How can employers improve the quality of low-paid employees’ working life without damaging their bottom-line performance?
The UK’s problem of in-work poverty is only partly addressed by pay rises. This report examines how human resources and development (HRM/D) practices could help tackle in-work poverty, and assesses the business case for their adoption. It finds that:
- HRM/D practices offer financial returns through higher productivity, better organisational performance, and lower labour costs and absenteeism, while boosting job satisfaction and well-being;
- training, development and flexible working can improve productivity and employee motivation, but the relationship is complex and depends on the effective deployment of skills;
- not all aspects of HRM/D practices are beneficial to employees. Genuine employee involvement in decision-making is important;
- although the business case for HRM/D is by no means a ‘no-brainer’ for employers, more should be done to promote ‘Good Jobs’, supported by practice advocacy and better leadership.
The UK has a growing problem with in-work poverty. Increasing pay offers part of the solution, but what else can employers do? This research examines the case for organisations to adopt employee-friendly human resource management and development (HRM/D) practices, such as structured recruitment, training, performance management, flexible working and fringe benefits. It also looks specifically at employment in the adult care sector.
- HRM/D practices can offer a financial return to employers through higher productivity, improved performance, reduced labour turnover costs and lower absenteeism. They can also boost job satisfaction and employee well-being. However, the business case is not universal, particularly where employers have no difficulty hiring people into low-paid jobs.
- Training and development can improve productivity and employee motivation, but this depends on how effectively skills are used by employers. For employees, progression depends on pay structures and how transferable skills are.
- The business case for flexible working is equivocal; benefits accrue mainly to employees through increased job satisfaction and well-being. Fringe benefits can help employers attract and retain staff, but there is little research into their impact on low-paid staff.
- Not all aspects of HRM/D practices are necessarily beneficial to employees. Team working and rigorous performance and appraisal systems can have negative consequences. Genuine employee involvement in decision making is important.
- Availability of low-skilled employees and public sector financial constraints set the context for pay and conditions in the care sector. A higher level of funding and reassessment of the current provider contracting model may be required to drive up service quality, pay and conditions.
- More should be done to promote ‘Good Jobs’ as a means of tackling in-work poverty, but there are limits to how far voluntary efforts on the part of employers can succeed.
Policy measures to reduce in-work poverty include raising the statutory National Minimum Wage, encouraging or incentivising employers to voluntarily pay employees a Living Wage, and education or skills training to improve the earning power of low-paid individuals. In addition, government can raise income tax thresholds for low-paid workers or increase tax credits. But all these remedies have limitations, ranging from possible negative impacts on employment to a cost to the Exchequer.
This research examined the possibility of encouraging low-paying organisations to become ‘antipoverty employers’ by adopting employee-friendly human resource management and development (HRM/D) practices. These include systematic performance management and appraisals, workplace training and development, flexible working or the provision of various non-wage fringe benefits that could improve the non-wage aspects of jobs and thus the overall quality of working life for low-paid employees.
For example, work-related training could help support the career development of low-paid employees and perhaps help them progress to better-paid jobs. Flexible working could enhance work-life balance and reduce work-related stress. Fringe benefits, such as help with travel to work or childcare costs, could help raise employee incomes. Management systems that give employees a degree of autonomy over how they perform their jobs and a voice in decisions that affect them, could also improve employees’ overall sense of well-being.
However, most HRM/D practices involve some cost to the employer. The business case for adopting them thus depends on there being an associated financial return to the employer. This might take the form of increased productivity from training, reduced labour turnover costs if the provision of fringe benefits or the opportunity to work flexibility means fewer employees quit their jobs, and less staff absence. Enhanced overall employee well-being might in turn make employees more engaged with their work and motivate them to ‘go the extra mile’ for their employer.
Examining the business case
The project examined the conceptual and empirical basis of the business case for low-paying organisations to adopt employee-friendly HRM/D practices by reviewing the extensive literature on the effects of ‘high performance working practices’ and related employee engagement strategies. The research considered the underlying imperative for low-paying organisations to adopt these practices, the likely impact of these practices on the financial bottom line, and whether these practices are always and everywhere as employee friendly as their advocates suggest. As well as providing a ‘big picture’ perspective on the business case, the research focused in particular on the example of the UK adult care sector.
The breadth of available research offers compelling evidence to underpin the business case for more organisations across the UK economy as a whole to adopt HRM/D practices. However, the evidence is neither strong nor unequivocal enough for it to offer universal recommendation.
