The latest quarterly Labour Market Report from the CIPD shows the private sector predicting a low 0.8% pay increase, with 40% of companies talking of pay freeze.
Even with CPI inflation at a low 1.5% (ONS, Mar 2020), this is still a pay decrease in real terms.
What would you do if presented with a pay review budget of 0.8%? My heart sinks when I hear clients talk of a flat, across the board, increase when faced with such a small budget.
Although it may appear to be the easiest and ‘fairest’ thing to do, it may not be the most effective.
It is too small to be meaningful (a 0.8% pay increase is just £242.82 pa for the average UK worker on £30,353 - that’s £20.24 a month before tax and NI).
And, it doesn’t reward anything except being there one more year (some call it loyalty but rewarding length of service is fraught with challenges).
So, what better approaches are there?
- Achieve more internal equity – address the outliers that are paid significantly lower than others roles at the same level. To do this, group your roles together based on internal value such as internal grades, levels or job families. Ideally use five or six broad levels determined by a systematic approach such as job classification or evaluation.
- Become more market-competitive – carry out a pay benchmarking exercise to identify and address those that are underpaid against the market. Use a reputable survey with a large sample of participants that include your talent market, and has a robust matching methodology. Be careful with data from recruitment agencies and crowd-sourcing websites as this can be based on small samples, job titles rather than job content, and self-reporting of pay which can affect the integrity of the data.
- Improve your pay gap – target the budget towards improving the standard of living of your lower paid workers and this in turn will decrease your internal pay gap. The pandemic has heightened our awareness of the valuable contribution, and poor rates of pay, amongst our low paid workers. High Pay Centre/CIPD research shows FTSE100 CEOs earn 119x the average UK worker, and this gap is becoming more and more unpalatable.
- Use the money elsewhere – alternatively, implement a pay freeze and use the 0.8% pot elsewhere to ensure maximum impact. For example, invest in in-the-moment spot recognition awards throughout the year as this can have a huge motivational impact for very low cost. Or invest in wellbeing initiatives aimed at improving mental, financial or physical health of all employees.
It really is the lean years that require us to think harder about where we spend the money to ensure it isn’t just lost and demotivating, and that it still has some impact.
If you’d like help articulating a clear pay and reward strategy, creating transparent job classification, or carrying out a robust pay benchmarking exercise, please do get in touch for an initial conversation.
Image: courtesy of Images-of-Money