So, let's have a look at what's facing us all, a nice bit of research, it actually states what we all instinctively know anyway. Buyers across Europe, 95% are demanding shorter delivery times. 75% want more features from the products that they are actually buying. They want more innovation from the suppliers -"you do something more different for us, we want to win, we want to be the best in the market place, you make sure that we can, and I'm expecting you to do that as a supplier of goods or services. I want shorter order lead times, I don't want to wait 3 months, I don't want to wait 8 weeks, I want it when I need it". Also tighter delivery specifications; "you take the warehousing cost, you come and work with us for 'just in time'. It's not my problem anymore, it's yours". This is what purchasers are saying and above all they want it for less. Again, it's not rocket science, it is actually stating the obvious, if you go and buy a TV or a washing machine we're demanding all of these things and we don't expect to pay for it.

Now when we look at employer expectations we no longer employ people for life, we can't play the loyalty card anymore. We no longer have long-term commitment to employment and we expect people to look after there own destiny. We might not express that very clearly and we might fudge the issues and indeed when you look at a lot of the literature to employ graduates and actually attract people in there, a lot of companies are playing the old tune. However, my perspective, knowing that I'm not going to be with you for very long changes. I start to look at the market and say "what are people being paid and I expect to be up there. I also expect you to provide the training opportunities for me because I know that when the bad times do come and I know that you are going to push the button I'm going to be employable. I'm expecting different things.

I did some nice global research, 23 countries, about 2000 MDs, what's at the top of their hit list? Motivational pay, right at the top there, leadership, right at the top there, training and development, same again. These are the things that MDs are wrestling with at the moment, these are the things therefore that HR departments should be focusing on and supplying the answers to, and what I want to come across is that really you need to look at an integrated HR Strategy. Variable pay will account for 20-25% of the total pay.

So, the definition, strategic sport of an organisation's business performance through its HR function. Again an integrated HR Strategy, well what I'm focusing on at this stage is what can we do with variable pay.

So where do we start: well as I mentioned earlier on best practice. 196 companies, 76 countries.

First mistake: it's not all about profit. It's about a ratio, it's going to be about a ratio, it's going to be about a balance of things. Performance achievement also breaks down into differing key tasks depending on job level, and the successful companies who've introduced successful plans recognise that right at the outset. They also recognise that we can get more out of teams, but we've got to have a balance, we've probably got to have both individual and team contribution and that's what came through in Margaret's presentation. You've got to make individuals accountable you can also make people focus on a team target as well as an individual target, this is what the best do. So you can have best of both worlds, but you have got to recognise that it doesn't have to be one or the other, it probably has to be both.

Top management should act as champions, employees need to feel involved. We've probably seen that in every HR book in the last 25 years or so, of course it's true, but these people actually walk the job, they get excited about it they present the plans; top management do they get behind it. Employees need to feel involved, most of the plans that I get involved in we hold a lot of focus groups, we get a lot of input. So although we might get a lot of overall steer in the board, we get a lot of feedback from the individuals as we go through so that we know that this is what they want as team leaders, as managers, this is what they want to see reinforced and recognised for their peers. Commitment by middle managers, again this was mentioned in the first presentation, middle managers will be the bottle neck; there will be a lot of fear going in there because once we get into planned design you'll see that actually we're going to set lots of dials on the wall metaphorically speaking. That information used to be theirs but now we're going to share that out. So what is my new role? It changes the role, where you have change you get apprehension. So commitment by middle management, absolutely vital and that came through this morning and I was delighted to see that.

Where do we start? Again it pulls together the three presentations really, where does this business want to be? It's not a difficult question, every company is on the move and if you just imagine it, company X is down there and it needs to be up here. Who do they most admire at the moment and what do they do differently, how are they going to beat them?

That's what I call a strategic plan.

