Pay squeeze

There are few negative side effects of an economic recovery, including increased competition, rising interest rates and especially poaching of your best staff.

While skills shortages never completely went away during the downturn (particularly in the engineering sector), many entrepreneurs found themselves in the position of not having to worry too much about staff retention for the first time in five years.

While finding great new staff is never easy, economy-wide concerns about job stability usually mean it is much easier to keep your existing staff. Many businesses even got away with instituting pay freezes.

But those days are now gone. A report today from Mercer suggest pay increases are now running at a rate of about 3.5% per annum, with this likely to rise to somewhere between 4% and 5% over the next 12 months.

In the resource-rich states of Western Australia and Queensland, where the new mining boom is once again pushing up demand for skilled workers and salaries, entrepreneurs probably need to prepare themselves – and their budgets – for increases above 5%.

So how should entrepreneurs react to this wages pressure?

The thing most will think of is probably money and clearly, budgets may need to be revised to take into account wage increases and business owners need to be sure their companies can take this.

But a slightly more scientific approach might be required. Grab a list of your employees, and start thinking about their importance to the business. Which staff are vital to day-to-day operations? Which staff have more generic skills that can be replaced? Which staff bring in the most revenue? Which staff are responsible for servicing clients?

The answers might surprise you. In small businesses particularly, the skills and corporate knowledge of relatively junior staff in administrative roles may be so great that to lose them would take months to recover from. On the other hand, a sales person might be relatively replaceable and their loss could be covered by other staff.

Clearly, entrepreneurs are going to need to look at a variety of retention strategies in the coming months, including cash payments and non-cash benefits.

But before the pay requests start coming, it’s best to be prepared.