West of Scotland Masterclass Series
The Psychological
Contract:
What it is, why it’s
important, how to
manage and use it.
© Duncan Brown Assistant Director General
West of Scotland Masterclass Series 10/11 May 2005
1
11 May 2005
The Nineteenth Century Psychological Contract
•
Employer Wants
-
•
Employee Gets
-
“The pit gulped down men in mouthfuls of
20 or 30”.
“The iron laws of economics, driving wages
inexorably down or putting men out of work …”
“The workers held in check by the hierarchy,
the years of tradition and deference, the
system putting each in the power of the one
above”.
“That’s the way it is: born in a Company cradle,
living in a Company house, burning the
Company’s coal, spending your pittance of a
wage at the Company shop, until you’re
finally buried in the Company’s coffin”
Etienne, ‘Germinal’ (1885)
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West of Scotland Masterclass Series 10/11 May 2005
Our agenda this morning:
The Psychological Contract:
• What it is and why it’s important?
• Some examples
• Key research findings
• Using the findings
- stress management
- reward management
• The end
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West of Scotland Masterclass Series 10/11 May 2005
So what is the psychological contract?
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West of Scotland Masterclass Series 10/11 May 2005
What is the Psychological Contract?
• Every employer has a ‘deal’, a psychological contractual relationship
with its employees, beyond the formal employment contract.
• For our research we define it as:
“the perceptions of both parties, individual and organisation, to the
employment relationship and the reciprocal obligations implied in that
relationship”.
• In the UK it has often been more implied than explicit.
• It defines:
- what the company needs and expects, what employees have to do,
how they get on, how they need to behave;
- what employees receive in return: rewards, satisfaction, motivation
etc.
• Breaching the contract, by either party, can have serious
consequences.
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West of Scotland Masterclass Series 10/11 May 2005
The ‘Deal’
Employer
Employee
Psychological
Contract
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West of Scotland Masterclass Series 10/11 May 2005
Pyschological contracts vary dramatically, depending
on the employer’s business circumstances and core
ideology: US companies often wear theirs on their
sleeves.
Apple Deal
Here’s the Deal Apple will give you;
here’s what we want from you.
We’re going to give you a really
neat trip while you’re here. We’re
going to teach you stuff you couldn’t
learn anywhere else. In return … we
expect you to work like hell, buy the
vision as long as you’re here …
We’re not interested in employing
you for a lifetime, but that’s not the
way we are thinking about this. It’s a
good opportunity for both of us that
is probably finite.
Johnson & Johnson Deal
We are responsible to our employees,
the men and the women who work with
us throughout the world. Everyone must
be considered as an individual. We
must respect their dignity and recognise
their merit. They must have a sense of
security in their jobs. Compensation
must be fair and adequate, and working
conditions clean, orderly and safe.
Employees must feel free to make
suggestions and complaints. There
must be equal opportunity for
employment, development, and
advancement for those qualified. We
must provide competent management,
and their actions must be just and
ethical
The Traditional Deal in large UK organisations: the 1970’s version of Zola
and Taylor
Old Deal
“A fair day’s work
for a fair day’s pay”
If You:
• Are loyal
• Work hard
• Do as you’re told
We’ll Provide:
• A secure job
• Steady service-linked pay and rewards increases
• Regular promotions/upgrades
• Financial security
And You’ll be Part of:
• A dull, safe organisation
West of Scotland Masterclass Series 10/11 May 2005
8
What’s the Contract in your Organisation Today?
Employer
Wants
Employee
Gets
Our Psychological Contract:
Our Psychological Contract:
Desired
Actual
The Traditional Deal came under a bit of pressure
Politics
• Costs of employment regulation
• Philosophy of choice/
individualism
• Efficiency drive in public sector
Socio-Economic
• Increase in part-time and female
workforce
• Growth of flexible workforce
• Ageing workforce & pensions crisis
Business/Competitive
Pressures
• Increasing competition
• Globalisation
• Technological change
Traditional Deal
People Management
• Dominance of businessdriven US HRM ideas.