So from the plan, if you want to actually be there what have we to do. What sort of finance do we need in order to fill this company, what sort of market do we want to be in, what sort of products or services, what's best in practice? Those are the processing policies, does it take a day or three days, does it take 3 man hours as opposed to 3 man minutes? What is it that we've got to do to fulfil a business promise? Again if you go into any reception area you'll pick up corporate blurb and it will say that we want to be best in class; or first choice or whatever it is. 7 times out of 10 you'll then go to the MD and say "how do you measure that, how do you actually know that you are on track, what are the milestones and it goes a bit glazy. You can't go anywhere near performance variable pay plans until you've got a structure. We don't need to get involved with what sort of finance do we need, we don't need to start recommending what sort of products and markets we should be in or indeed production and services. But what we do need to start to think about is how does this actually affect the people that work here. Now we are beginning to get into real dials and roles.

What sort of structure do we need? What sort of roles are they? Accountabilities, I've probably mentioned this a hundred times; who is accountable for all of this; again Margaret's presentation. Make sure whatever the target or objective that there is somebody who is accountable for it. So you have to paint the board into the corner as it were. So Mr Marketing Director, if we are going to expand into these markets you are accountable for X,Y,Z. You the production or operations director, you've got to get the time cycles down from 10 minutes to 10 seconds to be best in class which is what we said we were going to do. What are you going to do? Paint them into a corner and say you are accountable for that; from that comes the milestones in your performance building.

So we have the corporate objectives, the strategy, we've got the fine words, now we've got a corporate plan that says this is how we actually make it happen. This is what we've got to do to make it happen and then we need to focus on the accountabilities. From there we need to measure the financial impact, if we do manage to get the cycle times down from 10 minutes to 3 minutes, what's the financial impact of that, how much more does that give us on the bottom line. Then we need to look at the market competitiveness because we don't want to be looking inwards all the time we want to be looking outwards. What are the best doing; what are those that we admire doing now? Both in terms of customers, employees, and indeed competitors.

So the accountability matrix, this can just take an afternoon; you can sit down with the MD and say what are the key tasks that we have to undertake? Let's break them down into the financial impact, business growth, culture processes, maybe project management. What are the key tasks there? Who currently is accountable for making that happen? You start to put some abbreviations along there so that you know everything that is important is covered that there isn't duplicity, that there aren't gaps. Going through this process can be amazing. The re-insurance company, beautifully successful, we went through this process and found that there was nobody out there looking after marketing because they were so successful in that the business was getting sucked in. They recognised the gap and their sales improved by about 600% in 6 months. It's an easy thing to do with fantastic results. So what you do is set meaningful targets at board level, then you get to individual contribution again, marketing, sales, finance, and then you have some other strategic targets which can be aimed at team level.

So as a Director I can now get out of my people; say "this is what I'm on for, this is what the company needs to achieve and why. This is how I am going to distribute and delegate these responsibilities to you. Again straightforward common sense process, but so powerful, and how often it is that I walk into companies and this actually isn't there. We have a dreamy strategic plan which makes a lot of sense, it has been done because it had to. The 3 year forecast, 5 year forecast, we call that a strategic plan. Then when you go into a company that does have this it really is motoring. People are focused, people know what they have to do. Also important to notice is that they take a balanced view, it's focusing on customers, it's focusing on key relationships. Because they know that they can't get there unless all their suppliers are in there behind them. They know that they are not really winning with customers or not unless they get close to the customer. So we start to build up a need, of measures and feedback otherwise we can't actually know whether we are on track or not. I as a first line report into a director with my team of people I would do exactly the same thing. This is what we need to achieve marketing team, this is what I'm on for, this is how we are going to distribute it. So what we are doing is actually blowing away the fog giving absolute clarity.

Recently we surveyed about a 1000 companies in the US, because we tried to get a handle on confidences to see if confidences had an impact or not. There was a gulf between very successful companies and the also rans. Something like total shareholders turnover in 5 years for the successful ones about 30%, the also rans was about 10%. So big impact; but what they are doing is simplicity itself, they are telling people were the business is heading, they are telling people what their contribution is to that business, there is a clear link of reward performance and there is very good training and development. Training with a small 't', lots of learning opportunities they don't actually spend lots on training, approximately 10-20% less on training than the also rans. What they did focus on was success opportunities and learning opportunities.

