Credit: greenhills.com

DIY Stores (DIYS) is a chain of large warehouse-style stores selling DIY equipment, self-assembly furniture, plumbing appliances and garden tools. It is a wholly-owned subsidiary of a larger retail group and is ranked in the top five in terms of its UK market share. Its annual turnover exceeds £50 billion and its annual profits are around £1 million. DIYS currently runs 250 stores across the country, serves over a million customers a week and employs 12,000 people.

In response to a slight fall in market share over the past year, the board of directors has recently produced a new company mission statement. High on the list of core aims for the coming two years is the desire to substantially improve efficiency and performance levels. Ambitious targets have been set, and statements issued about the need to create a more dynamic, performance-focused corporate culture. Reform of the existing approach to performance management and Reward in DIYS is now very much on the agenda.

The present approach is well established and clearly understood by all DIYS employees. It is distinguished by the emphasis it places on the role of the store manager (i.e. the general managers responsible for running each of the 250 stores). Store managers are rewarded with a standard package of terms and conditions which are noticeably more generous than is offered to other managers and staff. In addition to the basic salary they enjoy a range of benefits (including private health care and additional holidays), the right to purchase share options and substantial discounts on products sold by DIYS and its parent company. In addition, they each receive an annual, individual, performance-related pay (PRP) award dependent on the extent to which their stores meet pre-agreed targets. Performance objectives are all specific and measurable, being made up of targets in five

categories:

  • target increase in total store takings (eg 5% over the year)
  • target reduction in stock loss (eg 7% over the year)
  • target increase in average spend per customer (eg £3.00)
  • target improvement in product availability (eg to 97%)
  • target increase in customer care (eg by 10%).

 

This last measure is determined by the scores awarded to each store by ‘mystery shoppers’ employed by the company to visit stores incognito.

Other members of staff, including managers below store manager level, receive a considerably less generous reward package and no performance-based reward. Managers are expected to raise performance levels and achieve their targets through effective supervision, ‘pats on the back’ and, where necessary, the application of disciplinary measures. For senior staff, the expectation of promotion into a store manager role has for long been used as the main method of motivation.

The problem

A number of criticisms have been made of existing performance management arrangements. The most important are as follows

  1. Managers working below store manager level can improve their financial position

only through promotion. Those who are performing very effectively in their present roles and have no interest in promotion are not properly rewarded for their effort. This leads to dissatisfaction and avoidable staff turnover. There is also a failure to maximise performance among this group.

  1. Store managers are limited in the range of performance-management techniques

available to them to apply within their stores. No financial incentives can be given, beyond a few pounds in the form of ’employee of the month’ prizes and small gifts at Christmas. This means that managers have to rely on close supervision and the use of disciplinary approaches in order to achieve their targets. The result is demotivated staff, high employee turnover and a low-trust employee relations culture.

  1. Store managers themselves, because of the way the PRP system works, are

encouraged to focus wholly on the performance of their own stores. Overall corporate performance is of less interest to them, as is the performance of their regional divisions. Indeed, there is huge competition between store managers in each locality, leading to situations in which they fail to co-operate with one another. Ideas are rarely shared and there is resistance to transferring staff from one store to another to cover sickness and holidays. More damaging is the tendency to hold on to stock, even when other stores have run short due to unexpected high demand.

  1. At present all members of staff, apart from senior management, are paid via a traditional job-based payment system. There are six narrow pay grades, each with four salary points. Progression within grades occurs on the basis of annual increments. Once the grade ceiling has been reached, no further progression is possible unless the job is regraded or the individual secures promotion to a different job. It is perceived that the above system, while readily understood and inexpensive to administer, is an inappropriate means of rewarding staff, given current market conditions. Morale is low, over half the staff having reached their grade ceiling.  Absenteeism is unacceptably high and it is becoming increasingly hard to recruit and retain staff of the right quality.

 

In addition, the organisation’s performance management system is not well defined and is left to individual managers / supervisors to implement.  There is no specified way of setting or measuring individual’s objectives against the organisation’s strategic objectives.  Motivation overall is low, the HR policies and procedures are undefined and management are poorly trained in general people management practices.

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Your task

  1. You are a Business Adviser specialising in performance and reward. Taking into account the context of DIY Stores, you have been asked to compile a report advising the company’s Board of Directors how it should redesign its performance and reward system which clearly reinforces and underpins its business strategy and includes ways of measuring this.

 

(Approximately 2500 words)

 

  1. In addition, you are required to recommend objectives for each of the undernoted groups in order to address current issues, or to achieve the organisation’s strategic objectives, and how different performance and reward strategies might be appropriate, in relation to such objectives, for different groups of staff. E.G.
  • Staff / staff from different departments
  • Managers below store managers
  • Store managers
  • Board of directors

(N.B. In this section you must outline appropriate objectives together with suggested reward mechanisms underpinned by literature and successful reward strategies used in other organisations.)

 

(Approximately 1500 words)

 

(Coursework word count = 4000 words + / – 10%)

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