… for the labourer is worthy of his hire
So says the Bible. However, a modern version according to Saint Osborne might want to add a few things -
The worth of the labourer’s hire must be determined by the employer – or government - and thou shalt not suffer a trade union to get in the way of this principle.
The worth of the labourer’s hire in the public sector must equally not be distorted by his trade union, and must not be allowed to compete with employers in the private sector who have dispensed with trades unions, and must be allowed to fall to the lowest common denominator regionally. The Gospel according to the Coalition
The right-wing conspiracy of wealth and power that has as its front organisation the Tory/LibDem Coalition wants to take the unrivalled opportunity offered by the economic and social disaster brought about the equally right-wing former Labour Government – the previous front organisation – to push the working people of the United Kingdom back where they belong, under the iron heel of power and wealth, and subject to the Iron Law of Wages.
A prime target must therefore be the public sector, where some civilised, social democratic values and practices still survive, thanks to trade unions and collective bargaining.
The Iron Law of Wages – or remuneration, if you like – is that the right ‘reward’ for work is the lowest amount that can attract and retain competent employees, with the same principle applying to security of employment and other terms and conditions. This principle ensures that the maximum proportion of the wealth created by an enterprise goes to the owners and shareholders, and the smallest possible proportion to those who actually do the work.
It operated successfully throughout most of human history, keeping the mass of the people at or just below starvation and penury levels while obscenely enriching a tiny minority, whose resultant wealth allowed them to inhibit, manipulate or destroy democratic processes and the attempts of the poor to improve their lot.
It has been at work throughout most of the 300 year history of the United Kingdom, creating massive wealth for the few while brutalising and impoverishing the many, condemning them to poor health, disease, and appalling housing conditions.
It was only ameliorated in part by the actions of trades unions, a tiny handful of ethical and principled rich people, and a political party called the Labour Party. (This party to all intents and purposes no longer exists, but has been supplanted by one bearing the same name which has long since abandoned its values in a shameful complicity with the powerful, thus enriching its senior party members – Blair and sundry Lords and former cabinet ministers - and utterly betraying its members.)
That rant over, I will now move on to the powerful, and how they play the great exploitation game -
Bonuses, rewards and motivation – the great directors’ money scam
I spent my working life in human resource management and in consulting and training. I worked at senior management and director level, or as a consultant with major companies in British and American industry, private and public sectors. Almost none of them understood the basic principles of objective setting and targeting in relation to remuneration and bonus structures.
As a consultant, I met blue chip companies, who, having commissioned me to educate their managers, could not accept the basic precepts I offered. In that sense, I failed, but my brief was not to persuade or to implement, but to offer a contribution to their decision making.
The facts are these -
The only employees in a company who should receive variable earnings are the front line sales force in a manufacturing, service or retail company. The only variable remuneration to directors should come from investing their own money in the company's equity.
Employees should be motivated by performance management and appraisal structures, and movement within a salary band, with a band spread of 100% to 150%, with placement reviewed annually, based on rigorous, measured performance appraisal of whole job performance.
On a normal distribution curve, the majority of employees at should be close to the 125% mark. There must be no link to years of service - employees who maintain performance should be held at the appropriate level and those whose performance declines should have their band placement reduced. New employees should be placed at a level appropriate to their experience and qualifications, but never above the band midpoint, 125%. There should be a fifty per cent band overlap between adjacent grades.
Market competitiveness should be maintained by reviewing the bands themselves for specific job categories, but never by hiking up the starting salary within existing bands.
What is the problem with bonuses and variable remuneration incentives for managers?
Stated simply, managerial job descriptions contain a complex mixture of qualitative and quantitative performance factors. Performance can be assessed against both categories, but when factors are targeted for remuneration incentives, they are almost always the quantitative ones amenable to simple measurement - the qualitative measures are largely ignored, although lip service is sometimes paid to them.
The other major distorting factor is quite simply the greed of the senior managers and directors designing the systems. Responsibility to customers, to the public at large, and often to the law of the land goes out of the window.
By creating the fable that a free market for senior managers and directors demanded ever-increasing salaries and bonuses “to attract high-level talent and stop them leaving the country”, and by cross-membership of self-serving remuneration committees stuffed with non-executive directors, they created a process and a self-fulfilling prophecy that legitimised their greed – a snake that fed on its own tail.
It is a truism in objective setting theory and remuneration theory that targeting and incentivising narrow, measurable objectives can distort the whole purpose and effectiveness of an organisation. We have seen this in the public sector, notably in the NHS, and now dramatically, and almost fatally in the banking sector. But because crude monetary rewards are simpler to implement than effective recruitment, selection, assessment, appraisal and motivation of employees, that is the route taken.
Some old-fashioned principles need to return to our private and public sectors, particularly that employees should expect to be paid their salaries for doing their jobs to a defined standard, and should be counselled, trained and coached if performance slips. If standards can't be maintained, they should be fired.
One last anecdote -
In my workshops for senior managers and directors, including at a prestigious business school, I launched the day with a simple arithmetical problem, set at the level of an intelligent 12-year old. In all my consulting years, in every workshop that I ran this exercise, 80% of all participants - including finance directors and senior scientists - failed to get the right answer, and moreover, could not understand why they got it wrong. I won't give the problem away - others may be using it productively. Real, basic numeracy is not well rooted in our major companies - sad, but true.
You may conclude from all of the above that I am an old-fashioned left-winger, and marvel at the fact that I was tolerated in senior management and consulting work with major blue-chip companies.
You would be right – I am indeed an old-fashioned left-winger, and I sometime marvel myself that I was tolerated.
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