The Limits on Pay as a Strategic Tool: Obstacles to Alignment in Non‐Union Environments
| Author | Jonathan Trevor,William Brown |
| Published date | 01 September 2014 |
| DOI | http://doi.org/10.1111/bjir.12004 |
| Date | 01 September 2014 |
The Limits on Pay as a Strategic Tool:
Obstacles to Alignment in Non-Union
Environments
Jonathan Trevor and William Brown
Abstract
Strategic human resource management literature emphasizes the potential of
pay to secure strategically desirable employee outcomes for the employer.
Strategic pay, in contrast with pluralist models of pay determination, assumes
an absence of collective bargaining constraints. This article analyses the process
of determination of non-unionized managerial, professional and technical pay
in seven leading consumer goods firms that claim to use pay as a strategic tool.
It demonstrates that implemented pay practice is often remote from what is
aspired to strategically. Despite the absence of collective bargaining con-
straints, there remain unavoidable obstacles to the ability of management to
implement pay systems aligned to strategic goals. These constraints impose
fundamental limitations on the use of pay as a strategic tool.
1. Introduction
Pay is the single largest operating cost for most organizations. More than
envisaging pay as merely the cost of hiring labour, however, strategic human
resource (HR) management literature emphasizes its potential to secure stra-
tegically desirable employee outcomes for the employer. Strategic pay refers
to the mainly financial measures, including base pay, incentives and benefits,
and excluding non-financial pay measures such as career progression and
personal development, through which organizations seek to secure employee
outcomes of strategic value, including enhanced performance and other
desirable behaviour (Huselid 1995; Lawler 1990). There is evidence that, in
large private sector firms especially, firms are attempting to use pay strategi-
cally following the decline of collective bargaining as the dominant mode of
pay determination (Chartered Institute of Personnel and Development 2007;
Jonathan Trevor and William Brown are at the University of Cambridge.
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British Journal of Industrial Relations doi: 10.1111/bjir.12004
52:3 September 2014 0007–1080 pp. 553–578
© Blackwell Publishing Ltd/London School of Economics 2012. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Cully et al. 1999: 232; Kersley et al. 2006: 193; Watson Wyatt Worldwide
2007). There is, however, limited understanding of how firms select and
implement strategic pay systems. Nor is it obvious how effective these pay
systems are in practice. Furthermore, the wider literature suggests reasons to
question the assumptions underpinning the use of pay as a strategic tool.
This article seeks to redress the lack of research on how contemporary pay
systems in non-union environments are managed in practice. It does so
through an empirical study of the managerial, professional and technical
employee pay practices of seven high-performing multinational firms oper-
ating in the global fast-moving consumer goods (FMCG) sector. It considers
three basic questions. How are firms attempting to use pay systems? How are
these pay systems selected? How are they managed operationally?
The article is organized as follows. First, key aspects of strategic pay theory
are summarized. Additional literatures that address potential limitations of
pay as a strategic tool are outlined. The research approach is described. The
findings are set out in five subsections. The first subsection provides a descrip-
tion of the stated pay practices of sample firms. The second subsection
analyses the differences in approach to pay system management between
sample firms and the reality of the perceived impact of those systems within
each firm. The third, fourth and fifth subsections provide detailed qualitative
accounts of the process and determinants of, respectively, sample firm pay
strategy, pay design and pay implementation. The final section discusses the
implications of the findings for theory and practice.
2. Pay as a strategic tool
Models of pay fixing based on collective bargaining envisaged the determi-
nation of pay levels and practices to be through a process of more or less
formal negotiation between management and employee representatives. But
the widespread decline of collective bargaining, and the rise of managerially
determined pay at the workplace level or higher in private sector employ-
ment, has largely negated this premise (Cully et al. 1999: 242). By contrast,
strategic HR management assumes that management has both the right and
the ability to determine pay strategies and practices free from constraint
(Devanna et al. 1984: 35; Lawler 1984: 128). Pay is instead seen as a man-
agement tool to be used to secure strategically desirable employee outcomes
in the form of enhanced performance and behaviour complementary to the
competitive stance of the firm (Barney 1996: 469; Lawler 1990; Milkovich
and Newman 1999; Schuler and Jackson 1987: 210; Schuster and Zingheim
2000).
Desired employee outcomes, the theory implies, will tend to vary between
firms as they seek to differentiate themselves strategically from their com-
petitors. When aligned to competitive strategies, strategic pay systems should
vary in form and function if they are to be ‘fit for purpose’. For example,
firms seeking to compete on the basis of innovation might be expected to
554 British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2012.
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