Staff Management, Trusts, Pensions Used by John Lewis and Marks and Spencer - Case Study Example

Introduction Marks and Spencer (M& S) is a company based in Britain. It is one of the most successful retailers in the United Kingdom with about seven hundred and sixty stores all over the world. It was founded by Michael Marks and Thomas Spencer and has Sir Stuart Rose as its Chief Executive. Most of the stores are found in the UK i.e. they are five hundred and twenty in number. The company deals in the sale of clothing items and also in the food sector. (Faragher, 2007) The company has been well known for some of the policies it offers to its consumers. One of the policies was that items can be refunded back to customers as long as they had receipts even if the products had been purchased a long time ago. The Company recorded a profit of slightly over half a billion pounds in the year 2006. M& S also boasts of having a large employee base-it has close to seventy one thousand staff members under its wing. John Lewis was a company is also another retail chain of stores that is slightly smaller than the former mentioned Company. John Lewis (JL) has one hundred and twelve super markets and twenty six stores under its name. There are sixty eight thousand employees working for the Company. JL is well known for the way it shares profits and partners with its employees and equity. Business objectives of the Companies Marks and Spencer The following is an environmental analysis of the Marks and Spencer using the PESTLE analysis. Political Legislations have been passed that regulate developments which take up green areas; this has limited expansion of M& S stores. The European Commission is working on laws that are related to how M& S closed stores in France especially the way it handled its employees. (www.euractiv.com) lastly, the government requires adherence to high standards in the food industry; M&S has to comply with those standards in its food section. Economic M&S has changed its supply management from Chain management to inventory management. Storey et al (2003) ascertain that this is the reason why M&S is thriving in the retail sector. The company has to face stiff competition from other retailers who also have international markets; it has to incorporate knowledge management and outsourcing to stay ahead. M&S also faces renewed competition from new retailers following the introduction of the European Union. Legal M&S has to perform internal controls and assessments in compliance with the Turnbull report (2007). Also, the company has to follow government regulations that affect corporate governance. Social According to Mellahi et al (2002), the company faces resistance from staff members who may not want to comply with changes in the organisation. M&S also has to make a lot of changes in relation to factors affecting consumer behaviour. Some of these factors are health consciousness causing increased preference for organic foods, rejection of sweatshop labour and products that are safe, preference for products that can be micro waved. Technological The company has to consider internet shopping. It has come up with new products in line with technological advancements like laser scanning. Technology has brought a shift in the retail market to a diffuse international market. Environmental According to the annual report (2007), M&S has adopted Eco plan A, which affects the way the company manages its waste. The company has engaged in campaigns that promote animal welfare. Lastly, the company has introduced use of bags that can be recycled. John Lewis Political A modification has been introduced by the EU Aerosol Dispensers Directive that limits filling to 90%; JL has to comply. The company's name has been tarnished after it sold Unite- a Union. This showed that it does not reward loyal members of staff. Economic The company is facing competition from international markets; it also has to deal with the challenge of credit markets. In light of these factors, the company has decreased its operating costs and may get profits in the future. JL has a strong position in the organic market which commands a share of 18%. The Company has also registered increases in sales by 6.7%. Lastly, the company has a policy that allows customers to ask for refunds in case they get a similar product sold at a cheaper price in another company. Social The BBC (1999) reported that the Company experienced a fall in profits and decided to float its shares in the market. The move met resistance from some employees who felt this undermined the company's democratic structure. Also, the Company sets a good example in customer service. Technological One of the Company's key strengths is its personalised customer service yet this cannot be achieved with the current emergence of online shopping. Legal Employees at the Company are placed at an advantage because the Company has its shares held by them and laws have been introduced that favour shareholders. However, BBC (1999) ascertains that there are problems with this mode because it posses restrictions if the Company wants to become a public corporation. Environmental JL informs buyers on recycling aerosols following a directive from the EU Chemical Directive REACH. Also the Company serves as an example in the organic food section and will affect consumer