The shift from collectivism to individualism in the management of remuneration in the United Kingdom: The impact on the British reward system
Collectivism in employee relations has to do with the extent to which management acknowledges the right of employees to collective representation and the how collectivism can influencing management decision-making (Storey and Sisson, 1993). So, collectivism is about the right of the employee vis-à-vis the management. According to Gunnigle et al. (1998), the extent of collectivism in industrial relations may be accurately gauged through measures of trade union penetration (density and recognition) and reliance on collective bargaining. Collectivism is therefore concerned basically with the role of trade unions in employee relations.
Collectivism had its origins in the mediaeval craft guilds. In 1834, there was an attempt to establish a Grand National Consolidated Trades’ Union bringing together all the unions, but it never attracted general support (CIPD fact sheet, 2004). The Industrial Revolution also had an impact on collectivism. History suggests that the invention of the steam engine paved the way for speedy railway communication. Subsequently, amalgamation started taking place. The Amalgamated Society of Engineers was established in 1850. In recognition of this, a series of acts was passed in the 1850s and ’60s to protect union funds, culminating in the Trade Union Act 1871 (ibid). From then, trade unions showed rapid growth.
2.0 Individualism, Pluralism and Collectivism
Purcell (1987) argued that collectivism and individualism represent two separate dimensions of management style. A collectivist management style is defined in terms of the approach taken by the organisation to the representation of its employees by trade unions. Firms that adopt a collectivist management style show a readiness to enter into constructive and productive relations with trade unions and to accept the legitimacy of collective bargaining. In contrast, individualism refers to the extent to which HR policies focus on the rights and capabilities of individual workers. A firm that displays high individualism places an emphasis on the individual contribution of its employees and is willing to invest in their training and development.
This formulation has been challenged by Storey and Bacon (1993). They believe that the terms ‘collectivism’ and ‘individualism’ possess different meanings depending on which dimension of the employment relationship is under analysis. They draw a distinction, for example, between industrial relations that cover union–management relations with the associated process of negotiation and bargaining, and the work organisation that pertains to such issues as the design of jobs and the nature of work tasks. Storey and Bacon suggest that within the industrial relations domain, the terms ‘individualism’ and ‘collectivism’ are used almost interchangeably with ‘unitarism’ and ‘pluralism’.
Individualism is associated with unitarism; the relationship between the individual employee and the management is direct and unmediated by collective employee representation (Kessler and Purcell, 2003). Unitarism is based on harmonious relations and shared goals between the employee and the employers. It does not make any provision for group conflict – as the literature survey reveals. On the other hand, pluralism is related to collectivism which reflects conflicting employee-employer relations and leads to collective institutions in the form of trade unions (Kessler and Purcell, 2003). ‘Collectivism comes be equated to trade unionism and individualism to non-unionism’ (Storey and Bacon, 1993).
3.0 Unions on the brink
Since the mid-1980s, UK trade unions have become less collectivized. This is evident from the decline of trade union membership and density and the expansion of individual contracts. The Labour Force survey suggests that the number of trade unionists is now back to the levels recorded during the 1950s (Salmon & Stewart, 1994). In autumn 2005, an estimated 6.39 million employeesin the United Kingdom were members of a trade union. This was a drop of approximately 119,000 or 1.9%, compared with levels recorded in autumn 2004 (Grainger, 2005). Trade unions in UK have been in both absolute and relative decline since 1979, to be more specific. There are several general indicators which illustrate this. First, total union membership fell from some 13 million in 1979 to 9.5 million by the beginning of 1992. Second, the number of employees covered by closed shop agreements fell from nearly five million in 1980 to only half a million in 1990. Third, union membership density fell from 58% of all employees in 1984 to 48% in 1990. Fourth, recognition of unions by employers declined substantially during the 1980s and early 1990s, falling from some two-thirds of all employees in all workplaces in 1984 to just over 50% in 1990. Fifth, the percentage of employees covered by collective bargaining was only 54% in 1990, compared with 71% in 1984 (Certification Office, 1993).
Five factors have been responsible for the decline in union membership, namely: macro-economic climate, workforce composition and the policies of the state, employers and unions (Metcalf, 1991). Mass unemployment was a severe blow to trade unionism. Because of rising unemployment in the 1980s, trade unions also had a poor public image. The composition of the workforce was getting increasingly varied and was marked by a decline in manual workers, feminisation of labour and part-timers. Freeman and Pelletier (1990) emphasised that the decline in density is due to the Thatcher government’s labour law. They calculated that changes in UK labour law reduced union density by 1- to 1.7% points per year during the period 1980–1986. The Conservative Party took power in 1979 and introduced laws that removed many of the rights enjoyed by unions. Throughout this period, unions faced attacks from the government through restrictive legislation. The Employment Acts of 1980 and 1982 made secondary strike action illegal.
