XpertHR reports that 19.3% of pay awards in 2020 resulted in pay freezes for employees. Many other organisations deferred pay award decisions or rolled back on those that had been made but not implemented.
But things are likely to be tighter still in the opening months of this year, even for those organisations continuing to give increases. Korn Ferry is forecasting rises of around 2% on average at the 1 January and 1 April pay reviews – compared with 2.5% for the same reviews last year.
A tanking inflation rate should help reduce the gap, and the fact that the 2008/9 financial crisis has conditioned many to realise that annual pay rises are not always a given should also help. But balancing employee trust with a company’s efforts to remain financially stable is still a huge challenge, and the key is to be as transparent as possible.
Steven Buck, head of people science, EMEA, at employee engagement software provider Glint, says: “Organisations that have not built habits around regular, open conversations with employees will see a negative impact over time.
"It’s now all-the-more critical to keep in touch with how your people are doing and to ensure they are kept updated about the firm’s overall financial health, so they have a clear understanding of the business rational for decisions.”
Korn Ferry feels the private sector will divide into three roughly equal proportions: organisations that will just freeze pay without reviewing it, those that will budget to give pay rises as normal and those that will give rises to only some employees.
Further reading:
Pay freezes could put HR in a difficult position
Low pay rises forecast for 2021
Furlough scheme makes pay cuts the norm
Freezing pay
Experts highlight a variety of ways in which those unable to give pay rises can recognise employees for their efforts, including straightforward gestures like making sure they are thanked for their work – which can easily get overlooked with a remote workforce.
Time off, even if only for an extra day, a small voucher or other gift, or discounts on purchasing goods are highlighted as often being more appreciated than a tiny pay rise. And the most commonly cited sweetener of all is an emphasis on learning and career development.
Some more forward-thinking organisations are liaising with workforces to find out exactly what they want.
For example, software company SHL didn’t provide employees with anything specifically for Christmas but, in response to their feedback, donated to five charities globally.
SHL chief HR officer Teri Ellison says: “They said this was their preferred gesture in lieu of not having a party or token gift, and the communications exercise has enhanced the emotional connection.
“Similarly, we created an e-cook book by getting our 23 worldwide locations to come up with recipes, and we donated the £5,000 raised from selling this to employees to the same charities.”
Giving pay rises
Companies that do feel able to give pay rises to everyone still have to ensure these are sustainable in the longer term.
Guy Ellis, director of Courageous Workplaces, says: “With Brexit as well as COVID-19 there could be a tricky five to ten years. Typically, the rule of thumb is: what is inflation and what are our competitors doing? Inflation tends to be the justification but competitors the real driver.
“Issuing a bonus specifically for the COVID period as a thank you can make enormous sense as employees won’t be expecting it again.”
But it is in those organisations that are only selectively granting pay rises where conversations will be most difficult, and some companies are in this category by choice rather than necessity.
For example, the London Stock Exchange Group has been enjoying good results, but remuneration is very much geared towards individual performance, and employees on average get a pay increase every three years.
Ben Frost, client partner at Korn Ferry, says: “If every role is looked at in a full review process and communication is effective, only granting some pay rises is a pill that can be swallowed. Typically, it is framed around benchmarking in the market and making spot adjustments when out of sync.”
SMEs can do benchmarking internally, but it is essential to ensure they are comparing companies from the same sector, of similar size and that have received – or not received – similar levels of investment.
Sophie Matthews, head of people at PayFit UK, says: “In the tech industry there are lots of online lists of available companies to compare but when doing it yourself it can be best to use your network of recruitment agencies, which can tell you comparable companies without giving specific data away.
“It is important to note that you are benchmarking with a ball-park figure and, although you can compare against it, you must be aware of differences. For example, job titles can
mean different things across different sectors.”
This piece first appeared in the January/February 2020 print issue. Subscribe today to have all our latest articles delivered right to your desk.