Employer Gives
Job security
Steady pay
increases
Good benefits
Employee Gives
Loyal
Work hard
Do as you’re told
Strategic Responses
• Downsizing/delayer
• Reenergising/
reorganisation
• Outsourcing
“Our actions on pensions is seen as a further threat to the psychological
contract the Civil Service has always had with its staff. The essence of this
contract has been an interesting job, security of employment and a good
pension … we should not be surprised at the reactions of our more senior
people” Kevin White, DWP
10
A ‘New Deal’ of flexibility and employability was publicised by US and latterly UK companies, particularly in the high technology sectors
Old Deal
“A fair day’s work for a fair day’s pay” If You:
• Are loyal
• Work hard
• Do as you’re told
We’ll Provide:
• A secure job
• Steady pay increases
• Financial security
And You’ll be Part of:
• A dull, safe organisation
Perceived Deal
“More work and
risks for the same
pay”
If You:
• Stay
• Do your job + someone else’s
• “Volunteer” for task forces
We’ll Provide:
• A job if we can
• Gestures that we care
• The same pay
And You’ll be Part of:
• An organisation with problems
New Deal
“A flexible, mutually
beneficial
partnership”
If You:
• Develop the competencies we need
• Apply them in ways that help the
organisation succeed
• Behave consistently with our
values
We’ll Provide:
• A challenging work environment
• Support for your development
• Employability
• Reward for your individual contribution
And You’ll be Part of:
• A revitalised organisation
11
So where are we today?
• A more complex, fast changing environment
• Complex and varied psychological contract
between and within organisations
• A “say/do” problem
- delivery
- engagement
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West of Scotland Masterclass Series 10/11 May 2005
So Why is it Important?
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West of Scotland Masterclass Series 10/11 May 2005
The Theory
“Improving human capital management in British
workplaces can raise UK productivity. Patricia Hewitt
“UK businesses need to be better focused on the performance
and skills of the workforce, which will make them more
competitive” Denise Kingsmill, Accounting for People
“The success of the Group is only made possible by the efforts
and achievements of our people”
Fred Goodwin, Chief Executive, RBS
“Granada is a people business and we are committed at board
level to the development of our people”
Charles Allen, Chief Executive, Granada
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West of Scotland Masterclass Series 10/11 May 2005
The Potential: CIPD research shows
people management can have a huge
influence on organisation performance.
18%
17%
17%
16%
Percentage
14%
of variation in 12%
change in
company 10%
performance
8%
accounted for
by
6%
managerial 4%
practices
8%
6%
2%
2%
3%
1% 1%
1% 1%
0%
Profitability
HRM
West of Scotland Masterclass Series 10/11 May 2005
Strategy
Productivity
Quality
Technology
R&D 15
The CIPD Future of Work research:
profits per employee increase with the
use of PMD practices
Profit per employee (£)
4000
3000
2000
1000
0 to 4
5 to 7
8 to 10
Number of HR practices
Source: FoW (N=297)
West of Scotland Masterclass Series 10/11 May 2005
11+
16
The Practice?
“Hewitt attacks pension
cuts”.
FT
“Job cuts at Cadbury
leave a bitter taste
“The UK works the
longest hours in
Europe”.
CIPD
FT
“People don’t ever
seem to smile any
more”.
DDI Study on Careers
“Skandia perks scandal”
FT
“We didn’t pay enough attention to the
softer elements of the merger”
Managing Director, Clifford Chance
“Millions of British
posts seem ripe for
export to India as
Lloyds TSB moves
jobs”.
David Turner, The
Times
“Stress causes a big
headache for
employers”.
FT
17
Critical gaps
• Delivery
- line managers
- HR strategies
• Engagement
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West of Scotland Masterclass Series 10/11 May 2005
The gaps: knowing/doing
“Why does so much business research and education, so many
books and articles, produce so little change in what managers
actually do … so many managers know so many smart things
about how to achieve high performance, yet do so many things
to undermine it”. Jeffrey Pfeffer, Stanford
“We need to turn the learning organisation into the doing organisation”. Howard Behr, President, Starbucks Corp.
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West of Scotland Masterclass Series 10/11 May 2005
Delivery problems in CIPD research
“Employees aren’t getting the information, don’t understand or trust decisions on pay”.
