Hell to Pay: A Dogmatic Reward Strategy Can Seriously Damage Your Organisation's Financial Health-Which Is Why Management Accountants Should Get More Involved in Policy-Making. (Management)

By Allen, David | Financial Management (UK), March 2003 | Go to article overview

Hell to Pay: A Dogmatic Reward Strategy Can Seriously Damage Your Organisation's Financial Health-Which Is Why Management Accountants Should Get More Involved in Policy-Making. (Management)


Allen, David, Financial Management (UK)


The last weeks of 2002 were notable for the number of high-profile cases concerning the relationship between an organisation and its employees.

Most column inches were devoted to confrontations in the public sector. First came the hospital consultants' rejection of a deal that would have given them a salary increase of around 15 per cent, because in return they would have had to allow their work patterns to be governed by managers who, the consultants believe, are preoccupied with politically inspired but clinically inappropriate performance measures.

Then there was the firefighters' dispute, where the union insisted that its members were worth more money, even though there was a waiting list of people wanting jobs at the going rate. The government predictably resorted to "lump theory" in asserting that there was a fixed amount of money, so higher pay would inevitably mean fewer employees.

Part of the problem is that the public sector is widely seen as a monolith. Some parts of it are chronically short of recruits, but the idea of increasing pay in order to attract the people they need is shunned for fear that other areas would demand increases to maintain comparability, irrespective of market forces.

In the private sector, meanwhile, there were several cases where the directors of quoted companies were trying to gain shareholder approval for massive pay rises for at least some of their number. The arguments they invariably trotted out were that such packages--often running to millions of pounds--were essential if the individuals concerned were:

* to be motivated to do their best for the company;

* not to defect.

The good news is that institutional shareholders have woken up to this unjustifiable trend and have been intervening accordingly--but what a pity it's had to come to that. I cannot but wonder what impact those directors' obvious disdain for the concepts of commitment and loyalty has had on the morale of the middle managers who earn only 1 or 2 per cent of the sums demanded by their bosses, yet play crucial roles in the business. At their level, pay policies are still dominated by the concept of comparability across different jobs--again irrespective of market forces.

The common feature of these various confrontations is the underlying perception that what is being played is a zero-sum game--that is, if one side gains, the other side must lose. What's missing is the recognition that the motivation of employees is one of the most significant intangible assets an organisation can possess, and hence one of the main contributors to its financial health. The greater the motivation of employees, the more likely it is that customers will be delighted and an adequate return will be achieved. …

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Hell to Pay: A Dogmatic Reward Strategy Can Seriously Damage Your Organisation's Financial Health-Which Is Why Management Accountants Should Get More Involved in Policy-Making. (Management)
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