For employees, HRM/D practices can result in improved job satisfaction and well-being, but the effect depends on the quality of leadership and management within the organisation and their ability to deliver the policies. The degree of worker discretion in performing job tasks and level of genuine individual or collective employee involvement in organisational decision making is also important.
The business case is particularly questionable for organisations that are able to survive by competing in low-quality and low-cost markets, have no difficulty in hiring people into low-paid jobs requiring little in the way of formal skill, and in which ‘hard’ job-related skills can be acquired relatively quickly and cheaply. The strength of the imperative for change is likely to depend on the market segments organisations choose to operate in and will be stronger the more the balance of consumer preference is tilted toward consideration of quality rather than price. The decision to act on this imperative may also depend on the foresight or quality of leadership and management in low-paying organisations.
Training and skills
With regard to specific types of HRM/D practices, the relationship between skill, productivity and pay and employment progression is far more complex than often suggested by advocates of increased investment in human capital, who see this both as a pathway out of in-work poverty and a way to enhance the quality of working life. While training can result in improved job satisfaction and employee well-being, improved skills should not be presented as the answer to low-wage employment without consideration of labour market structures, workplace power relations, and the true extent of demand for skills across the economy.
Research evidence is far more equivocal about the business case for flexible working than advocates of such working arrangements generally suggest. The likely reason for this is that the benefits from flexible working accrue mainly to employees in the form of job satisfaction and well-being but there is no guarantee that this ultimately improves the business bottom line. The key factor instead appears to be the specific organisational situations in which flexible working practices operate, especially the overall nature and quality of management.
The review also found that fringe benefits provision is generally better for higher-paid workers and in larger organisations. While fringe benefits may assist recruitment and retention, there is a relative lack of evaluative evidence to support the business case for businesses to offer them to low-paid employees. Little is known about how much low-paid employees value different types of fringe benefit, and whether they prefer them to higher hourly pay.
Negative consequences of HRM/D
The general assertion that HRM/D practices are necessarily of mutual benefit to both organisations and employees is contested in research studies. Team working and the rigorous performance and appraisal systems associated with HRM/D can sometimes result in increased workloads, a higher pace of work, loss of individual control and autonomy, and greater surveillance. Some forms of flexible working, notably zero-hours contracts, can also increase income and employment insecurity for some employees.
The example of adult social care
Adult social care is a classic example of a UK employment sector where the availability of low-skilled employees and public sector financial constraints combine to create an incentive for providers not to improve employee pay, conditions, and working practices. The juxtaposition of the existing contracting and financing model with a deregulated labour market and plentiful supply of low-skilled/low-wage labour makes the maintenance of low-cost business models in the sector almost inevitable. Ultimately any serious drive to improve pay, working conditions and service quality may require acceptance at the very least of a higher level of funding for the sector if not a reassessment of the current contracting model.
On the basis of this review, it is possible to suggest that a campaigning vehicle be established to enable aspirant employers to form a ‘coalition of the willing’ in order to promote the case for ‘Good Jobs’ in the broadest sense. This should include steps to address poverty in the workforce and an aspiration to voluntarily raise minimum pay rates to the Living Wage, at least in the medium term if not immediately. This could be used to advocate best practice examples of how training, flexible working and fringe benefits can be deployed to have an impact on poverty and improve business performance.
However, for organisations reliant on employment of low-paid workers, there is little prospect that they will be any more persuadable to become ‘anti-poverty employers’ by changing their HRM/D practices than that they will agree to pay a Living Wage. Given that these are precisely the types of organisations that sit at the heart of the UK’s problem of in-work poverty, this poses an obvious dilemma.
Ultimately, it must be acknowledged that the current state of affairs in what some call ‘low wage Britain’ is the outcome of a number of deep-seated structural and institutional features of our economy and society. Consequently, voluntarism faces an uphill struggle if it is to successfully reduce the relatively high incidence of low-wage/low-quality employment in the UK economy and genuinely help combat in-work poverty.
About the project
This research involved a literature review of evidence on the impact of HRM/D practices on the quality of working life for low-paid employees and the performance of low-paying organisations. This included rigorous quantitative and qualitative academic research as well as case studies conducted by management consultants. Analysis of this evidence was considered in view of recent calls to improve working practices in the adult care sector.