1 Reward Management A Case Study on DHL Express Sri LankaPrepared and presented by: Nipun Wijeratne
2 Agenda Introduction to reward management HistoryCurrent trends in reward management Aims of reward management Managing expectations through reward management Company overview DHL’s operations Issues at DHL and analysis Best practices Challenges
3 Introduction to Reward ManagementThe reward management process: Evaluation Communication Implementation Maintenance Development Source: Armstrong and Murlis, 2004
4 History 1960s & 70s Traditional Approach of Managing Pay with Salary Administration Rigidly structured organizations Competitive attributes were subject to more focus Emphasis on attracting, motivating and retaining employees Late 1980s Initiation of Reward Management Realization that the performance of employees contributed to the success of the organization Extended the concept of financial incentives to include extrinsic and intrinsic values to encourage self-motivation Source: Armstrong and Murlis, 2004; Beardwell, J. and Claydon, T., eds. 2010
5 History 1988 – Coining of the term “reward management” by Armstrong and Murlis 1990s “New Pay” by Lawler Strategic thinking Design pay systems to fit business strategies and organization structures People-based approach Takes into consideration the value that they add to the organization 1996 “Dynamic Pay” by Flannery et al Align compensation with organization’s culture, values and strategic business goals Democratize the pay process Integrate pay with other HR processes Source: Armstrong and Murlis, 2004; Beardwell, J. and Claydon, T., eds. 2010
6 Current Trends in Reward ManagementService awards moving towards early recognition Creating a culture of recognition Rewards and recognition with social media Source: White, 2013
7 Aims of reward managementAttracting and retaining employees Motivating performance Promoting skills and knowledge development Shaping corporate culture Reinforcing and defining structure Determining pay costs Source: Lawler, 1995
8 Managing Expectations Through Reward ManagementImportance of understanding employee needs and what motivates them What? Employees have expectations and may not value the reward given by the organization Why? If the reward system is not designed to the required needs it would result in de-motivation and reduced organizational performance Consequence
9 Company Overview Leading global logistics providerPart of the global postal and logistics group, Deutsche Post DHL Headquartered in Bonn, Germany Has operations in over 220 countries and territories More than 285,000 employees worldwide DHL has 4 main business units Express, Global Mail Global Forwarding Supply Chain DHL Express Sri Lanka has been operating as a joint venture with John Keells Holdings since 1992 and has over 225 employees Source:
10 DHL’s Operations DHL Outbound Documents (Doc) Parcels (Non-Doc) Inbound (IMP) Doc Non-Doc *Inbound Doc and Non-Doc are considered as one operation due to the low volumes of inbound Doc shipments. Therefore, the main sales activities are considered to be Doc and Non-Doc (for Outbound) and IMP
11 Identification of the issuesEmployee Engagement 6% Strategy 3% Communication 7% Cooperation 4% One-on-one sessions were conducted with the employees to identify the root cause I receive information and communication I need to do my job effectively? 6% In DHL there is open and honest two-way communication? 6% Senior management gives employees a clear picture of the direction in which DHL is heading? 6% I rarely think about looking for a new job with another company outside DHL? 12% The feedback on my job performance is specific so that I know exactly how I can maintain or improve my performance? 9% *all % in this slide are decreases from 2012 to 2013 Source: Employee Opinion Survey (EOS)
12 Issues at DHL Issue 1: Dissatisfaction with financial incentives and transparency of target-setting Employees justify this trend by stating that the new targets set are too high as they are increased each time the previous targets are met Once the amount for the last quarter’s target has been met, employees expect the incentive for performing even their usual duties regardless of the point that they have not surpassed new targets Lack of transparency on how the sales targets are devised As employees do not understand how each target is derived, they perceive the target as unachievable
