V. Search the web to find the deciphering of the following abbreviations; translate them into Russian

UPS, EDS, DIY

 

VI. Explain the meaning of the sub-title “ Herding cats ”

Unit 17

The Problem with Pay

Companies should abandon complex appraisal programs run by bloated human resources departments, and base incentive pay on performance and managers’ discretionary awards

By Robert Bruce

As Sir Richard Greenbury has discovered, pay and how you pay it is a battle field of envy, smokescreens and outdated thinking. Even its descriptions are confusing. Directors, according to Greenbury, are remunerated. You and I get paid.

It is also one of the last areas of corporate life that remains isolated within a company’s thinking. Almost alone of all the processes of a company it is seen as an internal matter only. Few see it, as it should be seen, as a central part of the company’s strategy.

In part, the reason for this is secrecy. Or as Greenbury would say, lack of disclosure. ‘ Companies in the rest of Europe generally disclose much less information about directors’ remuneration than UK companies. This makes comparisons difficult,’ says Greenbury. His report finds that directors’ pay in the UK is on a par with Europe and much lower than in the US, where the cost of living is much lower as well.

But that is only part of the picture that the report paints. ‘ In the United States,’ it says ‘performance-related elements account for a high proportion of the total. In Germany and Italy, share-option and long-term incentive schemes are rare. The UK and France lie somewhere in between.

 

Sprawling empires

Greenbury also finds that ‘contrary to what is sometimes suggested’ the differentials between directors and employees in the UK ‘appear generally to be around the average for European countries and indeed for industrial countries as a whole’.

The problem with pay starts early in the career cycle. Systems abound In many a company what used to be a small personnel department – often staffed by the rarest of managers, people who understood other people – have vanished. Instead, sprawling empires of human resources departments set up interminable appraisal systems.

The result is usually clear. In the old days people moaned about their pay, but understood why it was at that particular level. Now no one has much of a clue, as everything has been buried deepwithin the jargon of the process.

Where the UK pay process needs to look for change is probably towards theUS. As Greenbury points out, the performance-related element is the highest there and performance-related pay is the easiest to understand and to justify. It also tends to move away from the bitterness and envy that appraisal-based grading systems create.

 

Evaporating incentives

Within such systems there is often very little difference between someone who is more or less treading water and someone who is really striving. Howevercomplicated the system has been made, it only complicates the way in which individuals see the reasoning behind their pay levels. And with so little difference the incentive element of pay increases evaporates.

There is also the problem of the budget set for pay increases. This is juggled to produce a result that both satisfies the finance director and sets an effective level of incentives for employees. It is an excellent example of conflicting objectives producing a result that satisfies no one.

It’s the old pitfall

The underlying assumptions are fatally flawed It is on a par with cost-cuttingexercises based on financial data alone. Appraisal systems attempt to outlaw injustices by reducing the process to a complex grading system.

It is the old pitfall of thinking that devising a masterplan that covers all eventualities will produce results. People do not conform to grids, however sophisticated. Appraisal systems are doomed from the start. For a start, they focus on individuals apart from the team process of which they are a part. Except in businesses,like advertising perhaps, where individuals cut a swathe and in any case largely dictate their own earnings, it is teams that produce products and services. Judging someone’s pay level in isolation is bound to fail.

The answer is to widen the view. The pay process has to be part of the way a company deals with the outside world of its markets, competitors and customers rather than being seen as a purely internal operation.

In the words of David Rhodes, managing director of Strategic Compensation Associates (SCA): “Money invested in executive remuneration should be scrutinised in the same manner as investments in other business opportunities, such as product development or new production facilities, and companies should expect an acceptable return on that investment. Successful companies do not copy the business strategy of their competitors, or unquestioningly adopt the latest management fad. Equally, if there is a lemming-like rush to standardize top executive remuneration and incentive schemes, the cost to British business could be high.”

UK companies have tended to move towards having bloated human resources departments beavering away on appraisal programs. None of it works.

Charles McKhann, a senior associate at SCA is blunter. ‘ The history here in the UK is of programmes being created outside the main business strategy. They are created with the best intentions, but they have no input from the strategic planning people.

 

A huge dilemma

The result, as he sees it, creates in its simplest form a huge dilemma for bright employees. They understand how the appraisal system works and they reach the point where they are bemusedly asking themselves the question: ‘The appraisal system tells me to do this, but my own instincts and acumen suggest I should be doing that for the business.’ The system starts to mold the decisions when it is, of course, the decisions that ought to be doing the molding.

Companies should turn their backs on complex human resources operations. These only attract people who love complicated forms and committee structures – the ‘anoraks’ of the business world.

Instead they should ensure that people’s basic pay is based on what the market pays in similar organisations. But the differential on top should be based on performance and on discretionary awards judged by the employee’s immediatemanager It is through such awards that proper incentive and reward systems can be created. It also, being a relatively open system,removes as much as possible of the envy and secrecy that Greenbury so abhors.

Accountancy

 

Vocabulary

1. appraisal program (system) программа (система) аттестации

2. human resources department отдел по работе с персоналом

3. personnel department отдел кадров

to staff the department with (by) employees укомплектовать отдел служащими

4. to remunerate вознаграждать

remuneration (pay, compensation) вознаграждение (зарплата +

различные льготы

to offer (to accept) remuneration

performance-related pay оплата труда по результатам

pay differential разница в оплате

pay increase

5. to disclose information (disclosure) предоставлять информацию

6. share-option (stock-option) plan поощрительная программа

(programme, scheme) предоставления работникам

компании её акций по льготной

цене

to introduce (institute) a plan ввести план в действие

to implement a plan (program) осуществить, претворить план в

жизнь

7..incentive стимул

to offer (to establish) incentive

an incentive to work harder стимул к тому, чтобы работать

лучше

incentive and reward system система стимулов и поощрений

incentive pay поощрительная оплата труда

8. to devise a masterplan разработать генеральный план

9. return on investment (ROI)= доходность инвестированного

return on invested capital капитала

10.discretionary awards премия на усмотрение

руководителя

11.immediate (line manager) непосредственный руководитель

(руководитель низшего звена)

 

Assignments