This section highlights and provides illustrations of performance and reward that were observed in the field, again looking for artefacts, values and norms of behaviour (Schein 1992). From these, themes regarding culture are
subsequently drawn out and explored.
6.2.1 Performance management w ithin directly owned EOBs.
Individual performance was assessed via performance appraisals with an emphasis on developing the employee and looking for opportunities to grow rather than negatively criticising performance. Discussions were frequently based around the values of the organisation, which were typically defined by the founder(s).
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“Told me what I was doing well, what I could improve on and all that And I did the same for him. It was a very, very frank conversation; he came out o f it knowing that I had got some gripes with how my career was going and things like that. In general, I really enjoy myself but that was my forum to get my opinions across. He thanked me for my honesty and things have started happening. It was a very, very frank conversation; I think I was in there for two hours and a quarter, ju st me and him. Not battering each other but very, very frank conversation, very honest.
Some o f the stuff has started happening for me so, can’t complain about that.”- D ire c ti employee 35.
The two-way unrestricted, dialogue also provides a forum for the employee’s voice to be heard, acknowledged and responded to, with subsequently, positive action taken (Pierce, Rubenfeld and Morgan 1991). Contact with the line
manager was the most obvious form of direct involvement with the running of the organisation rather than elected committees found elsewhere.
Following the appraisai a secondment to the USA branch was created to enable him to see if a longer term move was appropriate - D ire c ti field notes.
There appeared to be a supportive environment that encouraged honest communication, rather than a fearful or controlling one, looking to dictate what could and could not be talked about.
The values also fed into the recruitment process which looked to select people against the values of the organisation. This attempts to ensure a workforce that hold to a similar set of values, thereby restricting access as to who can become owners of the organisation but still permitting a diverse workforce in nationality, gender and age. Potentially this could lead to a mono
culture, if the hiring managers (a limited group of people within the organisation) restrict the process even further. Values were widely proclaimed; printed on appraisal documents or displayed on external websites as well as very visibly within the buildings visited. This helps to remind and reinforce the espoused values of the organisation (Schein 1992).
r unite
breaking the mould
lean
global Invest
k? £.
Figure 6.8 Values printed on internal wall (D irecti).
“When we do interviews we look for cultural fit. ” - DIR_Service.
There were examples of employees giving their colleagues
encouragement to improve their performance or even chastising them for poor performance, directly because of being employee-owned. The negative
performance of an employee would have a detrimental effect on the overall profitability, and hence share price, for all the employees. This gave justification for colleagues to pick up on each other’s performance. One potential side effect of this, if taken too far, is that it could lead to a culture of bullying and
intimidation although there were no intimidating examples observed or discussed.
“...you get one guy saying “I ’m not bothered, I don’t want to do it” but then somebody, a peer in the same team, might come back with “well go and get a job somewhere else then, because we don’t want you here if you are not bothered”. It was fascinating to see that. And they have every right, because they are shareholders.” - D ire c ti employee 17.
The organisational structures were deliberately hierarchical with minimal layers (three or at most four at D ire c ti); however a key aspect was the visibility and availability of senior management. Offices were open planned and the leadership actively encouraged employees to talk with them, via planned walkabouts or simply being available and willing to talk, either at their desk or the communal coffee area.
“There is a non-hierarchical style. Management is approachable. Offices are open plan. ” - DIR_Service.
At D irecti the managerial hierarchy pyramid was turned upside down;
the managing director saw that it was his role to serve the employees and provide what they needed so that they could do their job to the best of their
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ability, without hindrance. In essence this was a servant leadership approach as advocated by Greenleaf (1998). Hence he served the managers who reported to him and so on, until the front-line workers (who were the majority) were given the support they needed to fulfil their job and create the profit (Sauser 2009).
The style was in line with MacGregor’s Theory Y rather than Theory X
(McGregor 1960). Affinity with colleagues was helped by the MD wearing the standard office uniform (logo emblazoned polo neck shirt and work trousers) reducing the status difference, as advocated by Pfeffer (2008) in his list of HRM best practices.
“Unfortunately hierarchical, command and control businesses, often in the West, totally misunderstand all o f that and believe that everyone is here to serve me as the top guy and that is very indulgent but not very effective as a b u s in e s s - D ire c ti Managing Director.
The companies researched had ambitious plans to develop their organisation, increase profits and develop whole new markets. Standing still was not considered an option and constantly pushing targets and being innovative was the norm. Although this was directed from above by the senior management, it was also embraced from below by the shop floor workers who stood to gain from the potential doubling of the share price.
“That set us with a series o f different things to work on, the outcome o f which is if we did all those things we believed we could double the size o f the business in three years. ” - D ire c ti managing director.
As such, Key Performance Indicators (KPIs) were widely available so that employees could very quickly see if they were on track, which ultimately increased the share price, or enabled corrective action to be taken. Therefore information was freely provided to enable employees to be aware of the overall performance of the organisation and how their particular team was doing (Pierce, Rubenfeld and Morgan 1991). This meant the employee owners could have a meaningful discussion with the management team regarding the current strategy, as to its success or otherwise.
