management matters
Page 46
Page 47
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How good is your salary structure?
IN road transport the pay and productivity of drivers features prominently in all discussions about industrial relations. There is a serious risk that salary structures in keeping with modern ideas of personnel management will continue to be neglected; only a minority of firms take salary administration seriously; the growing militancy of white collar staffs should serve as a warning to managements to give the subject urgent attention.
In manufacturing industries salaries accounted for 35 per cent of all employment incomes in 1968 as compared with 29 per cent 10 years earlier. No figures appear to be available for transport as a whole, or for the road transport sector, but it is probable they follow the same trend. The number of salaried staff in manufacturing industry increased over the same period from 21 to 27 per cent. There are recent examples of traditionally hourly paid staff in transport going over to weekly or monthly salary status, and this trend, too, is unlikely to be reversed.
Factors of concern Why is there so much concern on the part of white collar staff—managerial, executive, professional and technical—about the fairness and rationality of salary structures? The comprehensive report on salary structures (Report No 132) published by the Prices and Incomes Board points to a number of factors.
• There is a greater awareness of opportunities on the part of salary earners brought about in part by rising educational levels. Bright school-leavers today do not join an industry with little growth prospect. Those who (correctly) see enduring prospects in road transport and distribution demand that employers provide a planned career structure; obviously, if youngsters entering industry for the first time feel this way older members of the staff, brought up in a less-demanding age, become unsettled.
Today, there is much more mobility and a proliferation of specialized skills. There is a marked trend towards larger units of organization through growth, mergers and takeovers. Management selection firms may be as influential as white collar trade unions in stimulating salaried people to be more demanding. The determination of salaries, usually in secret, on a purely personal and ad hoc basis is on the way out. It has been estimated that al;out one-third of all management, executive, professional and technical (MEPT) staff in firms with 250 or more employees were affected by major reorganizations of salary systems between 1966 and 1969. Even so, there is a long way to go before rational salary systems are general. Structures based on job evaluation, or in which jobs of similar responsibility are grouped in grades, are still comparatively rare. At present about three-quarters of MEPT staff under existing salary arrangements cannot, on taking up a new appointment, expect to know the maximum pay for that job.
To study salary systems helpfully requires knowledge of the objectives underlying individual companies' systems, including the principles observed in their construction and development and of the extent to which theory and practice either coincide or diverge. The PIB conducted detailed case studies in 23 undertakings, including several public corporations. In addition, it carried out a national survey covering the main aspects of salary administration. Evidence was received from trade unions, employers, the CBI and TUC, professional institutions, academic experts and management and selection consultants.
Such a massive inquiry ought to have set the trend for progressive companies for a decade but the PIB sees the need for still more research. "Little is known about why particular organizations decide on, or decide against, particular policies in the field of salary administration. It is therefore difficult to reach conclusions on the quality of particular salary systems or structures, or to judge what effect different salary systems have on particular organizations. Part of the difficulty here is in isolating the effects of salary systems from those brought about by other aspects of an organization."
Evidently many MEPT staff know where the shoe pinches and may be willing to endure a poor salary structure or no structure at all if personal relationships are good or there are compensating factors, such as job-interest, to counterbalance things.
At one time there was a general opinion that salaries were higher than wages; the traditional borderline between salaries and wages largely coincided with the borderline between non-manual and manual work. Today, there is a considerable overlap between the two payment systems. In 1968, a half of all male manual employees earned more than 30 per cent of male non-manual employees. Indeed, about one-quarter of manual workers earn more than half of non-manual workers.
Status distinctions between salaried and wages grade staff are increasingly becoming blurred as the earning power and conditions of service of manual workers improve. But if the distinction drawn between salaries and wages is becoming irrelevant there are real differences in the way in which pay levels are determined, the relationship between pay and job is determined and the future pay expectations of the employees concerned.
Wages are usually determined collectively but salaries tend to be determined by employers, often on an individual basis. About 9 per cent of MEPT staff covered by the PIB survey were paid at rates, determined by collective negotiation. If, as some expect, white collar trade unionism gets a boost from the industrial relations legislation, this percentage may increase sharply.
Wages v. salaries Wage earners are likely to be paid a standard rate for the job, often with an additional element directly related to the work done. Salaried employees are likely to be paid at a point within a range or scale for the job performed, with expectation that pay may be raised with increasing experience or for meritorious performance.
Wage earners, exceptionally, are promoted to higher-graded or supervisory posts. If promotion involves transfer to salaried status, weekly or monthly take-home pay is a factor in a manually graded worker accepting promotion. Salaried staff, in contrast, commonly work in a set-up where promotion possibilities are important and where the individual thinks in terms of career development yielding a steadily increasing income for much of his working life. Marriage, particularly where there is a young family to support, often disposes young men to think in terms of salaried security, however unspectacular; bachelors and rolling stones tend to despise the stress laid by some employers on pension prospects 40 years hence! The case for all companies having a salary system is that if the system employed is not soundly based anomalies will develop, and these are likely to prove uneconomic to the company. If jobs are defined properly it is much easier to attract and retain the right number of employees with the right blend of qualifications and experience.
Management must pose the following questions in Considering the desirability of establishing a salary structure:—
Does the firm employ a small or a large percentage of highly mobile skilled people for whom a well-defined labour market exists?
Does it aim to recruit youngsters and offer them a career for life or will it always need to recruit substantial numbers of more senior people?
Do foreseeable technical or economic • changes also imply alterations in the skills and number of people needed?
"Penny pinching' Although costs are important a "penny pinching" attitude to pay is bound to be expensive in terms of staff morale and obtaining staff of the right ability. Hence, a salary structure should serve the aims of the enterprise as a whole; be suited to its organization and sufficiently flexible to allow for changes and development; attuned to changes in market rates and other factors affecting pay; encourage the right sort of people to apply for the jobs for which they are best suited—and to stay with the firm. The structure should also encourage high performance in return for commensurate rewards, and achieve these aims at the minimum cost.
It makes good sense for the personnel manager—or the manager whose duties include the staff function—to be responsible for implementing a salary structure and amending it periodically.
One of the most crucial points to come out of the NB survey is the need for companies to disclose much more information to staff about pay and career prospects. It says that "to be successful a policy of disclosure requires . . that the shaping of the system which is to be introduced and to be made known to the staff is itself fashioned with the knowledge, and indeed the active help and full acceptance, of those to whom it will apply. Such involvement of staff will help to deal with any difficulties which a process of disclosure may well bring. For the rest, such problems must be solved by strong and capable management, and its existence is a further essential requirement for a successful policy of disclosure".
Although there may be limits to the extent to which information about salaries, and particularly about individuals' salaries, can reasonably be disclosed, the PIB stressed that the value of performancelinked increments and indeed the existence of any system linked to performance, was endangered by a policy of unnecessary secrecy.
Increasingly, companies are reviewing employees' performance by means of annual review forms. Any management operating this system, good in principle, should weigh carefully the Pill conclusion that the performance of individuals must be judged objectively. A great many of the documents examined in the survey were found to be personality-rating questionnaires rather than performance review forms. In the vernacular: "Tom's got the right-coloured eyes!"