Top management
attitudes
33%
Lack of support
systems
27%
26%
Staff attitudes
Poor
communications
Line managers' skills
25%
23%
“Improving the management of performance and our line managers’ skills is the most difficult challenge”.
West of Scotland Masterclass Series 10/11 May 2005
20
The implementation gap
“But within our organisation we have an HR function
which is steeped in a process mindset to do with grading,
competency frameworks, appraisal systems which have
the design of a push-me-pull-you type animal which
doesn’t achieve anything. Glorious in their construct but
bloody useless in their implementation”.
(Operations Director)
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West of Scotland Masterclass Series 10/11 May 2005
Still-born HR Strategies?
• People involved in determining the HR strategy
HR/personnel staff
Board members
Line managers
External consultants
Works council
Staff design team
Unions/staff association
0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of respondents
West of Scotland Masterclass Series 10/11 May 2005
22
The engagement gap
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West of Scotland Masterclass Series 10/11 May 2005
The state of the psychological contract
Satisfaction with work
• Declining levels of employee
satisfaction;
• Lowest ratings in central
government;
• Related to:
- lower levels of trust;
- less freedom/more controls;
- more change;
- lower involvement.
7.4
7.2
7
6.8
6.6
6.4
6.2
6
1998 2000 2001 2002 2004
Public Sector
Private Sector
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West of Scotland Masterclass Series 10/11 May 2005
Why communications, involvement and
understanding are key
Communication
Business
Business
Awareness
Awareness
The
Thestrategic
strategic
goals
goalsand
and
business
business
basics
basics
Missing Link
Business
Business
Understanding
Understanding

People
People
understand
understand
what
what makes
makes
for
for success
success in
in
the
the business,
business,
how
how the
the
strategy
strategy can
can
be
be achieved
achieved
Business
Business Focus
Focus
Personal
PersonalBuy-in
Buy-in

People
People
People
Peopleare
are
understand
understand
how
how what
what
they
they are
are
doing
doing
contributes
contributes to
to
strategic
strategic
success
success
committed
committedto
to
changing
changing
behavior
behaviorto
to
support
support
business
business
goals
goals
Pay Changes &
Systems
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West of Scotland Masterclass Series 10/11 May 2005
The Psychological Contract is at
the Heart of the Delivery of HR
Strategies
HR Policies and Practices
Psychological
Contract
Organisation
Performance
Employee
Perceptions
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West of Scotland Masterclass Series 10/11 May 2005
Unlocking the Black Box: Real, HR
Strategies
• 12 case studies – Tesco,
Nationwide, Jaguar
• Further small company and public
sector case studies
• Major study in the NHS
• Major follow up study underway with Cabinet
Office and Employers Organisation.
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West of Scotland Masterclass Series 10/11 May 2005
Creating the context for discretionary commitment
The ‘Big Idea’
M
A
N
HR
Policies and
Practice
PEOPLE
A
Ability
G
Motivation
E
Opportunity
Commitment
High
Performance
Satisfaction
M
E
N
T
28
West of Scotland Masterclass Series 10/11 May 2005
Examples of Getting it Right
• A major retailer
• ASDA
• Compass Group
• An NHS Trust
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West of Scotland Masterclass Series 10/11 May 2005
Retailer: Employee commitment and
satisfaction with HR policy and line
manager behaviour
100
90
80
70
60
Satisf action w ith HR policies
How action
much jw
obith
infjob
luence
Satisf
influence
50
Satisf action w ith line manager behaviour
Commitment
40
30
20
10
0
Store A
Store B
Store C
Store D
%
30
West of Scotland Masterclass Series 10/11 May 2005
Retailer Performance Data: Percentage variation from regional average
80
63.5
60
44.6
40
21.4
20
5.4 2.4
2.4
-0.1
0
-20
-40
-11.7
-13
STORE A
STORE B
-28.2
-33.7
STORE D
-60
-59.5
-80
STORE C
Shrinkage/unknown loss
Operating expenses as % of sales
Profit contribution
31
West of Scotland Masterclass Series 10/11 May 2005
Source: Sally Hopson/David Smith
The Asda Business
UK
Stores
Distribution Centres
George Standalone
Asda Living
Colleagues