The ‘Fairness at Work’ White Paper published by the New Labour in 1998 is about extending the rights of the individual employee. Even the chapter dealing with collective rights starts by referring to individual rights which provide the protective underpinning to working relationships. This new agenda has involved government engagement with European Union (EU) social policy, a national minimum wage and an extension of the rights for individual employees and trade unions, including a statutory route for union recognition. This new public policy environment challenges managers to reappraise attempts made in the 1980s and 1990s to manage employees more directly rather than through unions (Purcell 1991) and to reintegrate unions into the rule-making process.
The Information and Consultation of Employees Regulations (2004) are seen by the Trade Union Congress (TUC) as a strategic breakthrough with major implications for trade union organising strategies (Undy, 1999). Labour party, as stated earlier, adopted the EU’s Social Chapter. ‘Partnership’ was not, however, defined by the leadership of the New Labour Government. It was seen as a public good, much like motherhood (Undy, 2002). Undy (1999) also observed that New Labour’s ‘Third Way’, therefore, is not solely concerned with enhancing individual rights, but seeks to balance these interests against those of the employer and labour efficiency. Undy (2002) further commented that New Labour’s conversion to supply-side economics and a lightly regulated labour market led it to favour the unions more in the field of employee learning than in the area of collective and individual employment rights. The New Labour government has contributed further to legislation to both enhance individual employment rights and to facilitate collective organisation. Implementation of the Working Time Directive (October 1998), the National Minimum Wage (April 1999), the European Works Council Directive (December 1999) and the royal assent to the wide-ranging Employment Relations Act (July 1999), NMW (2006) are the proof of this. Employers are just taking advantage of the latter to enhance individualism.
It is argued that the growth of individual employment arrangements is associated with the introduction of HRM practices (Sisson, 1993). Guest (1989) claimed that HRM has both a unitarist and an individualistic character, leaving little scope for collective arrangements and assuming little need for collective bargaining. There are assumptions that new HRM techniques are modelled on union avoidance. The influence of Japan (JIT, TQM etc.) on British industry, it is claimed, has transformed domestic industrial relations by adoption and emulation (Oliver et al., 1992). Japanese industry places an emphasis on employee involvement and commitment as a way to overcome adversarial tensions between employers and workers, according to recent management literature (Storey, 1992). As a result, employees can get to management directly to get the job-related problems discussed, bypassing the unions. Increasing flexibility in the workforce is another factor contributing to individualism. Peripheral workers have greatly impacted on the individualisation and the overall pay system. According to Atkinson (1984), the concept of core and peripheral employment are based on the difference between those whose employment relationships are relatively secure and those whose employment relationships are more tenuous and reflects external labour market conditions. Employers prefer employing part-time workers as they have weak bargaining power. Another factor is that non-standard workers (part-timers) are less likely to be covered for collective bargaining (Booth et al., 2000). Consequently, to ensure survival, trade unions are seeking to represent these part-timers who constitute 25% of the entire workforce, in their own right. It should be noted that in the core group of permanent full-time employees, there has been a move to weaken collectivism and enhance individualism. Some professional employees have completely abandoned a collectivist approach and prefer a personal contract. Others prefer partial personalisation of the contract such as IPRP (Salamon, 2003). So, there are different trends in the same core groups representing options for individualism in the form of performance-related pay.
4.0 Remuneration and Reward Systems
Determination of the methods of pay is an important aspect of employee relations. Basically, it is because of their pay that employees are at work. The Work Place Employment Relations Survey (WERS) series shows that since the mid-1980s, the proportion of work places that set wages through collective bargaining has been in decline. The percentage of work places engaged in collective bargaining over pay fell from 30% in 1998 to 22% in 2004 (WERS, 2004). Changes in the overall pattern of pay determination since 1984 is offered by Millward et al. (2000). According to them, collective bargaining was the dominant mode of pay determination in 1984 but fell from 60% in 1984 to 29% in 1998. Another survey by Brown et al. (2000) showed that only 35% of employees are now covered by collective bargaining arrangements and that 50% of employees have their pay set unilaterally by management. Multi-employer bargaining also dropped from 69% to less than 46% in 1998 (Millward et al., 2000). They also noted that the public sector faced decline in terms of multi-employer bargaining, though it is still the dominant mode of pay determination.
