Drastic operating losses mean the Post Office must change, so a number of bonus and incentive plans are shaping its culture, says Amanda Wilkinson
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Culture change is high on the agenda at the Post Office, the retail network of the Royal Mail Group. But turning a company that has been operated like a public sector organisation into a profit-driven commercial retail animal is no mean feat.
In the past, the Post Office has relied on customers visiting to buy stamps, post a parcel, make payments into a National Savings account or draw state benefits. But the arrival of the internet, the deregulation of the postal market and changes in the way people can receive benefit payments mean that some of these reasons for paying a visit are fast disappearing. The Post Office, which made an operating loss of £57m for the first half of 2005/6, is in now the process of being transformed in a bid to turn a healthy profit. A number of loss-making post offices have been closed and others have been franchised out leaving a directly-managed branch network of around 500 sites.
The aim now is to turn the Post Office into a key provider of everyday items by extending its product range. Car, home and travel insurance, retail vouchers and personal loans have all been added to its portfolio. Customers can also sign up for a telephony service called HomePhone and a credit card. Although unique, the Post Office’s product range now resembles that of a retail financial services company such as a bank or building society. One day it may even offer mortgages.
Selling a broader range of products, however, is not in itself enough to transform a business. Customer-facing staff have traditionally worked in a transaction-based environment, but now they have to sell products. HR director Ian Anderson has been tasked to help the workforce adjust to the fact that the Post Office is now a profit-driven firm focused on sales and customer service.
“The biggest challenge is to grow income. Our traditional income was heavily dependent on government products. That’s becoming less so and we have to find ways to replace that with other products, hence we have moved into things like financial services and home telephony. There’s a quite a big push on growing these elements of our business,” he says.
One way of motivating and providing incentives for staff to drive sales is through bonus schemes. There are a huge variety on offer at the Post Office from those used to motivate counter staff to long-term incentive plans for senior executives, which are linked to Royal Mail Group’s performance measured over a three-year period. When Anderson arrived at the Post Office three years ago he lost no time in trying to drive sales at the front line by putting in place a branch bonus scheme based around the sale of 12 products, thus allowing each directly-managed branch to capitalise on their differing sales opportunities. If they hit target for the quarter, then a payment is made which is then divided among the branch staff, with a higher award if goals have been exceeded.
“Because we are trying to create sales momentum and sales capability, our incentive payments are heavily focused on sales.”
In January, a new scheme called Treasure Chest was added. Based on one-off payments for individual referrals of three core products, HomePhone, car insurance and credit cards, the money is accumulated in the branch pot and then shared among staff each quarter. “We are finding that rather than having targets you have to achieve, if we can structure the bonus so that every sale generates a payment this works well. Clearly we have to make sure that we are paying for the right things,” he adds.
From time to time, the Post Office may run other one-off schemes designed to drive sales of a particular product so if a sale is made then staff can be entered into a draw for prizes such as a car or retail vouchers.
To help staff with this new sales task, training is given each week. They also receive ongoing coaching from the branch manager and specialist sales effectiveness managers who go from branch to branch helping people to hone their sales skills.
The Post Office has also introduced a sales recognition programme for top performers at managerial or sub-post master and sub-post mistress level at all branches. Up to 200 of these high-flyers will be invited to attend a new gala event at a London hotel and the top 20 will be invited on an organised bonding weekend with their partners. So far, trips have been held to Monte Carlo, Madrid and Rome.
“You have to have exceeded targets. The recognition events are for the absolute top performers. And they are part of our effort to create an achievement culture,” he says. The first step towards developing this achievement culture was made three years ago in the form of a managerial re-structuring programme in which only 120 managers on the rung above branch level made it through an assessment exercise, leaving around 180 to take voluntary redundancy or seek re-deployment in the business.
“We brought the other half in externally. My belief is if you get the managers right they can help the people to get it right,” says Anderson. To his surprise, there was little difficulty in recruiting the right talent.
“What we were targeting were people with strong sales and sales management experience, but actually it was relatively easy to attract people because the brand is very strong. The Post Office is recognised as a good employer,” he explains. One reason for the Post Office’s strong employer brand is its benefits package which is communicated to staff through the in-house magazine and total reward statements.
“We still have a final salary pension scheme, there is good sick pay and maternity pay is way ahead of the market. Our overall package certainly for front line people compares very favourably with both retail and retail financial services.”
He does not have any major plans to change things, but Anderson is keen to look at introducing flexible benefits. The Post Office already allows staff to buy extra holiday and to opt for a cash allowance instead of a company car. But he wonders whether staff would decide to stick with the same core benefits if given a choice of options.
“Sometimes I don’t think people appreciate the value of what they have got. I’d like to understand whether if we gave people choice would they make the same choices that we have effectively made for them. We put in total reward statements last year. We thought it would be useful for people to understand the full value of the package and I think most don’t.”
One benefit the Post Office is unable to offer staff is the chance to participate in a share scheme. But, there has been much speculation about the future of Royal Mail Group and privatisation has been mooted, which would create an opportunity for staff to own shares. Anderson says Royal Mail is trying to find a vehicle to enable some kind of extra investment in the business and allow staff to take a stake in it.
