Finance: Bass leads the pay revolution

BASS IS widely acknowledged to be one of Britain's most successful brewing, pubs and hotels companies. Last week the firm chaired by Sir Ian Prosser reported a 17 per cent rise in half-year operating profits.

Within the Bass Brewers subsidiary - the unit that includes such brands as Carling Black Label and Caffrey's and created in response to the 1989 Beer Orders separating pubs and brewing interests - much of the success is attributed to a reorganisation designed to put the business at the forefront of a sector suddenly subjected to greater competition.

The management initiated a programme of radical structural and cultural changes in the early 1990s, then introduced a pay policy aimed at encouraging changes through improving organisational capabilities and performance.

Stephen Kear, the human resources manager responsible for performance management, the "radical shift from a traditional, hierarchical regional brewer to a national leader required us to align individual performance more effectively with corporate objectives".

Nor is he alone in claiming that "pay and performance mechanisms underpin the corporate change programme and are resulting in greater individual effectiveness and profitability". The Bass case is compared with others in studies for the report Strategic Compensation, by the research organisation Business Intelligence.

The report noted that two-thirds of organisations it questioned had re- thought, re-designed or introduced new pay, incentives and benefits mechanisms in the past two years, and there is almost universal agreement that such initiatives would greatly improve organisational effectiveness. The main benefits are seen as aligning individual performance with corporate objectives, retaining key people, recognition by employees that rewards are fair, higher levels of motivation and morale, attracting high-calibre recruits and differentiating between high, average and low performers.

Unilever, producer of household goods such as washing powder and foods like margarine has practised performance-related pay for 30 years and believes it will continue to be an important part of its management approach. But, according to the Business Intelligence report, it rethought how it compensated its 20,000 managers as a result of a board initiative in 1994.

Brian Dive, senior vice-president responsible for remuneration, explains that the change of policy resulted from Unilever - in common with other companies - having difficulty matching the theory and the practice of performance-related pay. "We discovered little differentiation for performance between the best and rest," he says. "Perhaps more disconcertingly, relatively young managers with the greatest potential were being paid less on average in their respective grades than those without potential." In addition, overlapping pay scales meant older subordinates could be paid more than a younger boss, and the structure of grades meant even the most talented managers had to spend 10 years moving through pay grades before reaching the maximum.

Executives realised, too, that the problem went beyond remuneration. It involved the wider issues of evaluating work and managing managers more effectively, set against the twin outcomes of achieving a business performance that satisfied stakeholders and an individual's needs for both personal and professional development.

The result was the replacement of 17 management grades with a work level model based on six different types of management work, ranging from operational to the strategic. Based on the quality of decision-making, it provided the framework for "broadband rewards".

Unilever says this "integrated approach" links human resources work in organisational design, reward management, performance pay, individual development and career planning. "In effect, we are able to say to managers, `Here's the work and a competitive pay rate, plus a competencies model which will help you prepare for moving to a higher level'," says Mr Dive.

Of course, there is no simple fix. Bass Brewers took a phased implementation approach, with separate performance review and pay systems being replaced by competency-based and variable pay before 17 grades were converted into five broad bands. Since the new reward policy came into effect in 1995 it has continually evolved in order to be more effective and to respond to new business needs.

As Bass's Mr Kear says: "There is no perfect answer in performance and reward management since systems have to evolve continuously. New priorities always seem to appear and it is more difficult to change when things are working reasonably well. In the spirit of continuous improvement, we thought we could be better."