acquisitions. Staff management Empowerment and engagement Marks and Spencer is well known for the kind of management system that it adopts. This is one of the major contributors towards its corporate identity. However, this does not mean that staff management at the Company has not had some flaws. This was especially visible when the Company was forced to close down stores in parts of France. This occurred due to the fact that there were inadequacies about the benefits and job protection offered by Marks and Spencer yet the same incentives were what the Company had become identified with. The Company also failed in communicating adequately to staff members prior to closure. This meant that the Company had found itself in bridge of the law and had therefore revealed weaknesses in its management system. (Dale, 2001) These actions are in contrast to how JL engages its staff. John Lewis is well known for giving its staff the ability to influence decisions and actions in the company through creation of democratic bodies. One such body is the Partnership Council that is made up of all the members of staff. This body has a board and together, members have been granted the power to change management they feel unhappy with after intense consultation. This is especially because the Partnership Council has the mandate to vote out a Chairman. This type of management style ensures that there is accountability as managers are kept on their toes. Some administrators like Personnel director Tracey Killen have even pointed out that they have to rigorously adjust to such a method because every move they make is subject to scrutiny. M & S offers Trainee Management Schemes which has earned the company an award from the Times. This was in recognition of the fact that the Company employs a high number of graduates to work for them. It was given position seventeen in this category for this role. This kind of scheme normally involves provision of training for graduates who may be new to the company or those who may have worked for the company before but are interested in developing themselves within the organisation. This training lasts for a period of twelve months. But before one becomes an accepted trainee within the company, they pass through rigorous training and selection before gaining access into the Company. The John Lewis Company has yet to adopt a scheme that encourages employment of young members of staff. M&S offers Customer service training. The Company uses a method called Mary Gober to train its staff members. This helps members of staff to be on top of their game when it comes to treatment of customers. This implies that staff members become very well versed in treatment of customers and service delivery is improved. (Thomson, 2003) JL has also not been left behind in this area because one of the string points of JL is their personalised service. This is also achieved by training staff members. JL has also accepted critism from employees. The Company has instituted a system that attempts to control how managers perform. This is done through anonymous letters that are published internally in a magazine belonging to the Company. Employees can be able to register any problems or complaints that they may have and can therefore bring about change in the Company. (Maund, 2001) Managers themselves are required to respond to these anonymous letters in a manner that is truthful. They are also supposed to treat each member with respect regardless of their status in the Company. Such an attitude contributes towards employee satisfaction and ensures that all staff members feel like they are part of the team in spite of the amount they earn or skills they posses. This level of transparency could be the treason why the JL partnership is quite a success at this moment. Managers who accept public scrutiny and critism ensure that they are at their best behaviour to minimise these critisms and to make a good name for themselves. Consequently, critisms raise the standard because managers know that they are subject to correction. Rewards offered by the companies M&S Company rewards its employees through bonuses after it has recorded a rise in profits. This was witnessed in 2007 when the Company recorded approximately one billion in profits. The profits were an indication of the sales recorded this year and they were around eight point eight billion pounds. These profits need to be enjoyed by the members who contributed the most to its delivery, these are the employees. Mark and Spencer took a large portion of this amount and gave back to staff members. It gave them eighty million pounds in bonuses. However, the Company will give different amounts to different members of staff depending on the weight of their job. For example the Chief executive is due to receive about 1.23 million pounds more than his personal salary which is close to a million pounds. What the Company is doing is not an isolated incident as it offered similar bonuses in the year 2006. Last year it gave seventy three million pounds in bonuses to its employees. (Staff writer, 2007) Similarly, JL rewards its employees through bonuses. JL has put in place a policy that allows employees to receive a level of performance salary plus the commercial rate that is prevalent at that time. In the year 1998, workers received a bonus of approximately