Variable Pay and Collective Bargaining in British Retail Banking
| Date | 01 March 2011 |
| DOI | http://doi.org/10.1111/j.1467-8543.2009.00768.x |
| Published date | 01 March 2011 |
| Author | Paul Marginson,James Arrowsmith |
Variable Pay and Collective Bargaining in
British Retail Bankingbjir_76854..79
James Arrowsmith and Paul Marginson
Abstract
The growth of variable pay schemes (VPS) appears to threaten collective
approaches to pay determination, which are based on standardization and
centralization. This article utilizes case study research to analyse the still
little-known relationship between collective bargaining and VPS. It focuses on
the retail banking sector, where trade union representation and collective bar-
gaining remain relatively robust. The research identifies an emergent process
whereby the growth of bonus schemes has both supplanted collective profit-
share and permitted greater standardization of merit-pay awards. Unions have
therefore achieved some success in terms of limiting variation in base pay, at the
same time as the overall purchase of collective bargaining on employee earnings
has diminished. The factors contributing to this development are explained.
1. Introduction
A striking finding of the 2004 Workplace Employment Relations Survey
(WERS) is the growth of variable forms of pay. Half of all British private-
sector workplaces with five or more employees now have collective forms of
variable pay (including share schemes, profit-related pay and group-based
payment schemes), covering 62 per cent of employees; just over a third have
individual payments by results, extending to 43 per cent of employees; and 16
per cent use appraisal-based merit-pay schemes which cover 26 per cent of
workers (Bryson and Freeman 2008: 3, 24). The 1998–2004 panel dataset
recorded an increase from 20 per cent to 32 per cent in the use of such
schemes in continuing workplaces (with 10 or more employees), ‘suggesting
that there has been a substantial increase in the use of performance-related
pay schemes since 1998’ (Kersley et al. 2006: 191).
This growth has occurred in the context of a long-term decline in collective
bargaining, which now embraces only 14 per cent of private-sector work-
places with 10 or more employees (Kersley et al. 2006: 182). It has also been
James Arrowsmith is at Massey University. Paul Marginson is at University of Warwick.
British Journal of Industrial Relations doi: 10.1111/j.1467-8543.2009.00768.x
49:1 March 2011 0007–1080 pp. 54–79
© Blackwell Publishing Ltd/London School of Economics 2010. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
suggested that even where collective bargaining remains, much of it may be
ritualistic and with limited impact on pay outcomes (Forth and Millward
2002). Seemingly, then, the growth of variable pay may be related to the
weakening of trade unions and collective bargaining, and the assertion
of management control over pay systems, as implied in the literature. Pay
flexibility and the link to performance is usually a defining feature of human
resource management (HRM) models in which the role of trade unions is
limited (Guest 1987; Tyson 2002). The same applies to the so-called ‘new pay’
literature, where variable pay is seen as an important part of an organiza-
tion’s human resource strategy with little acknowledgement of any trade
union role (Lawler 1995; Schuster and Zingheim 1996).
Variable pay schemes (VPS) are distinguished from traditional time-based
or service-related pay schemes in that they incorporate criteria linked to
employee performance. This can be at the level of the individual, work
team, workplace or organization as a whole. Localized schemes tend to
be concerned with employee incentivization, whereas organization-wide
arrangements have broader objectives to do with recruitment, retention and
employee ‘engagement’ or ‘reward’. There are three broad types of VPS:
incentive-based schemes and bonuses; merit pay; and organizational arrange-
ments such as profit- and equity-share schemes. The conceptual basis for
incentive pay arrangements is principal–agent theory. Agency models iden-
tify incentive pay as an important means to ensure that employees focus
on the achievement of managerially defined indicators (Prendergast 1999).
Incentive-based schemes are thus designed to stimulate and focus greater
effort and performance against targets; to have significant effects, they need
to be tightly specified, and localized, to provide a clear line-of-sight between
employee inputs and pay outcomes (Lawler 1981). The main forms of incen-
tive pay comprise piecework and payments-by-results (PBR) schemes in
which pay is formulaically linked to output and/or productivity measures.
The problems of incentive payments schemes are long established.
Although Marx observed in volume one of Capital (Marx 1967: 556) that
piecework ‘is the form of wages most in harmony with the capitalist mode of
production’ because it divided workers, intensified work and made it easier to
reduce pay, at the same time it was complex to administer, gave workers a
degree of control over production and provoked ‘constant battles between
capitalist and labour’. These problems become more acute as the proportion
of pay accounted for by VPS increases, since most workers are naturally
more risk averse than those at the top of the organizational hierarchy (Burke
and Hsieh 2006). Incentive pay can also foster a perversely narrow and
short-term focus, and undermine workforce co-operation (Bryson et al.
2008).
Other forms of VPS are thus less directly concerned with incentives. Profit-
related schemes and employee share-ownership programmes (ESOPs), which
entitle employees to a share of an organization’s financial success, are com-
monly referred to as ‘financial participation’ (Poutsma 2006). Payments vary
from year to year, but they are less immediately related to the performance of
Variable Pay and Collective Bargaining 55
© Blackwell Publishing Ltd/London School of Economics 2010.
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