Several news articles have appeared in the past months about wages hikes and why now is a great time to people to ask for a pay rise.
At a surface level the arguments are easy. Pay rises have been limited in the last couple of years as businesses navigated lockdowns and supply challenges, the Consumer Price Index is now outstripping wage inflation for the first time in several years and there are ongoing challenges with a tight labour market that is not expected to ease with the immigration reset.
If we take a step back what we can see is that from 2011 to December 2021 wage inflation in the private sector had a cumulative change greater than CPI. This has helped with creating extra money for extra spending which in turn has helped with extra jobs being created. No one could have anticipated Covid-19 making filling jobs even harder or New Zealand being beyond full sustainable employment.
The challenge now is striking the balance needed for retaining workers without CPI being used as the percentage to increase everyone’s pay. If that happens the likely outcome will simply be spiralling inflation and a need for increased restructuring because the extra costs cannot be passed on or absorbed. The housing situation over the past 2 years is an example of how quickly prices can rise when demand isn't managed.
So, what can you do to make considered pay decisions?
- A starting point is to consider when you last formally reviewed wage rates for the different roles in your business to see how your rates align to what others are paying in the market.
- The next is to check what market data you are relying on to help make your decisions. Remuneration benchmarking and job evaluation are formal ways that you can get certainty on what is happening in the market.
- Check what inflation figures you are looking at. Statistics New Zealand produce a range of inflation statistics with the Labour Cost Index being the only one that looks at movements in all wages and salaries being paid. CPI is about the cost of goods and the quarterly employment survey produces 'estimates'. When using statistics consideration needs to be given to whether you are using median or average and actual or estimate information. Media and economists tend to report on average information which are often much higher. The averages can be skewed by other factors and these should be considered. An example is how overtime and extra hours to cover for vacancies might be contributing to current statistics.
- Also consider what benefits you are offering and whether they are still current and valued by staff. With rising costs staff may want more cash to help with their own costs or they may be happy to balance fair pay with the opportunity to have benefits like hybrid or flexible working.
Having an eye to the market and what is important to your people all helps with deciding wage strategies and where you may need to take informed but sustainable risks in the short term. Put simply if you get pay wrong you could have people looking for new opportunities and the costs of that could be far greater.
If you need help with reviewing pay rates or remuneration practices in your business, get in touch with Louise or Mandy