Starting at the most basic level, how should we budget wage increases this year? “In recent years,” offered Jill, “wage increases have typically been about 1-2% below inflation.” As such, many of the businesses she works with are budgeting around 5% to wage increases this year, which was a useful barometer for the room.
Funding pay increases was a concern for everyone. Businesses have already slashed costs and passed on price increases resulting from Covid (and Brexit) and there is little appetite for more of the same. “I think you get to the point where you can’t have a solution that fits every segment of your workforce,” Jill clarified, which led to the main part of our discussion: alternative tools and strategies CEOs can implement to ease pay-related pressures.
Don’t have a blanket rule
Several CEOs from the discussion detailed how they didn’t intend – or have ever – offered pay increases to staff that have been part of the organisation for less than a year. And so the group debated how else they might differentiate pay awards this year.
Quickly the discussion turned to who would be worst hit in our businesses by high inflation, and the emphatic answer was those on minimum or low wages, such as on the factory or shop-floor, retail sales assistants, or junior chefs and wait-staff. The low paid are generally hardest hit by inflation because they spend a higher % of their disposable income on essentials – they simply don’t have much discretion in their monthly spend.
As such, Jill strong advised CEOs to disproportionately increase the pay of the lowest paid in their organisation. This will mean a higher percentage increase for more junior people, so be ready to explain your reasoning to the wider company so that it is both understood and supported. Another suggestion – and some CEOs found this one harder to stomach – was to differentiate pay increases based on the individual value of team members. Simply put, who can’t you risk losing, or who would be hardest to replace? Tactically, you could direct disproportionate budget to those individuals with the most value, and look at other solutions to help the broader team.
Manage the risk through one-time payments
A company-wide salary adjustment is not only unaffordable for most, but risks setting a precedent that can’t be afforded in the future. In fact, with the economy facing a probable recession, now is a terrible time to permanently increase your cost-base. To avoid doing so, but still help staff deal with the effects of inflation in the short-term, our CEOs made the case for a less permanent solution.
“We looked at issuing a one-off payment,” said one CEO, “and considered what the average cost increases to energy and fuel would likely accumulate over a year for an individual.” Jill agreed, noting that “many businesses are using this as an immediate and effective strategy to see how things play out.”
A similar idea was to improve the bonus framework for this year. Targets of course need to be achievable – and management trusted – if you want staff to value any new bonuses. But well-designed bonuses can be self-funding, driving productivity and boosting profits. “In some cases,” Jill mentioned, “the productivity gained as the result of a more nuanced bonus framework actually outstrips the negative effect of inflation.”
Finally, a number of businesses are introducing Cost of Living Funds, where employees who can demonstrate particular and specific hardships, can apply for one off grants. Holding back some of the payroll budget this year for those who most need it should be on every CEOs to do list.
Bridge the gap with perks and benefits
Growing small and medium sized businesses are, by definition, cash-constrained. So, we ended our discussion by assessing the potential for non-cash perks and benefits to bridge the gap between expectation and affordability.
One idea shared was to increase the amount of time staff can work from home in the short-term, which helps employees save money on commuting and eating out. Jill even referenced the considerable success a business she works with had seen from offering staff – who aren’t necessarily required to work on site – a week to work from wherever they please. “I was really impressed with how successful that strategy has been,” she said. “It hasn’t made much of a difference to productivity, but the impact on the individual and the team has been immense.”
Additional or improved healthcare benefits can also be implemented so that staff can use their money elsewhere. For instance, one CEO detailed an incapacity insurance policy they had taken to offer their staff guaranteed sick pay: “It’s surprisingly affordable if you take it out as a group incapacity insurance. After six months of incapacity, it pays out 70% of an employee’s base salary and, depending on the salary, we only pay out between £20-£50 a month per employee.”
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All Together is aware that the impact of inflation on all our businesses, from our supply chains to pay reviews, is unlikely to diminish any time soon. We therefore intend to revisit these issues in future CEO Circles, in our podcast interviews, and our future Three Things events.
In the meantime, members should get in touch if they’d like some more sessions with a Volunteer Advisor on this, or any other issue of importance today. Remember – you can now access up to 5 hours of 1-2-1 advice every year.