Sat in the canteen. Somebody put financial information onto each o f the three tables in the canteen showing that they had hit the target, sales were up 8% on last year approximately £X00,000. It includes a breakdown of sales per country. - D ire c ti field notes.
Employees could see a correlation between the results of their team, dependent upon the personal effort that each person put in, and the profitability
of the organisation. This leads onto the financial rewards from working in a directly owned business.
6.2.2 Reward management w ithin directly owned EOBs.
6.2.2.1 Financial reward within directly owned.
In directly owned organisations, employees own personal shares which have a realisable monetary value. The shares may be given to them by the
organisation, voluntarily purchased or the mandatory purchase of them may be a condition of employment. All three scenarios were encountered during the research. It is the personal acquisition of a variable number of shares with monetary value that makes direct ownership different to the other models of employee-ownership.
D ire cti and DIR_Eng make it a condition of employment, requiring at least £100012 worth of shares to be purchased by the end of the first year. In D ire cti senior positions have an even greater requirement:
“In terms o f the shares, have you bought the minimum amount or more?
As a director, you are compelled to hold half of your salary in shares.
I didn’t realise that, I ’ve not heard that before. So that is quite a lo t
Yes! So you have to go and borrow it”. - D irecti director, employee 37.
By making it mandatory, they force the employee to become an owner, whether they agree with the policy or not. Complete disagreement with the policy would prevent them from being an employee all together, so dissent may not be visible to maintain employment. DIRJVIanuf require 5% of the annual salary to be purchased during the initial year. DIR_Service and DIR_Professional give employees the option whether to purchase shares (56% and 66% respectively have chosen to). When employees have only purchased the minimum
requirement or not purchased shares at all, it primarily appeared to be due to a lack of available finance however a small minority did object on ideological grounds.
“Gut feeling is that: 56% think it is a good idea and have shares, the majority of others think it is a good idea but are not in a position to buy shares (say new graduates with student loans) and only a small
12 This reduces to £50 in the Indian office where there are lower wage scales.
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proportion object on ‘ideological’ grounds.” - Notes from conversation with DIR_Service.
“I like it to be fair, but it is almost racketeering in a way, because you don’t have a choice. You come in and, not immediately, obviously you have to buy into the culture or you would ju st leave, so it is not too bad but you don’t have a choice. That could be money in your bank, I’m not saying it’s not safe but it’s almost like “you have to give me money”. So it is almost racketeering.” - Directi employee 35.
Clearly the employee in this quote felt that they were being financially abused by having to purchase shares, even though there is the potential to gain from the transaction. The concern is the lack of choice whether to participate or not;
a fully informed choice would satisfy this employee but then goes against the founder’s desire to ensure that everyone is a shareholder, which was how the organisation was initially set up. This would therefore appear to be a state of compliance, according to Kelman (1958) and as Griseri (1998, p115) points out
“the absence of dissent is not the same as the presence o f assent”.
Where shares are purchased, it brings a degree of personal risk, as the share value can go up as well as down. This brings a tangible link between ownership and the performance of the organisation.
So the net asset value o f the shares dropped substantially. Down to less than a pound, that they paid for them. It went down to 69p. And it was probably one of the best things that happened because it taught everybody that they can go up and down. It isn’t that we ju st make brass. ” - Directi founder.
People genuinely do own the business and as you know it is a pure employee ownership, and they have to put their hands in their pockets to make the investment which is not gifted to them in any way shape or form. They actually have to put their hands in their pockets. - Directi employee 25.
If the company was to go bust, they would lose their money. - DIR_Eng Unfortunately, I know from when I started and what I have put in, the shares are worth a lot less now than they were then but I think that is just the economy as it is. - DIR_Manuf.
Where employees only have the minimum or a limited number of shares, the dividend was not considered to be of any real value and hence not an incentive; however there was still a tremendous sense of ownership.
"To me I’ve not got many shares in the company, because I have not got much money, but it don’t make no difference to me, those shares. I have not got enough to make me rich or wealthy. The dividend will pay for a
takeaway pizza and a bottle o f wine. So it doesn’t make any difference to me". - Directi employee 17.
“Incentive [dividend] is nice but it is not a big driver. It is better than having money in the bank.” - Directi employee 26.
In this case the employee was comparing the increase in value against bank interest rates, which in 2014 were very low (Bank of England interest rate -0.5%), so there was an expectation that the share price rise would supersede a return purely on interest. However when employees had built up a large
number, either over the years or as a one off purchase then the dividend became a noteworthy amount.
‘another story, one o f the factory workers came in and said “I don’t know whether to buy shares in the organisation or [elsewhere]. ”
So I said "wellit is up to you ... So I said “How much are you thinking o f putting in?”
“£30,000”.
A shop floor worker!’ - Directi founder.
"She has 38,000 shares, which provides a dividend of between £3000 and £4000... The dividend pays for 2 to 3 holidays a year definitely an incentive to her." - Directi field notes.