Scotland
283
22
6
2
132,000
37
2
17,000
33
West of Scotland Masterclass Series 10/11 May 2005
Source: Sally Hopson/David Smith
The Asda Strategy for People
GET
The Most
Enjoyable
Place to Work
KEEP
GROW
35
West of Scotland Masterclass Series 10/11 May 2005
Source: Sally Hopson/David Smith
36
Source: Sally Hopson/David Smith
Source: Sally Hopson/David Smith
Flexible Working Schemes
• Maternity/Paternity Leave
• Study Leave
• Adoption Leave
• Store Swap
• Emergency Family Leave
• Parental Leave
• Shift Swap
• Career Break
• School Starter Scheme
• Grandparent Leave
• Job Share
• Belief Leave
• Benidorm Leave
• IVF Leave
• Carer’s Leave
West of Scotland Masterclass Series 10/11 May 2005
39
Source: Sally Hopson/David Smith
40
“People now want a job WITH life,
not FOR life”
“Give your people a reason to be in the world of
work …. We all seek meaning to our lives”
Source: Sally Hopson/David Smith
41
Source: Sally Hopson/David Smith
2005
2004
• No 2 Best Big Company to Work For Sunday
Times Survey 2005
• Fortune Europe – No 1 UK Employer 2004
• Top 10 Best Companies to Work for Sunday
Times Survey for 3 years
• No. 1 in UK 2003 Financial Times Survey of Top
10 European Employers
Compass Group
Our Future
Great people
Great service
Great results
Preferred employer
Goals
Operational
excellence
Financial
performance Market
leadership
Values
Can do + Teamwork + Diversity + Quality + Share success
Vision
KPI’s
Labour turnover
Employee
satisfaction
Contract retention
Customer satisfaction
Sales & profit
growth
New contracts
Operating margin
Working capital
usage
ROCE
Reinvestment
44
West of Scotland Masterclass Series 10/11 May 2005
Compass Group
Living the Values and Delivering the Employment and
Customer Brand
Teamwork
Quality
Diversity
Can do
Share success
Client
Employee
77%
87%
73%
62%
62%
75%
85%
67%
64%
55%
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West of Scotland Masterclass Series 10/11 May 2005
Compass Group
Results
• 18,000 extra job applications per month
• 10% higher labour productivity
• 2% reduction in labour turnover (£6million)
• 1 week reduction recruitment timescale
• Internal promotions: up 22%
46
West of Scotland Masterclass Series 10/11 May 2005
Turning things around change: An NHS Hospital
• Bottom of the English league tables: senior management replaced.
• New Ward Manager applies a range of HR practices:
- appraisal;
- training;
- shifts;
- briefings.
“I’m much more motivated now, there’s training, the atmosphere’s
totally different”.
“Communication is excellent now … our manager is very approachable”.
“When I came here it was very unsettled. Now we have a strong team …
you want do the the job to the best of your ability”.
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West of Scotland Masterclass Series 10/11 May 2005
Changes in employee satisfaction
45
Job Influence
62
55
Appraisal
Manager good at dealing
with problems
74
36
49
Respect shown by your
line manager
66
89
Motivation (% feel 'very'
or 'fairly' motivated)
Commitment (share the
values )
79
94
38
57
Year 1
Year 2
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West of Scotland Masterclass Series 10/11 May 2005
Key Questions
• How positive is the state of the psychological
contract in your organisation?
• What are the key employee attitudes/beliefs that
support a positive contract?
• What are the most important HR and management
priorities in creating a positive contract?
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West of Scotland Masterclass Series 10/11 May 2005
So what’s the overall state of the
psychological contract in the UK,
and how can I best influence it in a
positive way?
50
West of Scotland Masterclass Series 10/11 May 2005
The Components of a Positive
Psychological Contract
TRUST
FAIRNESS
DELIVERY OF THE DEAL
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West of Scotland Masterclass Series 10/11 May 2005
Managing the Psychological Contract: A Model Drawn from the CIPD Research
Influencing Factors
Individual Characteristics
Organisational Climate &
Context
Psychological
Contract
Outcomes
TRUST
Employee Attitudes
Work satisfaction
Commitment
FAIRNESS
HR Policies & Practices
DELIVERY OF THE DEAL
Employee Behaviour
Job Performance
Intention to quit
52
The State of the Psychological Contract: Delivering the Deal
Overall, to what extent has the organisation kept its promises and commitment to you?