Brown et al. (1995) argue that there has been a decrease in the range of issues subject to collective bargaining and that they have become more closely linked to pay as management seeks to exert greater control. Thus, trade union focus has moved from how new management mechanisms – such as quality circles (TGWU, 1989) – might introduce direct communication which bypasses collective bargaining to individual contracts and performance-related pay that challenges their very recognition for collective bargaining purposes. The failure of trade unions to combat these management techniques will lead to union de-recognition. Subsequently, de-recognition is occurring. The largest number of early de-recognitions was among white-collar workers as a result of declining trade union membership. For example, at Cooperative Bank, when unions refused to accept redundancies and a pay freeze, the new chief executive withdrew recognition, and ‘exhorted’ all employees to accept ‘individual’ contracts (Tuckman and Finnerty, 1998). Tuckman and Finnerty (1998) further observed that the normal parameters of determining pay are the based on the difference between the cost of living and what an enterprise can afford. When these are shifted, management is able to unilaterally determine what is affordable, denying fundamental transparency to the payment system. Transparency and joint agreement are also absent in the procedures for determining the criteria for individual performance and the measure of reward in pay review. These need to be built into collective procedures agreed with unions. Therefore, union representation in reward, grievances, and discipline can be extended to agreement on the broad parameters of individual contracts. In fact, IPRP and collectivism can co-exist. A union presence is compatible with the new management techniques and can actively contribute to the unions’ effective deployment within the workplace (Storey and Sisson, 1993). Research reveals that of the 45 unions reporting members covered by IPRP, only 13 stated that more than 90% of those members were also covered by a collective agreement-regulating IPRP scheme. The research further shows that it is not an absolute trend and there has been considerable union success in drawing IPRP schemes within the compass of collective bargaining, but the message of union exclusion is clear (Heery, 1997). IPRP is based on the performance of the employee. There is the chance of bias in the performance appraisal. Examples of this are the ‘halo’ effect – a tendency to over-generalise the performance (Torrington et al., 1992) and the similar-to-me errors. Because of bias in performance appraisal, managers can be misled and award payments to incompetent employees. Heery (1997) therefore observes that unions want to rationalise IPRP in the sense that they want it to rest on an ‘objective’ system of performance review, so that managers follow rules in awarding payments.
In 1968, the Donovan Commission pointed out weaknesses of some of the larger industry-wide agreements and argued that, for many employers, the best solution would be to break away into single-employer, or what is now commonly called ‘enterprise’ bargaining. This provided an official blessing for enterprise bargaining specially in the private sector. Brown et al. (2001) think enterprise bargaining fits in with the more individualistic treatment of employees that is associated with the decline of manual employment and it provides a ready base for enterprise-related incentive schemes. Multi employer bargaining arrangements remain significant only in the public sector (particularly local government, education and health) because the fund is centralised (ibid). They also observe that collective bargaining covered 61% of the public sector workforce but only 24% of the private sector.
The new HRM technique of performance-related pay (PRP) is well suited to rewarding individual performance where output can be easily monitored (Gibbons, 1998). But there are some internal tensions in the IPRP; managerial objectives in introducing IPRP may be based on certain visions, values and cultures of the firm. If employees and representative institutions have different cultures and values from those of the employer’s they may clash which would have an impact on the IPRP scheme (Thompson, 1993). But some management gurus argue that there is no reason why this kind of payment system should not be absorbed within union-based industrial relations so that it performs smoothly with the union representation. Like any other procedural rule, it can become subject to joint regulation; .unions negotiating IPRP can be found in the research literature (Kessler, 1990). Trade unions are also aware of it. Williams (1997) observes that they are following the strategy of a collective dimension to individual services.
New Pay, in contrast, is more suitable for the nimble, fast moving and performance-driven business organisations of the twenty-first century (Drucker and White, 1997). This approach to pay systems design, argue New Pay writers, is facilitated by a shift from traditional ‘job-related pay’ to the new ‘person-related pay’ structures (Lawler, 1990). A government publication (DTI, 1996) endorses moves to greater pay flexibility and states that Britain’s deregulated labour market now allows employers considerable freedom to choose pay systems that meet their own needs and those of the workforce. The bottom line is that the role of trade unions in pay determination is greatly reduced. Pay has increasingly become the role of organisations and is influenced by the performance of the individual employee.
