for managers to move along this particular path if they have courage to do so.

However, it is accepted that UK industry (and the transport industry especially) is not noted for its ability to make quick changes in the labour relations front. When we move in this direction, and the question is considered to be one of timing rather than on the direction to be taken, the spin-off in labour relations terms is considerable. Both former adversaries, management and staff, have a focal point which gives a commonness of purpose, ie the customer. The "adversary" approach will be further diminished.

The result gives a three-part remuneration package of basic salary, incentive payment for quality attainment, topped up by rewards for profit achievement. Yes, there will still be scope for discussion or disagreement but this will be with the customer clearly in mind — someone forgotten all too readily in the arrangements to date.

These arrangements will provide the climate for self-motivation. They should be backed by increased communication and consultation with the workforce, maybe even participation in decision-making on a group problem-solving basis. They should also be part of a package that gives better working facilities for these are also an essential element for climate creation. If we provide this climate we may then get the involvement and commitment we need.

Perhaps then, and only then, will there be no further scope for people wishing to give papers on "Buying Out Bonuses", for there will be no demand. Our industry will be earning (and deserving) the margins which will justify high earnings for the people who work in it. They, in turn, will justify those earnings by their interest, commitment and involvement in the job. We will then be a highly efficient industry and be serving our purpose and maximising our own satisfactions. The only real question is: how long will it take?

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