%
Fully
45
Partly
49
Not at all
6
53
West of Scotland Masterclass Series 10/11 May 2005
The State of the Psychological
Contract: Fairness
Do you feel fairly paid for the work you do?
%
Yes, definitely
30
Yes, probably
30
No, probably not
19
No, definitely not
21
54
West of Scotland Masterclass Series 10/11 May 2005
Changes in fair pay perceptions
3.1
3
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
2000
2001
2002
Private sector
2004
Public Sector
55
West of Scotland Masterclass Series 10/11 May 2005
The State of the Psychological
Contract: Trust
To what extent do you trust your senior
management to look after your best interests?
%
A lot
25
Somewhat
34
Only a little
23
Not at all
18
56
West of Scotland Masterclass Series 10/11 May 2005
Changes in trust
3.3
3.2
3.1
3
2.9
2.8
2.7
2.6
2000
2001
Private sector
2002
2004
Public sector
57
West of Scotland Masterclass Series 10/11 May 2005
Effective supervisory leadership
%
Your boss:
Rarely/
never
Most of
the time
• Motivates you to work effectively
20
47
• Provides feedback on how you are doing
23
45
• Helps you improve your performance
29
37
• Makes you feel you want to quit this job
72
9
• Provides praise and recognition
24
33
• Gets on your nerves
29
12
• Supports you when necessary
11
63
58
West of Scotland Masterclass Series 10/11 May 2005
The high quality workplace
% positive
response
• Reasonable demands/manageable workload
74
• Some personal control over work
67
• Support from supervisors and colleagues
82
• Positive relationships at work
93
• A reasonably clear role
76
• Involvement in changes affecting you
83
59
West of Scotland Masterclass Series 10/11 May 2005
Changes in work satisfaction
7.4
7.2
7
6.8
6.6
6.4
6.2
6
5.8
1998
2000
2001
Private sector
2002
2004
Public sector
60
West of Scotland Masterclass Series 10/11 May 2005
The bottom line on a positive
psychological contract
• A cluster of factors are associated with the concept of good employer:
- delivery of the deal
- effective supervision, leadership
- of HR practices
• The presence of HR practices associated with high quality workplaces is the
most significant factor affecting perceptions of a positive psychological contract
- training
- career progression
- job variety
- voice
- fair pay
- family friendly policies
• A low quality workplace is associated with higher stress, lower work
satisfaction, lower levels of loyalty to line management and a higher intention
to leave the organisation.
• More and more examples of powerful correlations between employee attitudes,
customer attitudes and financial performance
- Sears
- Nationwide
- RBS
- Standard Chartered
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West of Scotland Masterclass Series 10/11 May 2005
So how can I use the concept?
- Stress Management
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West of Scotland Masterclass Series 10/11 May 2005
CIPD Employee Absence Survey 2004
• 52% of employers reported an increase
in stress related absence
• 8% reported a decrease
• 77% of employers are taking action to
try and identify and tackle work-related
stress more effectively.
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West of Scotland Masterclass Series 10/11 May 2005
Causes of long-term absence for
white-collar employees
•
•
•
•
•
•
•
•
Stress
Mental ill health
Acute medical conditions
Operations and recovery
Back pain
Musculo-skeletal injuries
Minor illness
Injuries
64
West of Scotland Masterclass Series 10/11 May 2005
The causes of work-related stress
• Work load
68%
• Management style/relationships at work
60%
• Organisational change/restructuring
45%
• Pressure to meet targets
41%
• Lack of control over how work is carried out
18%
65
West of Scotland Masterclass Series 10/11 May 2005
Questions
• What are the barriers to addressing stress?
• What are the best ways of managing stress
at work?
