To advance or not to advance – that is the question. We look at what employers might do given the current pressures on employee wallets.

July 19, 2022

Having seemingly come out of the worst of the recent pandemic, many employers were delighted in early 2022 to be able to give a decent level of pay rises.  Our discussions and reviews with employers were showing increases of at least 3% as being the norm.

However, this good news was swallowed up by the more recent high levels of inflation, most likely precipitated by actions in Ukraine.  As the year develops, employers are now facing a question of whether they might need to increase salaries again.  But in many cases, questions are being raised as to what happens if inflation does come back under control or, worse, what if a mooted recession starts to land and cash once again becomes tight.

Whilst we would strongly caution against any business that has strong levels of profits to try and keep those profit levels high through wage suppression, it must be acknowledged that there will be many businesses where the decision will be between making salary increases and using monies to invest in other areas of growth to meet the business plan.

In such cases, we would suggest that canny operators might want to consider two approaches that can help employees in the short term, whilst not increasing the cost base in the long term.

The first is the simple payment of a one off “cost of living” allowance.  Such a payment would recognise the sharp increases that employees may well be feeling now.  If unsolicited by the workforce, the making of such a gratuitous payment is also likely to engender an increased sense of loyalty and belonging.  Things which will become increasingly important if a recession bites and hard messages around pay need to be delivered.

The second approach to consider, particularly for those businesses that have already had stellar years, is whether any “advance” could be made on annual bonuses.  This approach will be mostly feasible in organisations that use a “profit share” method of bonus calculations.  Companies confident that a minimum level of bonus will be achieved could help employees through an advancement of this payment.

Obviously, the communication of the reasoning behind making these payments is important, and, in fact, we would suggest that the communication of either of these types of payment will be more important, in the long run, than the payment itself.

There are, of course, issues around “creating precedents” that some cautious executives would rightly have in taking one of these approaches.  However, we would suggest that when weighed against the benefit of motivating and retaining your people this summer (and into the period around September when employees often get itchy feet inspired by previous new beginnings at school or university), it may well be worth making a decision to do something a little bit different.

Should you want to have someone help you explore your thinking on this issue, please contact Stuart James in the first instance.

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