13 Analysis of Issue 1 According to the Goal Theory, in order to set effective goals, clarity, challenge, complexity, commitment and feedback of the stipulated targets are necessary However at DHL there is a, Lack of clarity, understanding and communication that continuous improvement is necessary by the employee to achieve the new targets Lack of a proper timeframe or the implementation of an unrealistic one Level of challenge/complexity may be too high as employees feel overwhelmed and de-motivated Lack of understanding and agreement about the new targets between the employer and the employee Lack of feedback leading to imprecise expectations and difficulty in adjusting to the new targets Source: Latham and Locke, 1979, cited in Armstrong, 2010 at p. 21
14 Issues at DHL Issue 2: Dissatisfaction with the reward system with regard to issues like fairness Perception held by employees that new employees should not be awarded incentives when there are long-service employees who have not received an incentive for a particular quarter (The incentive was not awarded to long-service employee as she/he did not achieve the sales target assigned)
15 Analysis of Issue 2 According to the Equity TheoryEmployees will be better motivated if they are treated equitably According to the Organizational Justice Theory Distributive justice Employees’ perception of fairness with which they are rewarded for their contribution in comparison with others Procedural justice Employees’ perception of the fairness with the operation of company procedures Source: Adams, 1965, cited in Armstrong, 2010 at p.21; Greenberg, 1993, cited in Elamin & Alomaim, 2011 at p.39
16 Analysis of Issue 2 contd…In DHL there is a, Misconception of equity where seniority takes precedence over achieving the stipulated targets As such, senior employees may not have enough motivation to achieve new targets while new and dynamic employees may seek more rewarding opportunities leading to an issue of retention Lack of clarity in defining the operational procedures related to target setting leading to misunderstandings Lack of actions taken to correct the misconceptions Lack of an organizational framework to compare ‘input’ of one employee to another in order to determine the proper ‘output’ required for each individual
17 DHL’s current reward systemVaries according to employee grade, and also within a particular employee grade depending on capabilities Base pay Incentives for sales targets Bonus – annually Other benefits Discounts for full-board holidays at all John Keells hotels Fuel allowances (for managers and front line sales staff) Employee loans Health insurance Rewards at employee events Branded gift items Foreign travel with allowances (for certain grades of employees) Service awards – Sales Person of the Quarter, Outstanding Sales Person, Sales Champions Club Membership
18 The Towers Perrin model of total rewardsTransactional (tangible) Pay Base pay Contingent pay Cash bonuses Long-term incentives Shares Profit-sharing Benefits Pensions Holidays Healthcare Other perks Flexibility Individual Communal Learning & Development Training On-the-job learning Performance management Career development Succession planning Work Environment Organizational culture Leadership Communications Involvement Work-life balance Non-financial recognition Relational (tangible) Source: Armstrong, 2010 at p. 42
19 The difference between incentives & rewardsForward-looking Aims to motivate people to achieve objectives or improve performance Rewards Retrospective Provides financial recognition for achieving or exceeding performance targets or attaining certain levels of skills/competencies Source: Armstrong and Murlis, 2004
20 Sales Incentives DHL’s sales force has an immediate, strong impact on business results Sales force incentive schemes are a form of contingent pay Sales incentives at DHL are given for meeting and exceeding sales targets and is cascaded down via s to employees Basic targets (Targets for all DHL offices worldwide) Each target is applicable to Doc, Non-Doc and IMP Revenue targets (based on core revenue excluding surcharges) Shipment targets New Customer (FTB) targets Field Sales Channel : 4 FTBs a month Tele Sales Channel : 17 FTBs a month
21 Incentives Structure Core Incentive Structure – KPIs (as per DHL’s Asia Pacific Incentive Policy) *Doc, Non Doc, IMP or FTB targets are usually assigned to KPI 2 and KPI 3 Special incentives based on stretched targets 5 FTBs per month for Field Sales will trigger an extra payment for the additional new customer Achievement of 120% of the IMP revenue will trigger a special pay based on the additional revenue brought in KPI 1 – Total Revenue 60% KPI 2 20% KPI 3 20% 100%