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West of Scotland Masterclass Series 10/11 May 2005
The obstacles to addressing
stress at work
• Stress not clearly defined and difficult to identify
76%
• Increasing performance targets/workloads
55%
• Lack of skills for dealing with stressed staff
47%
• Increasing competitive/cost pressures
35%
• Lack of organisational commitment/issue not
taken seriously enough
32%
• Difficulty in building the business case for
investment in stress management.
23% 67
West of Scotland Masterclass Series 10/11 May 2005
Methods used to identify and manage workplace stress
• Flexible working options/improved work-life balance
61%
• Risk assessments/stress audits
57%
• Training for managers/staff
55%
• Staff surveys
51%
• Greater involvement of occupational health specialists 51%
• Written stress policy
47%
• Changes in work organisation
21%
68
Employee attitudes to the HSE’s
causes of stress
Demand
• 37% of employees think their workload
is too heavy
• A fifth of employees think the demands
of their job are unrealistic.
Control
• A quarter of employees report they
have limited control at work.
Support
• 26% say they receive little support
from colleagues
• 13% have experienced bullying/
harassment in the past year
69
West of Scotland Masterclass Series 10/11 May 2005
Employee attitudes to the causes
of stress
Relationships:
• Only 2% of respondents say relationships at work
are not good.
• 13% have experienced bullying or harassment in
the last year.
70
West of Scotland Masterclass Series 10/11 May 2005
Employee attitudes on the causes
of stress
Roles
• Only 4% are unclear about their duties
• 45% say they believe that their job should be done
differently.
Change
• 75% agree there is a lot of change in the workplace
• Only 17% report they are unable to participate in or
contribute to changes at work that affect them.
71
West of Scotland Masterclass Series 10/11 May 2005
Views on the quality of line
management
• Under half of respondents report that they are
regularly motivated by their manager
• 45% of respondents were happy with the level of
feedback they received from management
• Just 37% said their manager helps to improve their
performance.
• Low and deteriorating levels of trust are evident in
senior management.
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West of Scotland Masterclass Series 10/11 May 2005
Views on work-life balance
Flexibility
• 61% said there was some degree of flexibility over
hours worked
• 35% of organisations provide some form of health
maintenance support such as health clubs
• however, just 19% of respondents said their
organisation offered any form of child care support
• just 8% said there was any form of older care
support
73
West of Scotland Masterclass Series 10/11 May 2005
The positive psychological
contract
• The presence of HR practices associated with high
quality workplaces is the most significant factor
associated with lower levels of stress
• Higher stress is associated with lower work
satisfaction, lower levels of loyalty to line
management and a higher intention to leave the
organisation.
74
West of Scotland Masterclass Series 10/11 May 2005
The psychological contract
• High quality workplaces with good HR practices are
strongly associated with a range of positive
outcomes such as:
- higher commitment
- motivation
- work satisfaction
- satisfaction with work-life balance
- lower stress
75
West of Scotland Masterclass Series 10/11 May 2005
So how can I use the concept?
- Total Rewards
76
West of Scotland Masterclass Series 10/11 May 2005
Getting it right: rewarding customer service
Culture/People Management
• Supportive supervisors
• 22 organisations
• Regular open feedback
• 580 staff
• Teamworking
• Involvement in decision
making
Staff Attitudes
• Career development
• Satisfaction with pay &
recognition
• Worklife balance
• Treated fairly
Rewards
• Performance pay
• Feeling involved &
developed
• Variable pay
• Commitment
Customer
Service
Performance
• Based on service/quality
• Single status
• Team rewards
• Individual/team recognition
West of Scotland Masterclass Series 10/11 May 2005
Source: CIPD Rewarding
Customer Service
77
28% of UK organisations have adopted
total rewards strategies
Desirable Outcomes
Drivers
• A strong external
brand;
•People as the key
source of competitive
advantage;
• Improved recruitment
and retention;
• Talent war;
• Cost effectiveness;
• Diversity of the
workforce;
• Employee motivation;
• Varying motivations;
• Increased flexibility;
Undesirable
outcomes
• Employee wants: the
consumer society;
• Administrative
complexity;
• Cost pressures.
• Tax problems
• Lack of understanding;
• No/wrong choices.
