I can’t afford to give pay increases!!

04 Jan
by Donna Obstfeld, posted in Annual Leave, Benefits, Blog, pay, Reward, Total Reward, Voluntary Benefits   |  No Comments

As I speak to my clients, I pick up on general trends. Sometimes it is based on stuff they have heard in the news, sometimes it is the fear of forthcoming legislation; but recently there is one trend which is repeated by almost all of my clients – pay increases! Staff are asking for them because the cost of living is on the increase, but companies can’t afford to give them as the economic future is so uncertain.

Going back five and even ten years, pay increases were generally given by small companies at about 5% and by large companies at 5 – 10% depending on the industry, company and individual performance. In these instances, the pay increase was above inflation and employees generally felt valued.

Today, with RPI at 5.4% and CPI at 5% these sorts of pay increases, if even possible, are barely covering Cost of Living increases. In many cases employees really do understand the pressure their management is under and would prefer to have a job with a low pay rather than no job at all, should the company go out of business. However, employees still need to be able to live: feed and cloth their families, put their children in childcare to enable them to work and to provide an adequate standard of living. As inflation increases and pay rises are not achievable, employers are having to look to alternative ways of motivating staff, ensuring they feel valued and remain engaged in the company, helping it to achieve its aims and objectives.

So, how are companies doing this? The answers vary based on size, industry and performance, but here are some ideas which can be adopted.
Communication and expectation setting
Talk to your staff. Be open and honest with them. If company performance is good, tell them, if it is bad – tell them. If you have to make changes to their compensation packages, tell them why and tell them when you will review the situation and what changes you need to see to provide a platform for restoration of their package. If there are decisions you are making to save costs, consult with staff – they may have useful insights and ideas. Try to put bad news with good news messages, but don’t lie and don’t ‘spin’ – you will loose their trust.
Other Rewards
Good performance does not mean you have to give pay increases. If the performance is due to a one off successful sale or project, providing a one off bonus to show your appreciation is an ideal way to demonstrate how much you value staff. It won’t add to the long term fixed financial commitments of the company, but will enable a set amount of money to be shared among employees.
Access to voluntary benefits is another way of showing staff that you are thinking of them, even in these stretched times. The employer usually pays a small amount per person and this enables the employees to access all sorts of discounts making their existing pay packet go a bit further. Choosing the right benefits programme is important, but it can be a very cost effective way of rewarding staff.
Time off
Providing staff with extra time off can be another cost effective way of rewarding them. This may not work for every business and certainly won’t work if you have a workforce who are too busy to take the annual leave they normally have, but for many extra time off goes a long way.

Getting reward right is hard at the best of times. Getting it right in the current economic climate is even harder.
What has your experience been with recent pay reviews? What alternative approaches have you adopted?

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