The CIPD has recently launched its annual survey of UK reward management and the survey closes on the 4 March. While we have had a good response to date, we would still love to hear from you if you’ve not yet had the chance to respond.
In the CIPD's centenary year, your response will help us understand the key reward management issues in today’s workplace and the impact that they’re having on business performance. It’s also an opportunity for you to reflect on the success of your own strategies and help us set standards for good practice.
One reward management issue currently in the news is the decline in the value of earnings, especially acute for those on low and moderate earnings. On the 12 February, the PCS published a report Britain needs a pay rise. The report notes that since the onset of recession in 2008 the real value of wages has fallen by 7%. During the same period there has been a real terms drop in consumer demand of 5%. The PCS argues that this fall in the value of pay could be a major obstacle to the return of economic growth.
On the 13 February, research by the Resolution Foundation found that ten million people on low-to-middle incomes could have to wait another 10 years before their living standards return to their pre-recession level in 2008. The report, Squeezed Britain 2013, says that the squeezed middle face a permanent hit to their finances because it will be hard for them to recover the ground that they have lost in recent years as earnings have risen by less than inflation.
Also on the 13 February, the ONS published Regional Economic Analysis, Changes in real earnings in the UK and London, 2002 to 2012. It found that after three decades of strong economic growth, real wages peaked in 2009. Since then inflation has outstripped wage increases and in real terms, the average earnings of UK employees in 2012 are back to where they were in 2003.
Falling living standards are not just a UK concern. The Wall Street Journal reports on the 13 February that the Japanese Prime Minister is calling on Japan’s largest firms to increase employee wages in a bid to break the cycle of pessimism and falling expectations that have hampered economic growth. According to the National Tax Agency, the average annual compensation for part-and full-time employees, including bonuses, fell for eight of the 10 years between 2002 and 2011. Separate figures from the Ministry of Health, Labour and Welfare shows that average monthly salaries in 2012 at firms with five or more staff – including bonuses and overtime – are at their lowest level since 1990. However, the government’s advisers acknowledged the challenge of increasing wages when companies are inclined to offer one off bonus payments, which can be more flexible for business, than increase base pay. And in Pay, Kevin Hallock, charts how wages in the US have become progressively dispersed.
What can be done? Can we and should we increase base pay in the UK? Fortunately, your responses to the CIPD’s Winter 2012-13 Labour Market Outlook helps us explore this issue. We included a limited number of questions in this survey asking employers about their use of workers on the current National Minimum Wage rates as well as whether they had adopted the so called ‘living wage’. We will explore this issue in future reports, but this initial research indicates that the most common response among those employers that would be impacted by a hypothetical increase in the minimum wage to the living wage would be to absorb the costs (36%).
However, 17% of you said that they would make redundancies, 18% would restrain pay and 24% would review non-wage benefits. However, there were differences by sector, with the voluntary sector being more likely to make redundancies (29%) than other sectors. Within the private sector, we would expect those in hotels, catering and leisure and retail and wholesale would be particularly impacted given that employers in that sector are more likely to employ staff below the living wage.
When asked about the benefits of (hypothetically) introducing the living wage in their organisation, 55% of those employers whose organisation had not yet introduced a living wage (or were unsure) were unable to identify any benefits associated with introducing a living wage at their workplace.
However, among the 13% of respondents that had introduced the living wage as a conscious policy decision, only 16% of you had said that there had been no benefits. Among those that reported a benefit, the more common advantages of such a move included corporate social responsibility (26%), employee satisfaction (25) employee loyalty and motivation (24%) employee engagement (20%) and higher productivity (17%).
So, can we increase base pay rates? Yes, based on your feedback, our research indicates that there can be a case for increasing base pay to the level of the living wage, but it depends on the economic and business context faced by the organisation. It is unlikely that many employers in the catering or retail sector would be able to suddenly increase their pay rates. However, as our research shows, if the introduction of a living wage is associated with higher productivity, lower turnover/reduced hiring costs, better standard of work and reduced absenteeism then if wages were gradually increases then they could be self financing.
So, should we increase base pay rates? For employers in other sectors, especially those sitting on a healthy cash pile, the message should be to stop worrying about what to do with your money and invest it in your people, not only can your business benefit, but so can the economy as a whole as workers across the UK start feeling more confident regarding their own spending and saving decisions. Similarly, employers should also review their supply chain and examine whether they should revise their contracts so that suppliers can increase the pay of their employees.
It is also important that you invest time in completing CIPD research, such as the reward management survey, as your insights help us inform our responses to some of the most pressing pay and benefits issues of the day.
Thank you for your comments. There may be a short delay in this going live on the blog page as we moderate the comments added to our blogs.
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