Can we avoid that sinking feeling? by Deborah Moon, Reward Blogger

The recent BBC Panorama programme, The Big Squeeze, provided a timely illustration of the impact of the widening gap between pay and price levels on different workers and families household income. With pay levels remaining subdued at the same time as rising prices and increased living costs, workers are facing a reduction in real terms in their income levels. Research conducted for the programme calculated this reduction as equivalent to £1,088 per annum, or a 5% pay cut, for the average worker. Further confirmation of this income “squeeze” was provided by figures issued by the Office for National Statistics, at the same time as families are assessing the impact of recent Budget announcements and changes on their take-home earnings and purchasing power.

Whilst the latest figures from Incomes Data Services suggest a gradual upturn in the level of recent pay deals, the overall rate of any increases continues to be some way below inflation rates. At a time when the broader economic and employment context remains uncertain, are we likely to see an increase in the level of wage demands in response to rising inflation levels or will the fear of unemployment and other considerations act to curb such aspirations? Although the incidence of pay freezes within the private sector appears to have declined, public sector pay and conditions remain subject to tight fiscal controls as the requirement for unprecedented levels of budgetary reductions continues to present these organisations with significant financial challenges.

A key challenge for employers across all sectors is meeting the requirement to ensure the effective management of organisational and workforce costs in this difficult financial environment, whilst at the same time ensuring that pay and reward practices enable the recruitment and retention of well motivated, appropriately skilled and engaged employees. Managing in an environment of declining income levels in real terms is, perhaps, unfamiliar territory for many employers and employees, requiring reward professionals to identify and apply creative and innovative approaches to organisational pay and employment practices, displaying the agility to respond to short-term imperatives, whilst maintaining a focus on the longer term.

The recent CIPD Reward Forum network seminar, Creating an Effective Pay Review, looked at the range of factors, both internal and external, which impact upon the pay review process and considered how a number of different organisations approach this, either generally or for particular parts of their workforce. These example case studies illustrated the importance of ensuring an approach which fits with, reinforces and reflects the particular organisational style and culture, vision and values and which places pay in the context of the broader reward and employment package. By aligning a total reward approach with the key factors influencing and driving employee engagement and performance, organisations are seeking to build and maintain the conditions for success and thus avoid that “sinking feeling” that those featured in the programme were experiencing.