Inflation is falling, so what should businesses do about pay rises now?
With salaries rising and inflation falling, what should businesses do about pay? Continued anxieties posed by the cost-of-living has prompted business leaders to carefully consider their next steps.
The UK has experienced the “third largest price pressures of any advanced economy since the pandemic” says Matthew Hayes, managing director at Champions Plc. Staff will want “additional pay” to pay for the increased costs, he adds.
Hayes recommends “talking openly to employees” and “working with them to create a plan”. This helps foster a collaborative environment – working towards a common aim which benefits all parties.
Despite the slight easing of inflation, its impact on business costs persists.
Dr Mansoor Soomro, a future of work researcher at Teesside University International Business School, remains cautious about reading too much into the lower figure.
“This doesn’t mean prices are decreasing; rather, the rate of increase is slowing down,” he said. Soomro advises that business leaders should “take a long-term perspective”, as short-term fluctuations “may not accurately represent the overall trend.”
Communication is crucial, with Soomro emphasizing a prudent approach, advising leaders to keep employees informed about any potential changes.
The “labour market is very competitive” and higher pay than regular “will help attract and retain talent.”
According to research, providing regular pay increases can be a strategic move to prevent valuable employees from seeking higher-paying opportunities elsewhere, he says.
The landscape of cost and price increases is not uniform across sectors, influenced by supply chain disruptions, labour market dynamics, global economic conditions and consumer behaviour.
Reflecting on the recent economic shifts, Joshua Gerstler, a chartered financial planner at the Orchard Practice, challenges the notion that pay must move in tandem with inflation, focusing instead on “paying my team a fair amount for the work and role that they are performing.”
Gerstler argues that once people are earning ‘enough’ the intangibles that go alongside this like “a good company culture” and “opportunities to develop personally” are just as important.
While salary undoubtedly plays a crucial role in talent attraction, broader employee experiences have a huge appeal.
Matt Russell, CEO at Zest, reveals that “42% of employees say that a good benefits package is the most important thing they look for in employment”.
This revelation comes as a relief especially with “29% of businesses unable to raise salaries in line with inflation”.
Offering a personalised, flexible and targeted benefits package to employees emerges as a cost-effective approach to not only attract but also retain top talent.
Businesses continue to grapple with ongoing uncertainties. Leaders, beyond financial considerations, should focus on company culture and employee benefits to truly invest in their workforce.