So tell me what the job is, give me regular feedback, make sure the reward mechanism is logical and reinforcing that and giving lots of training and development opportunities in leadership and learning opportunities, that seems to be the key to success. Before you set off variable pay plans at some stage you've got to show the MD this is what we intend to pay out and this is the payback. Before you sell off in a plan, you've always got to have a view that if we exceed this target, if we exceed this plan, how much is it actually going to give us, because all variable pay plans should really be self financing as we can't increase our fixed costs. So that gets us out of any budget constraints provided we've done our sums and we do need to do some analysis. We know what the key accountabilities are, we get a sense of what needs to be achieved but if we do improve our retention by 2 or 3 points what does it actually do for the bottom line.

If we can get the conversion rates on the telephone line up by 2 or 3%, what does it do, how much can we fill the pot up? Let's prove it, let's work out the worst case scenario. If we manage X, Y, and Z, what are we actually paying out?

In the Ideal presentation that we went to we would have loved to have asked did they do any cost plus analysis, when they had open-ended commission plans how do they make sure that it is all self financing? So you have got to expect to do all this, it's not difficult you get close to the cost accountant and you start to thrash out best case, worst case scenarios and what if. So, difficult project steps - there are four of these.

Corporate objectives; let's be very clear where it's going, if someone starts off by saying 'I want a bonus plan, I want a variable pay plan'. First thing you have to do is to say 'why, what is it that you want to achieve as a company. How has that actually cascaded down into divisional or line accountabilities. Then we get into job roles, job analysis within divisions, then we get key performance criteria within job roles. Now it is at this stage that you can start having some focus groups. What would normally happen in a typical assignment you would have face to face interviews with the board people and you would say 'what is it that you want to re-inforce, how well is the current reward still working for you. What do those companies do differently that you most admire from what you are currently doing?' You've got to be a bit careful because you are building a role model, today's role model, which might not fit the future role models. So you've also got to ask the question 'how is it going to look like in 3 or 4 years time'. So there are some nice interesting questions of your direct reports at the moment, who is actually the 3 that you most admire and they will rattle them off just like that. You say 'why, what do they do differently'? You will come out with all the classic energy, enthusiastic, pro-active, then having let them run at you, you can précis that into a few key dials. What actually happens turns the results, when you've got your team manned by these sorts of people. You can do the converse to, give me 3 people that you don't want working for you and what tends to happen. You can use that process. all the way through the organisation and it's good fun for you can have 8 people around the table, you can just push the 4 to one side and say think of 3 people you've really enjoyed working with. And at the other end think of the people you didn't want to work with. So you get the whole focus on performance, what it is they see from colleagues, what it is they want managers to manage into organisations. I wasn't at all surprised to hear, that employees do want poor performers to be managed better. I don't think that I've been in a single company where I haven't heard that. We are not very good at managing poor performance. Every time that we list what we want to see in teams, what we don't want to see in teams, every time that we say how well do we manage this that we don't want to see, its always not being very good, and I wish you were better.

So we can start to see how the job roles actually differ, because we were looking at the stars analysis if you like, a star director, a team leader, a sales person, what are the key roles, what do the best tend to do. Let's paint a picture of what the best tend to do at each level and the course it changes, they can't actually influence anyone. One of the dials, the indicators, the scoreboard if you like, that starts to be effective; so from that we can start to propose measures by key performance criteria and by individuals. Then we can start to extrapolate some of those, so that if in telesales we do build trust, the conversion rates will be better, for the policies that they sell the retention rates will be better, you can start to see one of the core things that they affect. We can see that if we do improve by 2-3% what does that do to the bottom line. What we are trying to do is to get at the important and the critical and see how much that adds to the bottom line.

