Victoria Milford Consulting Dixons Carphone – Case study The client Between July 2015 and April 2016, I worked on a new retail pay framework with Dixons Carphone, Europe's leading specialist electrical and telecommunications retailer and services company, employing over 30,000 people in the UK alone and operating in 8 other European countries. The brands best known in the UK are Currys, PC World, Dixons Travel and Carphone Warehouse. The brief The initial brief was to design a new pay framework for Dixons Retail stores, ie Currys and PC World across the UK, Dixons Travel in airports and also the Dixons run electricals concession within Harrods. As I explain below, the need to harmonise across not only all the Dixons brands but also the Carphone Warehouse ones became apparent early on. And then the Government announced the introduction of a new National Living Wage... Key challenges The existing Dixons framework had 6 steps driven by elearning and colleagues would progress up these pay levels on a quarterly basis unless under formal sanction. This lead to a number of issues: some colleagues were being paid at the top level having done lots of elearning but in roles where this was not put into action eg in the warehouse quite a lot of the budget was tied up in those on higher level pay entry level pay was therefore pretty low, generally at or just above National Minimum Wage, thus not always attractive to new recruits there was an expectation of pay rises each quarter it was time consuming for the Reward team combining elearning results and regional managers feedback calculating for around 14,000 colleagues colleagues were paid for knowledge, without requiring that to be translated into skill or a customer result The desire to break the link with training was clear, for the issues identified above. Some parts of the Dixons business including Commercial relied on the elearning system and colleagues being incentivised to complete hence this was one challenging area. The Exec were supportive that colleagues should be paid for their outcomes in customer service and sales made via bonuses and that learning enabled them to be successful and therefore should not be explicitly paid for. Add into the mix the merger with Carphone Warehouse. Whilst this had already been in place for just over a year when we started the review of the reward framework, the stores were still run separately from an operational and HR perspective but we were already seeing over 250 Carphone concessions inside Dixons stores. The future strategy was 3 in 1, that is units containing Currys, PC World and Carphone, with one overall manager. The structure, number of roles, entry and progression pay rates, bonus Email - [email protected] www.victoriamilford.co.uk 07776 166087 Victoria Milford Consulting schemes and how elements like breaks and Bank Holidays were paid were quite different between the two businesses. There was therefore a real desire to harmonise, both to minimise differences and promote fairness in store but also to promote career pathing. The context of the new National Living Wage The Exec team of Dixons Carphone philosophically wanted to pay the (voluntary) Living Wage and this was already on the table, however the increase in cost was huge and they were adamant from the start that reducing hours or removing levels of management was not an option- they did not want fewer hours in front of the customer. As the Living Wage does allow for the inclusion of bonuses, average earnings in the Carphone business were comfortably above the Living Wage and very close to the London Living Wage inside the M25 however this was not the case within Currys PCWorld where average base and average bonus were lower. Whilst the number - then £7.85- was a work towards, the business would have found Living Wage Accreditation impossible owing to the requirement to ensure that all suppliers also paid the Living Wage and the very large number of suppliers that it deals with, particularly on the Dixons side. On July 7th 2015 the Chancellor announced the National Living Wage, taking most by surprise, and adding further measures of success and constraints to the project. This meant we now had a new legislated National Living Wage for age 25 and above following very much the same framework as the exiting National Minimum Wage ie just on base pay. At this point there was only the headline with very little detail below and a desire from most senior teams in businesses to understand the implications. With a range of outstanding questions, and no one able to answer them, I set up a Reward Forum of Reward Managers and Heads of Reward across the Retail sector. This proved extremely useful in clarifying where we should model for the following 5 years in terms of expected pay points both for NLW and NMW, and understanding what in effect was the market, as traditional benchmarking became out of date and invalid. Principles of the new pay framework I wanted to first establish what the business wanted to pay for and how, if at all, should it use base pay to differentiate between colleagues. Hence the key questions I had for the Exec team were around: Will we have everyone in the same role on the same rate (ultimately if not immediately) and recognise expertise and knowledge through the bonus scheme or will we have more than one rate per role recognising specialists Will there be progression within role eg after a certain period of time Will we have one rate across Dixons Carphone, all formats, for similar roles or continue to have different rates eg within Dixons Travel and Carphone Warehouse Will we have one rate for all non-management colleagues in store whether sales, support or warehouse or different rates for each role Email - [email protected] www.victoriamilford.co.uk 07776 166087 Victoria Milford Consulting Will everyone be able to access bonus or will we pay only for exceptional performance Will we continue to have a range of location allowances depending on town and fascia or streamline this Where do we want to be in the market eg on a par with the competition, and who do we consider the competition or market to be eg retailers for Dixons and networks for Carphone? Do we want to pay the (voluntary) Living Wage Will we harmonise terms for similar roles eg Bank Holiday premia, paid breaks Overall, we wanted a pay framework that was much more transparent and simple and enabled colleagues to progress their careers through the Dixons Carphone organisation rather than vertically within their own brand. One objective in the original brief was to help reduce Labour turnover at around the 12 month of service which data showed to be a key issue, ideally by increasing pay at this point. In an early design, we were able to reflect this and had planned a 50p increase at that point, but with the arrival of NLW this simply became uneconomic. Some specific challenges Neither business made any age distinction in their existing pay frameworks, paying at least the adult NMW to all colleagues in retail. There was never any question of making age a differentiator until announcement of NLW. Philosophically, the Exec were not supportive of paying different rates based on age and not on experience or results, but recognised that the cost implications were significant. This point provoked the most debate and different sets of modelling over the subsequent months, not least in seeking to understand what other employers in the market were intending, notably those in the similar position of not having existing age distinctions. Airports were also in the mix and you would expect wage rates to be higher than core stores, not least because the travel time from car park to shop floor is significantly higher. There were two rate tables, one covering Heathrow, Gatwick and Bristol and one for all other airports, refered to as regionals. For the regionals, level 1 and level 6 were higher than core but all other levels were lower. This was not a strategic decision but more to do with rate tables not being set together. The three premium airports did have higher rates but not at a consistent interval. Bristol had historically been hard to recruit in but we really wanted to challenge where an extra premium was paid and align this to regional allowances in main chain. One further issue was a large number of red circled colleagues already, driven by previous frameworks, with more being created in this new simplified framework. However, with the NLW projected to increase 6-7% per annum for the next 4 years, this would be a dwindling issue and analysis showed that numbers affected would drop very quickly and hence be an entirely reasonable approach,. Email - [email protected] www.victoriamilford.co.uk 07776 166087 Victoria Milford Consulting First line managers, called Team Leaders with Dixons and Assistant Managers within Carphone, wee a key focus and it was clear from the Reward Forum that the rate offered at this supervisor level was a critical one. In this role bridging colleagues and management, quite a lot can be expected for not much more pay and NLW was squeezing the differential with this group. Most businesses decided not to increase management pay at April leaving that for their own annual cycles We settled on £1.20 over entry or 50p over specialist rate which was broadly in line with the market. One unanticipated issue was that Dixons Carphone would not be able to have one framework for the whole of the U.K.