22 Factors to consider when designing a sales force pay plan1. What is considered to be “successful performance” at DHL? How is it quantified? The achievement of all revenue and shipment targets in their respective category (Doc, Non-Doc and IMP), whilst bringing in the required number of new customers 2. How does the sales person influence success of sales? Bringing in new customers Increasing share of wallet from existing customers Designing business proposals based on the needs and wants of the customer
23 Best Practices of DHL Express WorldwideDHL Express PK - Transparency Sales targets are given via a PPT during a sales meeting Enabling employees to raise questions then and there Feedback can also be given by the presenters clarifying any issues DHL Express SG - Fairness Top performers compete for the Sales Champion Club Present their achievements through presentations where they will be adjudged Has a dual purpose of rewarding/recognizing and cultivating leadership qualities Source:
24 Best Practices of Airbus UKReasons in selecting Airbus UK had the same issue in regard to awarding incentives to new employees and the adverse reaction by long-service employees Airbus and DHL are TNCs. Therefore, they have the potential of being pioneers in disseminating best practices due to greater resource base and global operations Measures taken: Introduce processes, supported by training, to ensure that employees perceive the awarded incentives as fair, equitable and transparent Introduce a procedure for appeals for perceived unfairness Stage 1: Meeting between the employee, line manager, top manager and trade union representative Stage 2: Meeting between the employee, head of department, HR advisor and trade union representative Source: Airbus UK, cited in Redman and Wilkinson, 2006 at p.145;
25 Best Practices from “Great Place To Work”Involving employees while deciding on varied ways in which rewards and recognition can be provided, instead of taking unilateral decisions makes R&R programs much more effective Making rewards and recognition more individualized or personalized, without violating the essence of fairness to match with the individual’s preferences and personality make the rewards and recognition more meaningful and motivating Setting realistic, achievable and line of sight goals drive success. Rewards for goals that seem unachievable do not motivate Source: Limaye and Sharma, 2012;
26 Best way forward – ChallengesPerceived fairness may vary according to different individuals and the new procedure may get flooded with unnecessary complaints overwhelming the process (flood gates theory) At DHL the room for variability in individualizing and personalizing rewards are less due to set targets and practices Introduction of new processes, in the case of Airbus UK, there might be resistance to change from employees, especially by the senior employees When leveling the playing field, as in SCC, sales personnel with more cognitive abilities may take the lead while the true sales performers will take second place leading to dissatisfaction with the system Creation of a platform that enables questioning, such as in the case of Pakistan, will lead to arguments that might result in employees rejecting the overall strategy of the company Source: Limaye and Sharma, 2012
27 References Books (Anon) n.d. F1: Accountant in Business – ACCA Get Through Guides Study Text. Leicester: Get Through Guides Ltd. Armstrong, M. and Cummins, A., The Reward Management Toolkit. London:Kogan Page Ltd Armstrong, M. and Murlis, H., Reward Management – A Handbook of Remuneration Strategy and Practice. 4th ed. New Delhi: Kogan Page India The Hay Group: Flannery, T. P., Hofrichter, D. A. and Platten, P. E., People, Performance and Pay – Dynamic Compensation for Changing Organizations. New York: The Free Press.
28 References E-books – Subscription-basedArmstrong, M., Handbook of Human Resource Management Practice [e-book] 10th ed. Kogan Page Ltd. Available through: EBSCOhost Database [Accessed 20 November 2013] Beardwell, J. and Claydon, T., eds Human Resource Management: A Contemporary Approach [e-book] 6th ed. Essex: Pearson Education Ltd. Available through: DawsonEra Database
29 References Journal Articles – Freely availableElamin, A. M. and Alomaim, N., Does Organisational Justice Influence Job Satisfaction and Self-Perceived Performance in Saudi Arabia Work Environment? International Management Review [online] 7 (1). Available at:
30 Thank You