Well that's phase one, now if you wanted to develop an integrated HR strategy, everything we've done there is pretty well all that you'll need because we can use the analysis we did here to build a set of confidences, which drives base pay; we can also do this to drive variable pay. Ask yourself the question: Does every policy within your personnel function reinforce where the business is heading? Does it reinforce and clarify what the key roles are? Every pound of payroll is reinforcing those things as well. Nice little health check and a lot of companies benefits package doesn't actually help reinforce much of that, because it is based on old philosophies that you are going to be here for the next 30 years and all those good things, but it is 25% of pay roll. what a shame that you don't get a return. So that is a very interesting and valuable exercise to go through. It will also throw up what you currently don't measure. It will put instant pressure on your measurement systems because we found things here that people can influence. 5 times out of 10 we come up with things that we can't actually use because we haven't got a measure for it. It takes time to develop the appropriate measure. Biggest pitfall as we've said today is to measure the easy to measure and not the important. Absolutely so simple to do, it's also very easy to not think through the consequences of the measure that you've dreamt up, so you've really got to shape the truth and imagine what a rascal would do with this measure. How they would get round it then you've got a good chance of getting the appropriate measures in place.

So now we're in a position to design, now it's always a multi performance practice, there's always more than one thing that you are going to re-inforce and quite often in the plans that I've designed there will be 2 maybe as many as 3 dials. First dial could be 'How's the company as a whole doing'. Second dial could be 'How well have I done against my own key performance indicators, against those key measures. There might be a third that is a specific MBO. But you can have 3, you can explain it quite easily, and you can measure it quite easily. Secondly, I want to look at market data because I want my stars to be paid around the upper decile of the market place if I can. What is that? This is particularly relevant when you are looking at Pan-European plans and you are talking about the Netherlands. They are not use to variable pay plans at all. In the US it's as probably as high as you're going to get. In England it's probably second and a lot of the Asian countries are going in for it in a big way. But you can have the same principles, but if the market data says in Holland we're only used to 5% and in UK we're used to 25% it starts to give us a yard-stick in what should the difference be in terms of the variable pay and base. So the market data allows you to make a judgement:

1) 'What is the total package I should be paying'

2) 'What is the difference between the base pay and variable pay'.

Then you can use that as a judgement whether it should be 100% of variable pay as we have heard this morning or whether it is long-term relationships that we are after then it should never be more than 15% for instance. So look at market data, that gives you a steer and decide if it's right for your business and for this particular role. So we know what it is that we need to re-inforce; we've got the dials and we've got the measures. We know how much it actually impacts on the bottom line so that if we set a threshold of at least 2% above budget, what happens if we get 3-4% above budget, how much goes into the pool that is going to pay for this lot? How much do we want people to be paid and then we can start - what if? Grand scenarios! If this team exceeded its target by above 150% and the company as a whole didn't do well, would we still want them to have variable pay? Hopefully the answer's yes, because we've costed it out and we want to re-inforce benefit performance. We're in a position to do a cost benefit scenario and start to weight the various dials that we have. There will be some things more important than others, Sales and profit; hopefully we will weight profit more than we would sales. Productivity, quality, always look for a ratio if you can, that means we get the right balance.

Equally important is the communications package, this is the sell and tell. It doesn't matter how good you design if people aren't behind it you've had it. So to get over the stumbling block get the words right, have a bit of panache! Hopefully, if you've started to involve enough people, then actually you've got a lot of buy in anyway, you've got a lot of friends out there selling the message already. Again, typically I would make sure that there are 2 or 3 people within the organisation who are accountable to lobby before the full scheme launch because I want this thing to really work. In terms of line managers, what we're doing is we've developed a performance management tool to say look, you know the key dials that you wanted to reinforce, here's your opportunity to give feedback as to how you're actually doing against that and here's your opportunity to set targets, thresholds and to really give clarity to the people that work for you in the way that you feel is most important. Ideally, I'd always do a pilot study, there doesn't seem to be the time, there seems to be a degree of urgency. It's really nice if you have the time to do a pilot, because it builds trust, it gives you confidence in what you are doing and it gives you an opportunity to win friends.

