How do I give a pay increase when I don’t have enough money in the business?

The recent furore over the proposed 1% pay rise for the NHS put salary reviews firmly under the spotlight. ‘It’s as much as we can afford to give’ was the excuse given by the Government for such a disappointing number, which caused an uproar, but the ability to secure a pay increase is always dependent on a company’s financial situation.

Between COVID and Brexit, there’s been a lot of uncertainty around pay reviews over the past year. Many employers just don’t feel safe putting up salaries at the moment, but some are looking to see whether they can at least give a cost of living increase as we ride out the storm. The Office for National Statistics (ONS) stated that this February it cost 0.7% more than last February to buy exactly the same items, from petrol, to shoes, to a loaf of bread. Cost of living is therefore the minimum increase you can give to make sure your people continue to get the same value from their pay.

Realistically any pay rise, even just cost of living, may well be impossible at the moment for businesses severely hit by the pandemic. Once you increase a base salary it’s very difficult to take that money away, and in shaky times this can result in overextending the business financially on a monthly basis. Employment contracts usually state that pay will be reviewed annually but may not necessarily result in an increase, however it’s important to have an open conversation with your employees to manage their expectations. And of course it’s worth remembering that people would rather have their job secured than a pay increase at the moment.

So when funds are scarce, what other incentives can businesses offer to their employees to reward them and demonstrate how valued they are? Commission and bonus schemes are still financial but they are not guaranteed at a set amount, so you retain the right to vary and change them as and when you need to. Looking to improve a job title can be powerful, perhaps adding some seniority and a promise of progression towards promotion, with the intention to review compensation as soon as is financially viable. The offer of training or mentoring is also a good option for employees keen to progress their career.

If in doubt though, ask your employees how they would like to be recognised and compensated during a pay freeze. It may be that they would appreciate more flexi-time, a longer lunch break, a gym membership, vouchers, or one or two extra holiday days on top of their current holiday allowance.