“There has been under investment and we are trying to put that right. We are trying to change a culture. What we have is effectively a public sector organisation, which has all the upsides and all the downsides of a public sector organisation, and we are trying to change that into a more commercially-focused organisation where people have a vested interest in creating success. Privatisation is not really what it is about. We are looking for a vehicle that enables us to get some money invested in the business and get our people wholly engaged in the success of the business.”
One key benefit that helps the Post Office stand out from the crowd is the Royal Mail Group final salary pension scheme which is still open to new members despite its £4.25bn deficit. It is this deficit that has so far got in the way of a long-term structural solution for the business. Royal Mail Group currently pays around £100m a year to help clear the deficit on top of standard employer contributions of 12% and staff contributions of 6%.
However, what Royal Mail Group has been able to do is set up an annual bonus scheme called Share in Success, which extends across the group and includes Post Office staff. If the business as a whole hits target then employees get a bonus. When the three-year renewal plan ended last year, employees all received a £1,000 bonus each and if the business hits target again at the end of this latest financial year staff will get a further £400.
All these bonus and incentive schemes can only serve to forge closer links between staff and the business, thus increasing productivity and reducing absenteeism. Like the Royal Mail postal delivery service, the Post Office has had a major problem with absence. It has managed, during Anderson’s tenure, to partially address the problem by running a prize draw for staff who have not taken any sick days, tightening up absence reporting systems, providing managers with trends data, and training managers to deal with the issue through regular seminars.
“The thing that I find makes the biggest difference is just saying to someone ‘Are you better? Can we just have a chat about what was up and is there anything I can do to help?’ People then understand you are taking an interest and that remarkably brings sickness absence down,” says Anderson.
So far, sickness absence has fallen from 7.3% three years ago to 3.8% of available time, equating to the full-time equivalent of eight days. Anderson admits it could still be better and is planning to revitalise the prize draw through which staff can currently win retail vouchers by joining it up with the Royal Mail scheme so that they can also win a car.
The road to change though is a rocky one as Anderson admits it is a challenge to transform a company from a traditional passive approach towards customers to a sales-driven one. “We are learning as we go. You are never going to get things perfect. It’s important that we keep going and keep learning.”
Career profile: Ian Anderson
Ian Anderson, human resources director at the Post Office, has been able to draw on his past experiences to help change the culture of the organisation, which is now focused around the sale of a broad variety of everyday items including many financial services products such as insurance and loans.
He previously worked as human resources director at Birmingham Midshires Building Society and prior to that at Axa Insurance. “What we did at Birmingham Midshires is quite similar to what we have got to do here: change cashiers into people who are much more focused on customer sales and meeting customer needs. And that is exactly what we have got to do here,” says Anderson.
At Birmingham Midshires, one of the things he learned was that change has to be introduced at a pace. “So however fast you think you are doing something you probably need to be doing it faster. You need to focus a lot on the skills and capability, particularly of the managers. And you need to put in place an infrastructure to support people. So if you are asking them to sell products you have to make sure that they are fit for sale and are well understood. The other thing I learned is that you actually sell by giving a great service. The hard sell is certainly not what [the Post Office culture] is about.”
At Axa, Anderson also had to deal with change. He joined shortly after the company had bought Guardian Royal Exchange and was given a huge integration exercise where the head count had to be reduced from 7,500 to 5,000 staff. He was also tasked with helping to build a culture that was profit-driven by empowering employees to take responsibility for the organisation’s performance. Anderson, who has also had spells in line management, was attracted to HR because he is “fascinated by people’s contributions to [their] organisations”.
Staff case study: Antonia Etim
Antonia Etim, an executive secretary, has worked at the Post Office head office for more than three years.
Her favourite benefit is the eyecare. “I wear glasses and use the computer all the time so it’s nice to have free eye tests and if your eyecare requirements are because of [computer use] you get a percentage off glasses as well.”
Etim also values the Benenden Healthcare Society scheme into which she pays a lump sum annually. Benenden is a mutual not-for-profit body run by members for members. If you need an operation it can be arranged swiftly and at a convenient date. “At least this gives you some kind of guarantee of when you are going to be treated.” Etim also values the final salary pension scheme. New staff must wait 18 months before they are able to join and when Etim signed up she also transferred her personal pension into the plan.
Pension: A final salary scheme, which is open to new members. Staff contribute 6%. The company contributes 12.6%, plus additional payments to fund the £4.25bn deficit, which exceeds £100m a year.
Life Assurance: A minimum of three times salary
Private medical insurance (PMI): Senior management get full PMI for themselves and their families.
Income Protection: Through the pension scheme a level of protection is provided against disability. Eyecare Free eye tests. Payments of up to ¨£99 for glasses and lenses.
Company cars: Provided to management at a certain level, who can then opt to take cash allowances. Also provided for essential car users. All have access to discount plans.
Family-friendly policies: Maternity leave (full pay for the first six months and a further six months at half pay), paternity leave and adoption leave. Also the ability to flex shifts.
Holiday: A minimum of 25 days, rising to 30 days. Option to buy an extra five days.
Sport: A gym at Royal Mail’s head office, which Post Office staff can use. Financial support for local affiliated sports clubs.
Bonus: Front line staff eligible for bonuses based on branch performance. All-staff bonuses based on group performance. For senior executives, there is also an L-Tip.
Salary sacrifice benefits: Childcare vouchers, home computing initiatives, bikes for work.
Discounts: Includes Post Office products such as loans, insurances and credit cards.