Are pay rises a thing of the past?
It’s an understatement to say the recession has changed the economic landscape of the country. Whilst most people may think of personal savings, the rising cost of living and cuts in public spending are elements that will take years to dissipate or improve; few would expect their wages to take the same long-term approach.
Leading voices in the business arena believe the act of asking for a pay rise – and receiving it – will only remain in employees’ memories. It could be years before productivity and companies’ cash flows rise significantly enough to bring salaries in line with the growth we enjoyed pre-recession.
The implications of this are not hard to understand. The loss of talent, a failure to attract suitable candidates and an unappreciated workforce are just a few of them.
What does a freeze on pay rises mean in real terms?
It’s not uncommon to see pay frozen since 2010; in real terms, considering the rise of inflation and the cost of living, a worker would be now earning the equivalent of 5% less than they did four years ago.
Therefore, if an employee was previously accustomed to even a modest annual rise of 2%, their ‘psychological pay gap’ may feel nearer 13%. With the Bank of England forecasting CPI inflation being at, or above, 2.5% over the next 12 months, another year without a pay rise means an erosion in real terms of 7.5% – and it risks pushing the ‘psychological pay gap’ to 22.5%.
Can you imagine feeling over a fifth worse off? What would you do if, from next month, you took home 22.5% less? What choices would you need to make? Would you encounter hardship? Statistics show that the average savings of people in the U.K. would only tide them over for 11 days if they lost their income.
To compensate for the 22.5% ‘shortfall’, and in light of the small buffer we hold in savings, employees may be forced to look for second jobs, which means they may be late for, or tired at, work. Productivity would suffer. They may look to save money on clothing, and therefore their appearance may not look as professionally-turned out as before the pay freeze; they may look for further ways to cut costs, such as making personal calls using the company’s phone – both would have an impact on the company.
With such financial stress on the horizon, do you offer, as a company, advice on tax credits? Do you have an emergency bail-out fund for staff that need support to meet financial bills – bills they would have easily been able to afford on their salary in 2010? Do you have someone they could talk to about financial difficulty? Does all of this present to you an opportunity for team building and loyalty, or open up an embarrassing company dilemma that’s easier to ignore?
How will things improve?
Industry experts believe increased productivity is the answer, which again leans on those very employees currently working hard for unstable, scant reward. As a country, we also need to improve skills so that we’re competitive on the world stage. Working with Government to create an overseas demand for these skills will, in turn, see companies drive innovation and quality forward, instead of fulfilling orders using skeleton staff and an ‘at the lowest-cost’ approach.
Are there signs of productivity growth today?
Some sectors are bucking the gloomy trend already. Wages in the financial industry and also those in some sectors of manufacturing are seeing decent growth. Statistics have pointed to the lower-paid and the higher-paid enjoying positive increases; the mid-level manager is likely to be the one seeing their pay frozen for the longest.
The recession is likely to be with us for a while yet, at least until things become sustainable. It’s clear that industry is finding poor growth and low productivity a challenge in such a climate, but it’s also clear that a period of stasis is not the way to react.
Whilst increased financial compensation may seem luxurious – madness, even – knowing that the end of pay rises isn’t a death sentence, and that there are other ways to keep staff loyal, or to attract talent in the interim, should give hope to business owners and executives everywhere.
If you’d like to hear how you could benefit from executive coaching or management coaching, contact me on 01302 220221.