Then we are into full scheme launch and as was emphasised how important it is to really monitor. The MD is really comfortable if he gets a report every quarter says here are the 4 things you wanted to reinforce and here are the 4 dials and this is what is happening to pay. In fact it is very logical. You can also do that to line managers, give them feedback, here are the key dials, this is what is happening. So in a nutshell, four phases, feasibility study, design, testing, implementation.

Here's a nice little quote. I don't think that you've got a choice because you've got these paradoxes now. I think it's almost like a damn great tidal wave building up out there somewhere.

I think there are lots of new companies setting up, they don't have all the benefit packages there. It doesn't take too long to get competition going. I thought the ideal presentation's perfect, that's a new company and that can happen in any environment. You've seen Branson in the financial services, it's no benefits package at all in most of those companies. Money is reinforcing what needs to happen.

Questions

1 Mike Bourne, Cambridge University.

You explained that cycle, typically how long does it take from the time of appointment to the time of implementation?

A lot will depend on the size of the organisation but in the 6 years that I've specialised in this I think the shortest time that we've ever done it is 6 months. If it is a fairly major international European company then you are probably looking at 18 months. You really don't want to rush these things because it is so important to get the key measures.

1a In quite a lot of organisations in 18 months, you have another set of key measures, how do you keep up with that torrent of change?.

I think one of the beauties of conceptually having 3 dials rather than just 1 is that it is so flexible. It doesn't matter what goes in there provided you've got the measures behind it, so that you can quite swiftly change targets, change direction. One of the plans I did was for News International, they change direction targets every week. You do need software to back that up, you need a PC system to help you through that. But provided you've got reasonable measures coming back at you, and you build in the flexibility right up front you can actually cope. Because otherwise it is not an effective performance management tool. If line managers targets change quarterly you can't have a pay scheme that allows them to reinforce the same things quarterly. But the principles might well remain the same. For instance: you could say anybody that had achieved stretch target would get 25% of pay. Anybody that hits target will get 10%. Anybody that's within 90% will get 5%. Those principles will stay the same, but what the parables are, what the performance criteria are can change. You've got a structure, with similar principles that actually work.

2 Neil Moore, London Underground Engineering.

The trade union movement in this country are violently opposed to the introduction of the Performance Related Pay Schemes, (PRPS), particularly for the blue collar staff. The government are not committed either way. I don't know whether you've come across that experience before or how you'd recommend overcoming that type of resistance culturally in this country?

It always starts with the business case, why do we need to do this? If you've got some sort of monopoly that's always going to be difficult. A lot of unions actually do believe in PRPS, e.g. the M.F.S. have said loudly that PRPS is a sound concept. What we've got to do is to make sure that it's applied in the right way. I need some time to think about the underground though. The business case is: 'look, here's our competitors, this is what they are doing to our market place, this is actually how that cost structure is; they're going to wipe us out." I've been in some factories where it is magnificent to see the information on the board that says, "Unless we change, we're going to have to close the doors, we can't change unless you help us." Then they start to see a company that used to manufacture the bumpers for Rover, and Honda, the most magnificent extrusion machines I ever seen in my life. They had to reduce their costs by as much as 15% in real terms otherwise they were going to go out of business with Rover and Honda. They put the simple facts up, "listen lads unless we get the quality up by 0.1% rejection rate, unless we reduce costs by 15% they're not going to deal with us any more. That's how they get by it. It is to flood them with information, obviously realistic information, that says this is why we've got to change. I suppose it is like any other change process; tell me why, help me understand. That's all very well for me to say, you're wrestling with a little beauty there.

3 Kathy Long, Lloyds Bank.

You've talked about ideally you'd like to pilot. Have people piloted within one organisation, how does that work?

What you tend to do is to take a discreet division or a factory unit or ideally you take something that's within the company that can actually stand alone to some extent. So you've selected a department, division or business unit. Say that we want to apply this across the whole company but before we do, we're going to pilot it in e.g. 3 branches or within Lloyds bank you may select a region or a specific core centre. This is the way we think it's going to work, we're going to pilot it to build trust and make sure that we've got it absolutely right and we'll be feeding you back with all the information.

3a How did the staff respond if they were part of the test centre, and lose out?