Managing Your Cash Flow

Farewell, automatic pay rises!

2 min read

03 July 2013

It is the end of automatic pay reviews as we know them, but there is a silver lining, says Menzies' Ed Hussey.

The prolonged downturn has ended the annual cost-of-living increase for most of us. 

For a generation or more, the minimum expectation was a 3 per cent uplift every year – which was duly paid, even when inflation was well below that level. That concept has been blown away by our current difficulties, and we are getting used to a world where our pay does not, as a right, keep pace with the cost of living.

Employees have been very understanding and flexible in the light of these challenges – one reason why employment has stayed higher than expected. Like it or not, employees accept there will be little fat in the system for some time to come.

There is always a silver lining, of course.

As a business owner or leader, as you start to contemplate pay reviews again, do you want a return to increasing your salary base annually just to stand still or, worse, go backwards because your customers will no longer pick up the tab?   

Is it right that you have some employees on salaries higher than the market rate because they have had automatic year-on-year increases that bear no relationship to their contribution?

Our understanding of the pivotal role that incompetent, yet highly-paid executives played in creating the economic collapse has made us rightly sceptical of organisations that allow a rewards-for-failure culture to exist. 

Having broken out of the normal cycle, this is a chance to reward what you really need from your people. It might be the delivery of key initiatives or products, achieving certain service levels, upholding your company values, increasing capacity or applying new skills.   

You will still need to keep step with market rates, but that rarely involves the whole employee base needing a raise. Treat anything left over as an investment decision, not just an overhead.

Ed Hussey is HR director at accountants Menzies LLP.

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