two thousand pounds more than their salaries. This was a considerably good level of pay because most workers in retail worked for very long hours and earned little at that time. In the year 2007, the Company had one fifty five million in bonuses for all its employees. This was about eighteen percent of what partners receive in their salary. This was a record increase of twenty nine percent of what partners got in the year 2006. The Company has also instituted a mechanism for distributing profits as follows; JL removes a percent of the profits earned, this is fifteen percent of the amount earned in profit. The rest is then invested back in the business and used for operation costs or expansion processes. However, there are also net assets that are left behind and these are the one that should be allocated to shareholders. Motivation M& S offers payroll giving schemes and has even won awards for it; Payroll giving schemes serve as a tool to motivate staff members. In addition, the Company offers Charity Awards for volunteer employees. Also Marks and Spencer has a programme that has been put in place called Mark and Start. This programme aims at involving most members of staff in volunteer efforts especially towards the disadvantaged in society. In so doing, employees identify with the Company and it creates a strong sense of loyalty and commitment to Mark and Spencer. (Staff writer, 2007) Such awards are a conscious effort in use by the M& S Company to ensure that its employees feel appreciated as any awards given to them are an indication that the Company recognises their efforts ad is willing to boot these efforts through awards. Employees will reciprocate this sign of care through more output in the Company. John Lewis uses another tactic to motivate its staff member's i.e. offering the 'golden Jubilee trust'. Here employees are allowed to work for any charity event for long durations and are still be paid for the duration when they were away. The company also gives awards for participation in charity events and therefore shows care and concern towards its employees that establishing a sense of loyalty amongst them. 'Once in a lifetime'- This is a trip that can be undertaken by members in the partnership who have formed a group or clubs and societies. Members who apply for funds can go to a destination of choice which they have never visited all their lives. There are several benefits that have resulted from the co ownership model adopted by John Lewis, the first one being that employees perform to their maximum potential. This is because they will not look at consumers and buyers as a means towards an end, but they will consider them as an income source. They give them utmost attention because they realise that there are direct benefits that come from increased sales. (Guerby, 2006) The motivating factor behind this kind of treatment is the fact that employees realise that success of the business means success for them. Productivity of members in John Lewis staff is quite high because of the reasons mentioned above. This model was adapted after it had been discovered that most professional businesses that were successful were partly owned by workers, these included accounting firms, law firms, medical practitioners and others. Other benefits of co ownership include; Standards have been raised in the retail industry because of co ownership and competition Retailers are able to have professional autonomy Retail workers can come together and exchange ideas on best retail practises It places a lot of emphasis on human capital as the most vital asset thus showing that property rights theories in economics are true. John Lewis has served as a role model in this regard for companies who plan on adopting this kind of partnership. One such example of a company is the cosmetics company and chain store Lush which is preparing to follow the JL direction. (Armitage, 2007) Most people may be misguided by the term co ownership and may mistake this to mean that decision making is slow and more emphasis is placed on sustaining the relationship of the company members rather than getting any work done. On the contrary, decision making is not delayed in the Company because the company does not have any stakeholders externally. This means that it can focus on long term decisions instead of making choices that suite the short term. (Guerby, 2006) John Lewis caters for its partners through introduction of certain schemes designed to boost employee's plans and ensure that they can achieve some of the goals that they have set. The first benefit is the 'Bonus Save' scheme. Here employees are allowed to invest some or their entire bonus as shares to the respective contributor. The maximum allowable investment is about four thousand five hundred pounds. (Faragher, 2007) Incentives to retired members of the Company are also given. Here, members are given benefits even after retirement. Some incentives include access to financial loans, a monthly magazine and also a reunion lunch. Lastly, the Company allows all members of staff to ask for flexible workers hours regardless of marital or family commitments. This means that even if one does not have children or other commitments, they can be granted flexible working hours. (Faragher, 2007) Role of the company secretary in relation to staff management At