78
The Drivers: the shrinking population
30%
28%
20%
14%
10%
0%
-10%
-8%
-12%
-20%
-30%
-28%
-40%
-36%
-42%
-50%
US
Canada
France
UK
Germany
Japan
Italy
Percentage Change in the Working-Age Population
(Aged 15-64) from 2000 to 2050
79
West of Scotland Masterclass Series 10/11 May 2005
Source: UN (2001)
The Drivers: Generational differences
in values
Baby Boomers
Generation X
• Hard work
• Work hard, play hard
• Deferred
gratification
• Immediate gratification
• Social
acceptance/status
• Independence and
control
• Job equals identity
• Autonomy and
money
• Loyalty/pension
expected
• Change and mobility
are normal
West of Scotland Masterclass Series 10/11 May 2005
Generation y “the
Netters”
• Work?
• Self-fulfillment
• Education and
experience
• Life choices
•Total rewards/WLB
• Technical advances
expected
80
It is a different mix for attracting,
retaining and motivating
ENGAGE
STAY
JOIN
Proud to tell others they
work for your company
Competitive base pay
1
Reputation in the job
market as a good
employer
2
Retaining employees
Retaining employees
Opportunities for
with skills needed for
with skills needed for
advancement
the company to succeed the company to succeed
3
Support of innovation
Reputation in the job
market as a good
employer
Work/life balance
4
Challenging work
Competitive base pay
Retirement package
5
Manager fully tapping
into employee skill and
ability
6
Pay linked to individual
performance
Recognition for work
81
And it varies by organisation: What
entices lawyers to stay with their
current employer?
More money
76%
Promotion
69%
More responsibility
49%
More client contact
36%
More secretarial support
30%
Less administration
32%
More appreciation
52%
Better office culture
47%
More benefits
60%
Working part time
Change of practice area
32%
25%
82
West of Scotland Masterclass Series 10/11 May 2005
Research findings showing the total
approach adopted in successful
performance pay programmes
Unsuccessful
Programmes
Companies
Approach
A
Senior Management Support
Clear and available performance measurement system
Clear objectives
Strategic goals reflected in pay plan
Performance appraisal
Clarity of organisation
Quality Initiatives
Team Building
Quality circles
Strong emphasis on communications
B
C
D
+
+
+
+
Successful
Programmes
Companies
E
F
+
Piecemeal approach
I
J
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
Total approach
Source: Bowey & Thorpe
West of Scotland Masterclass Series 10/11 May 2005
H
+
+
+
+
G
83
The Immediate Challenge:
Fixed Reward
Package
One benefit
A few benefits
Reward
Components
Broad package of
rewards
Full package of
rewards and
employment
conditions
One or two
options
Degree of Choice
Variety of
Total
options
discretion
e.g. Additional
pension contributions
Choice within a
benefit or
cash alternative
Choice between
benefits with a core
e.g. options menu
Full spending account
approach
Full contractual choice
– hours etc. location,
rewards
84
The Real Challenge
“Creating a fun, challenging, and empowered work
environment in which individuals are able to use their
abilities to do meaningful jobs for which they are
shown appreciation is likely to be a more certain way
to enhance motivation and performance – even
though creating such an environment may be more
difficult and take more time than merely turning the
reward lever”.