By their nature, shares are usually a long-term option. Where employees have purchased them, they are seen as a long term financial plan, for example as additional funding for retirement to supplement a pension or to pay off a mortgage on a property. This can be used as “golden handcuffs” (Sengupta, Whitfield and McNabb 2007) to lock employees into the job and reduce the risk of them leaving the organisation. For example, D irecti shares cannot be sold within the first 3 years; if the employee leaves they are returned at the face value they were bought for and not at any increased value.
Customers recognise that we are trying to be around in the long term and we are looking to retain people so there is not this constant churn. I think a lot of our clients get very frustrated with this churn within companies; so if they are providing consultants and one day they are not there and they’re working for a competitor then that becomes a frustration for them.
If we can find really good people to tend them for the long term, that benefits our clients. - DIR Consultancy.
In this case, the organisation is looking to provide secure employment for its employees. This can be seen as a reward in itself since stable employment helps to foster a less anxious environment.
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The purchasing of shares was usually limited to an annual window (typically the month after the share price had been evaluated) and the selling of shares was positively discouraged. Only on leaving the organisation (voluntarily or via retirement) was it encouraged or mandated. This maintains a level of control over purchase and disposal and therefore the share owners themselves.
Forcing employees to sell when they chose to leave the organisation removed their influence at the same time, to not do so is potentially dangerous and dilutes the employee ownership. This is what McCarthy and Palcic (2012) observed when the retired employees had significant control over an organisation they no longer worked for. Ellerman (1977) suggests that on leaving employment (voluntary and retiring) shares should be paid off, over a five-year span rather than on termination. Potentially, owners might choose to leave the organisation because they feel that the share price has reached an attractive maximum value, so is it in their interest to quit maximising their
personal income, which has resourcing implications for the organisation, should lots of people leave at the same time.
“Officially people can sell although we don’t encourage the selling of shares unless they really need it. A house move, or a new car although we try and say look, you’re in and those shares are there till you leave and that’s some of your retirement fund. We don’t encourage a stock market with buying and selling. We want people to come in and buy and keep those shares throughout their term, though people do get into financial difficulties and they do sometimes need to cash them in. ” - DIR_Eng.
“When you retire you can keep your shares, if you leave you must sell them13.” - D ire c ti Shares administrator.
Salary was determined on an individual basis, based on the skills and experience the person brought with them alongside the initial role they undertook. Flexibility within the organisations allowed for rapid, non-linear progression, depending upon task requirements rather than pre-determined steps. Therefore people were given the opportunity, and encouraged, to move through the organisation utilising their full skill set for the benefit of the
organisation. For example, at D ire cti, qualified graduates recruited as machine
13 Unfortunately, exactly why retired employees could keep shares was not asked.
operators on the shop floor were given roles within their speciality if such a need subsequently arose.
We needed a graphic designer, because we were really busy and we were desperate. “Can we get somebody in an agency or something?”
and we have never been asked to bring agency staff into the office before. There was a lad in the factory who had applied, and I went down, when we employed our last graphic designer and he wasn’t in but the team leader said “[NAME], he’s a graphic designer, he’s got a degree in graphic design ”so went straight up to [NAME], “come here”... And now he has got a full-time position down at the other site doing graphic design. - Directi employee 17.
We pay the salary rate for the advice you can give. So obviously if you are graduate the rate you can be charged out at is less than if you have 25 years’ experience. This encourages people to develop themselves to increase their pay. - DirJService.
Salary was not specifically tied to the market rate for the job. Being employee owned, with a greater control regarding the use of profits within the organisation, they could deliberately choose to pay above the market rate, assuming the business could afford it (Pfeffer 2008). Maximising shareholder value (MSV) at the expense of low wages for the employees was not the goal.
Ensuring that everyone had a good wage mattered, regardless of position within the organisation although there were wage differentials. This therefore
particularly benefitted employees who had a smaller shareholding but subsequently received a larger wage.
“We have just increased the minimum wage to £20,000, so if you come in here at 16, 17 you’re going to be on 20,000 + overtime. So you can imagine they all want to work here.
Absolutely! What is the normal rate them?
I think ours works out at £9.40 an hour.
And the minimum wage is £6.30. [Feb 2014]
So we really look after people. ” - Directi employee 17.
Similarly, individuals received performance related pay, to reflect their personal contribution (Kauhanen and Piekkola 2006, Shields 2007). This was decided by their immediate manager (not collectively), in relation to their colleagues. However, no other types of bonus were paid (for example
commission on sales or “Good idea” bonus) as these were considered to benefit the whole company, with the reward ultimately reflected in the increased share
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value and dividend. This was a particularly difficult policy to apply for sales staff that normally expects to receive a commission as part of their total reward and required the Sales manager to be more inventive in incentivising the staff.
Therefore the non-financial rewards were important to attract and retain skilled and experienced staff. The reputation and culture of the organisation was part
Therefore the non-financial rewards were important to attract and retain skilled and experienced staff. The reputation and culture of the organisation was part