Marks and Spencer and John Lewis, the Company secretary has to ensure that the Company complies with corporate governance principles that affect staff members. He also has to advice the company concerning decisions that may cause scandals especially when dealing with employees. The Company secretary must also make sure that the Company duly informs and caters for its employees prior to closure. This is especially in relation to the scandal that occurred in France prior to closure. Trusts Rights and duties owed by trustees in pension funds The M&S Company has experienced some hiccups when it comes to pension schemes. This is due to the fact that the Company recorded a deficit of about seven hundred and four million in 2007. This means that there must be strategies to solve the problem. The Company has put in place a scheme that allows it to deal with all the one hundred and twenty three members' expecting pension payments from it. Members of staff normally receive a specific fraction of their salary for every year that they have worked for M & S. (Sparrow, 1994) The Company has done this through collaboration with the M & S pension scheme fund. Here, M& S gives out property to the pension scheme fund then this same property is leased back to the retailer as the company pays back the pension deficit for a period of fifteen years. This scheme will enable the pension fund to be self sufficient because if the retailer is unable to make payments, then the property is redirected to the fund. Another plan which M& S has implemented towards the pension scheme is through direct or indirect contribution from employees' salaries. The Company has issued out three alternatives to members of the pension scheme; members could decide not to contribute any amount at all to the pension scheme and could consequently receive very low rates on their pensions, or members could give about seven percent of their salary in the next three years and lastly, members could also choose to neglect payments but they must put a limit on the level which their pensioned salaries will reach. This method of solving the pension deficit problem puts the choice in the employee's hands. If they choose to contribute from their salaries, then they will earn more pensions in the end and if they decide not to, then the amount received will be very low. John Lewis' most outstanding feature when it comes to employees is the fact that the Company is a worker-coop. This means that members of staff are part owners of the Company and hence part owners of the pension fund. There are set rules and principles on operation of the Company by the employee trust. John Lewis has also had some challenges in the administration of pension schemes. This is because in the year 2002, the Company had a deficit of about two hundred million. Yet at that same time the company's assets in the pension scheme fund were about one billion yet liabilities were 0.18 billion more. The Company was however optimistic that those differences were caused by changes in market forces. (Cope, 2002) Some of the workers in the company began registering complaints that John Lewis was focusing mostly on pension schemes as the amount that was going into the fund was rapidly increasing. However, this was not the case with bonuses. So they were requesting for more funds into the bonus schemes rather than pension. The Company decided to examine the issue and change payments because members whose ages were far from retirement preferred receiving more bonuses and fewer pensions than vice versa. The Company had close to sixty thousand employees under its wing. All the employees are considered as co owners in the Company. (Cope, 2002) Recent victories for trusts and the future of the Companies, treatment of pension funds as trusts and the Maxwell scandal The two Companies are both likely going to change the way they administer trusts because of the victory reported regarding VAT. Marks and Spencer will have to re-examine the way it charges its members of staff for pension funds. It may have to adopt its old system where employees were not required to contribute nothing towards the pension fund. The victory means that the deficits facing both companies can now reduce and they can now focus improving the schemes currently in place. Employees expect changes favouring them because they are now aware that there are fewer restrictions to be handled like VAT. It is not a legal requirement for Companies to operate pension funds as a trust but legally, it is an advisable mode of operation. The reason why the Companies have adopted this system is because the pension fund can be run independently from other Company assets or liabilities. This means that the fund can be efficiently monitored and strategies can be brought up to deal with shortfalls in the fund. Also, when a pension scheme is run as a trust, the business can be able to borrow and lend to the scheme. This is a method that has been adopted by M& S. If the business cannot meet costs for the pension fund, then it can sell off properties to the scheme. The Maxwell scandal changed the way the two Companies operate their trust funds. The scandal was an indication that trust funds if inefficiently monitored and handled can be misappropriated. Regulations were therefore put in place to prevent such kinds of scandals from occurring