Flexibility: Too much, too little, or just right?

By Duncan Brown, Principal, Aon Hewitt

I spend most of my time doing work that attracts a reward strategy coding. And reviewing the stated reward strategy goals and principles of the employers I have worked with recently, the word that appears almost as often as the career-progression-essentials of 'business-aligned' and 'market-competitive' is a desire for 'flexibility'. It's often not defined very well or much, but it is one of those words that in our change-obsessed era sounds so positive, the reverse of 'inflexible', 'rigid', 'static' and other words that you wouldn't want to hear applied to reward systems in your boardroom.

In a financial services organisation I have been helping to specify just what they mean by flexibility and how they will measure its improved delivery. These dimensions include: to maximise employee motivation and engagement across a diverse workforce, to increase the perceived value of rewards at a given cost and to ensure the cost effectiveness and affordability of the reward spend.

Which all seem very worthy and desirable aims. The key question at the moment though is whether in reward, as Manfred Kets de Vries illustrates so brilliantly in The Neurotic Organisation for general management, you can have 'too much of a good thing': is too much reward flexibility bad for employees and their employers?

At the level of the individual employee and in addressing diverse needs, we know from research that people appreciate being offered choices in their benefits package. But as we heard at the recent CIPD Rewards Forum meeting on total rewards, the biggest issue now with UK benefits is not cost but communications, and giving employees sufficient understanding to make these choices effectively and in their own best interests. This in many big companies is driving a refocusing of their flexible benefits package and targeting segmented groups with a more limited range of options that make sense for them.

At the level of the individual employer, whilst increasingly complex structures of joint venturing, partnering, alliances and outsourcing may provide highly flexible and less risky growth opportunities and service provision, it can also create nightmares for rewards. Like the joint venture that ran for a year with no employee life insurance as the parent organisations all assumed the others had set it up. Or the construction venture where a major Far East investor tried to force its highly complex and bureaucratic, multiple-competency performance-related pay and management process on a team of just 75 employees.

The excellent, just-published CIPD research report Understanding the business issues in partnering arrangements observes that "excellent people (and reward) management is critical to the success of business partnering arrangements". But we need to radically improve our capabilities in such situations, if the failure rate of two-thirds of such alliances claimed in the report is to be addressed.

Perhaps most obviously and controversially at the moment, the aspect of flexibility that has most potential to drive a wedge in the alignment between employees and their employer's interests is that of low pay and highly flexible zero hours contracts, as evident in the current Hovis dispute. I have blogged extensively on this issue this year so won't comment at length here. Suffice to say that supporters argue such labour and pay market flexibility creates jobs and fosters economic growth. But the increasingly influential critics question why five million UK employees don't earn enough to live on, requiring subsidies of in-work benefits from tax payers of some £5 billion pa, and when more than one in five of our young people are unemployed and not in education.

As the Work Foundation's recent report Flexibility or Insecurity? highlights, this is a complex issue. Beneath all the rhetoric, HR and reward professionals can surely contribute, in helping to identify when such contracts deliver clear benefits and what good practice in their use consists of, supporting employee as well as employer interests.

Broadbanded pay structures can, if well managed, similarly provide tremendous flexibility for employers to set and adjust pay effectively in relation to the external market and to reflect individual performance. But experience with them has taught us that they can also seriously demotivate employees who perceive them as unclear and unfair, and obscure gender discrimination in levels of pay.

As Kets de Vries puts it, we need to create 'managerial balance' in our pay and rewards arrangements. The key value added of reward professionals is not in blindly following a stated management goal or market trend to excess, but to judge and deliver into practice the optimum, 'Goldilocks level', that unique balance of continuity and change, flexibility and fixed structure, choice and consistency, policy and practice, that is 'just right' in each particular organisational setting.

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