The CBI/Hay Management Consultants’ (CBI/Hay, 1996) survey of pay practices covered about 400 private and public sector organisations with a total workforce of 1.3 million. According to the survey, almost half the organisations reported some change in their pay strategy over the last two years; the main areas are salary structures, salary progression practices and profit-related pay. Influenced by HRM, they have now compressed pay grades. According to new the HRM, pay progression is not linked to hierarchical promotion. According to Evans (1999), harmonisation (i.e. unitarism) has led to the removal of strictly delineated pay groupings for white-collar and manual workers. The result is compressed pay grades and unions have accepted it.
The new pay order espouses the concepts of stakeholder and employee involvement, identifying unions as one of the stakeholders (Armstrong, 1996). The market is stakeholder-oriented and is finalised by the interplay of labour demand and supply. Management can determine, according to market trends, the pay of the employees based on their performances.
New individualistic trends like payment by results (PBR), competence and skill-based pay, profit-related pay etc. are dominating the management of remuneration and reward. Casey et al. (1992) revealed that nearly 60% of organisations surveyed practised PBR schemes. Profit-related pay is also gaining popularity. In water, gas, electricity and financial services, 81% and 80% of the workplaces reported its existence in the 1998 WERS (ibid). Non-financial benefits, achievement, recognition, responsibility and personal growth are important here. A simple dinner with the CEO can act as a powerful boost.
Milliward et al. (2000) suggested that there are two new trends in the British employee relations, namely sophisticated consultation and sophisticated human relations – these are two forms of individualism. Sophisticated consultation stresses the need for union co-operation in implementation of employee development and high commitment practices. For this, it suggests the need for evidence of the presence of high commitment practices as literature reveals. WERS found evidence of high commitment practices in unionised workplaces (Cully et al., 1999). It is evident that where at least half of the itemised practices were done, union density averaged 47%, compared with 35% where it was below this number (Kessler and Purcell, 2003). These kinds of practices include IPRP, personality and performance tests, off-the job training, profit-related pay etc. In the past, there was the temptation to view IPRP, profit-related pay and share-ownership schemes as indicative of non-union presence. There are examples of organisations like the, then, British rail where IPRP was introduced under union de-recognition. But, union exclusion has rarely been the primary objective of IPRP (Thompson, 1992). It should be noted that the use of a particular scheme has a wide variety of meaning. Schemes like IPRP and profit-related pay include recruiting and retaining staff by boosting earnings potential and selectively rewarding and encouraging the development of certain process skills and circumstances (Kessler and Purcell, 2003). They observed that in the sophisticated consultative style, compatibility of such schemes with a union presence is in the continued union involvement in pay determination. The sophisticated consultative style encourages union participation in pay determination (Evans, 1999). Profit-sharing and employee share-ownership have often been presented as even more directly concerned with creating an alternative source of employee allegiance through linking employee pay to performance of the company ….union (Poole, 1989).
It is undeniable that individualism is a notable feature of new employee relations in Britain which is conditioned by new management techniques and socio-economic and political contexts and also by the government policy. Because of it, new types of remuneration and reward like IPRP, profit-related pay, team-based reward have been introduced to a great extent. But these new types of remuneration policy are not intrinsically against laws of collectivism. In fact, both can co-exist peacefully as Storey and Sisson (1993) observed. A union presence not only is compatible with the use of new management techniques, but also can actively contribute to their effective deployment within workplaces. Union participation in pay determination can rationalise decisions. IPRP is based on the performance of the individual which rests on the performance appraisal which, as stated earlier, can be biased. So, union involvement can have positive effects on the pay determination through playing a consultative role. Management commitment to adopting a policy of partnership with union co-operation in the implementation of employee development and high commitment practices would be rational. In sum, a combination of factors, as discussed above, are shaping the management of remuneration and reward where the main aim is fulfilment of organisational objectives. IPRP schemes, profit-related pay etc. should be seen in the broader framework of analysis. One is inevitably linked to other. Merely following the schemes will lead to difficulties. Managers should find a good balance between the IPRP, profit-related pay etc. and collectivism. There are possibilities that companies which do not practise collective bargaining may run the risk of poor consultation and less employee involvement that can result in high employee turn over. Therefore managements are trying to find a good combination of union participation and individualism.
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