and both JL and M&S have to comply with these arrangements. The Company Secretary must ensure that all the rights and duties of stakeholders in the trust fund are met by the respective company. The Company Secretary should also give advice to the Company regarding how to handle deficits in the funds and what kind of limitations the law places on administration of trusts. Pensions Differences in provision of pensions between the two companies Pension provisions in both Companies do not differ greatly in amount but the mode of administration is quite different for the two companies. This is the breakdown of payments made by the M&S Company with regards to pension schemes for the past two years 2006- forty million pounds in the first quarter 2007- five hundred million M&S has transferred risk of payments of pension funds from the Company to employees and members of staff through their own contributions. This has been criticised by analysts that the Company is not taking up its responsibilities seriously. The JL Company has one billion in assets belonging to the fund, but in sharp contrast to M&S, the Company is all embracing. It does not require any contributions from employees and considers the pension fund to be part of operating expenses that the Company has to deal with independently. Employees are only consulted when the Company is contemplating increases or decreases in the Scheme. Areas that could cause discrepancies There are a number of areas that could possibly bring about discrepancies in administration of pension schemes. The first is the transfer of risks from the Company to members of staff. This especially applies to the Marks and Spencer Company. It is very likely that some members will feel like they have been unfairly treated if a large portion of their salary has to go to the fund. Another issue that could spark discrepancies among stakeholders in JL is the new policy that the Company has introduced. It requires members to have worked for the Company for two years before they can be admitted into the Company's pension fund. This was a decision made in order to reduce the deficits the Company is currently facing. New employees may feel sidelined by this policy and may not accept it. Defined benefit/ defined contribution Defined benefit is a policy that could fit the JL Company because it is co-owned. It has a brotherly image and has established a reputation for incorporating all its employees in management practises. Even strategies that have been adopted by the Company mostly favour these shareholders. In contrast, defined contribution could most likely be appropriate for M&S because it has already implemented this system through contributions of members to the pension scheme. M&S as a Quoted Company JL caters for its employees adequately because it is not a quoted Company which may not be the case for M&S. However, JL may have problems when considering expansion into a public company. This is because of the fact that there are restrictions that have been placed in the legal system when a company is considering such actions. Role of Company Secretary The Company Secretary must ensure that JL does not overstep its boundaries since it is not a quoted Company. He must also give advice to the company regarding which policy decisions are most consistent with its image. For example, contributions from employees are not appropriate for the Company. Similarly, for M&S he must ensure that the Company complies with legal requirements in pension fund administration. He must also give suggestions on how to get additional sources of funding for the scheme. Conclusion The two companies examined above have played their parts in providing pension benefits to their employees, engaging them in trusts and also in management styles. John Lewis is identified with a flexible management style and coop ownership. Mark and Spencer Co is identified with provision of good benefits to its employees and allowances. (Maund, 2001) References: Cope, N (2002): John Lewis weighs final salary pensions revamp; the Independent (29th April) Guerby, L. (2006): John Lewis and school reform; Retrieved from http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/ accessed on 1st January 2008 Armitage, J. (2007): Lush to adopt John Lewis set up; retrieved from http://www.thisismoney.co.uk/ accessed on 1st January 2008 Faragher, J. (2007): John Lewis Partnership; working in partnership; Personnel Today Magazine (17th April) Staff writer (2007): Marks and Spencer: neat pension fund arrangement; Insurance Business Review Berry, M. (2007): Mark and Spencer to revamp final pension scheme; retrieved from http://www2.marksandspencer.com/thecompany/mediacentre/pressreleases/2007/fin2007-01-23-00.shtml accessed on 1st January 2008 Dale, M. (2001): The Art of HRD: Developing Management Skills , Vol. 3, Crest Publishing House, New Delhi Sparrow, P. and Hilltop, J. (1994): European Human Resource Management; Melbourne Press Maund, L. (2001): An Introduction to Human to Human Resource Management: Theory And Practice: Macmillan, Palgrave Maundy, L. (2001): An Introduction to Human Resource Management: Theory and Practice: Macmillan, Palgrave Thomson, C. and Rampton, L. (2003): Human Resource Management. Melbourne press, New York Sparrow, P. and Hilltop, J. 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