Jeffrey Pfeffer, The Human Equation
85
West of Scotland Masterclass Series 10/11 May 2005
A Total Rewards Approach
TRANSACTIONAL
(TANGIBLE)
BENEFITS
Base
BasePay
Pay
Annual
AnnualBonuses
Bonuses
Long-term
Long-termIncentives
Incentives
Shares
Shares
Profit
ProfitSharing
Sharing
Pensions
Holidays
Perks
Flexibility
LEARNING
LEARNINGAND
AND
DEVELOPMENT
DEVELOPMENT
Training
Training
On-the-job
On-the-jobLearning
Learning
Performance
PerformanceManagement
Management
Career
CareerDevelopment
Development
Succession
SuccessionPlanning
Planning
WORK
ENVIRONMENT
COMMUNAL
INDIVIDUAL
PAY
PAY
Organisation Culture
Leadership
Communications
Involvement
Work/Life Balance
Non-Financial recognition
(INTANGIBLE)
RELATIONAL
West of Scotland Masterclass Series 10/11 May 2005
86
The Total Rewards ‘Brand’ in a Large
Internet Retailing Business
PAY
BENEFITS
(And Lots on Your Stock)
LEARNING
ENVIRONMENT
Have Fun
Work Hard
Make History
(INTANGIBLE)
RELATIONAL
West of Scotland Masterclass Series 10/11 May 2005
87
Key findings in a public sector organisation
Benefits
Pay
• NOW
• NOW
• Secure
• Family friendly
• Below average
• Paternalistic
• ‘One size fits all’
• Secure
• FUTURE
• FUTURE
• Aligned to business goals
• Individually tailored
• Market rates
• Flexibility
• Flexible
• Valued by employees
Environment
Learning
• NOW
• NOW
• Good learning opportunities
• Comfortable
• Spoon fed
• Family
• Structures
• Formal
• FUTURE
• FUTURE
• More targeted training
• Challenging
• Focused on business goals
• Responsive
• God opportunities as before
• Enjoyable
86
Changing the external image too: the London
Ambulance Service
Winner of the
best campaign
in the CIPD
Recruitment
Marketing Awards
89
What’s my reward deal?
• What is the current deal in your organisation?
• How far are your formal pay and benefits policies in support of it?
• How does it and they need to change?
PAY
BENEFITS
• Now
• Now
• Future
• Future
LEARNING
ENVIRONMENT
• Now
• Now
• Future
• Future
90
Flexible Total Rewards: Astra Zeneca
1999 Merger
Goals
Common programme
Widest possible talent pool
Programme
Internal and external pool
Personal choice
Excellent development
Performance focus
Energised environment
Flexible rewards
- 9 lifestyle options
- 2 health options
- 3 financial options
- 4 protection options
Roll Out
6 months awareness
3 months engagement
3 months enrolment
Embedding
Results
90% made a choice
Harmonised culture
Positive staff attitudes
Industry reputation
Source: CIPD Executive Briefing ‘Total Rewards’
91
West of Scotland Masterclass Series 10/11 May 2005
Astra Zeneca
“Employees have told us what they valued, and from that we
have created a total rewards philosophy. It’s not rocket science.
The key is to execute the programme better than our competitors
in a way that’s valued by our people”
“It took us into the area of branding and marketing that are not
traditional strengths of our function.”
Malcolm Hurrell VP HR
92
West of Scotland Masterclass Series 10/11 May 2005
Conclusions and End
93
West of Scotland Masterclass Series 10/11 May 2005
Conclusions: A process for managing the psychological contract
Clarify
business
strategies
• What is our
plan to achieve
sustainable
competitive
advantage?
Define
organisation
capabilities
• What does the
organisation
need to be able
to do?
• What critical
competencies
do we need?
Develop the
HR strategy
and desired
psychological
contract
• What type of
people will be
required? What
skills? What
behaviour?
• What is the
appropriate
employment
relationship
between us and
our employees?
• Does it vary by
employee
group? How?
Assess the
current state of
the contract
• What do
employees
actually think?
- delivery
- trust
- fairness
• How well are
the HR policies
operating in
practice?
• How effective
are our leaders/
managers?
Align HR
programmes,
practices and
policies
• How do we
create and
sustain the
necessary
culture and
contract?
- rewards
- development/
training
- performance
management
- flexible working
- etc.
94
CIPD Resources
• Published research report
• Reflections on the findings
(forthcoming)
• Practical web tool
- Work through our analysis
- Benchmarking data
95
West of Scotland Masterclass Series 10/11 May 2005
Conclusions
• The psychological contract is not a “pink and fluffy thing”.
• You need to define it, measure it and close the perception and delivery gaps.
“Organisations need to abandon their obsession
with strategy, structure and systems and focus on
purpose, process and people”.
Professor S Ghoshal, 2003
“The aim of the Education Department is to develop
to the utmost the human resources of the business.
It seeks to promote happiness in work and through
happiness true efficiency”.
Selfridges, 1920
96
West of Scotland Masterclass Series 10/11 May 2005
Key learnings
The psychological
contract is:
It’s important because:
The current state in our
organisation is:
As a result of this
workshop I am going
to: