Wages nightmare

Wages are on the rise but sales are slowing. Business owners need strategies to ride out the next six months. By MIKE PRESTON

Wage costs are rising and sales are slowing: it’s a nightmare scenario, and one that many businesses are likely to face for at least six months.

Businesses need to think creatively to attract and retain staff, keep a lid on wages, and to ensure the maximum possible benefit is achieved from any pay increases.

The St George Bank/Australian Chamber of Commerce and Industry business expectations survey, published this week, says December growth was the highest in the survey’s 12-year history.

The NAB Monthly Business Survey, also out this week, pointed to the mining, construction, manufacturing, recreation, finance, property and business services sectors as the most likely to face significant wage growth.

The NAB report showed wages grew 1.8% between November 2006 and January 2007, the highest growth rate since 1998.

Like the St George/ACCI survey, NAB’s report suggests a slowing economy, with business confidence, trading conditions and expectations for new orders all flat.

Resisting pressure to raise wages

One of the key principles of staff retention, experts say, is that it’s not all about pay.

For most employees, pay is just one factor that determines how much they value their job, says Leah Bombardiere, senior workplace adviser with the New South Wales Business Chamber.

“You can’t get away from the fact that you have to pay market rates, but every one else is doing that too, so it’s about the other things you can offer to make yourself a more attractive employer,” she says.

The real challenge is to create a work environment where staff genuinely want to stay with you. Increasingly, employees are seeking flexibility as much as higher wages.

She recommends offering more flexible (not necessarily shorter) working hours, good maternity and paternity leave, work from home options, or work-based social activities to create an environment employees won’t want to leave.

Generations X & Y

Hayes Knight senior partner Greg Hayes says a first step to making your business a better place to work is to understand how workers of different generations may have different priorities.

Generation X and Ys might want a wide diversity of experience. “You have to keep redefining their jobs to give them that experience. They value constant performance feedback, good training and career progression.”

When an employee asks for a pay rise, it is also important to find out whether they are really seeking increased status. “It’s surprising how often people will be satisfied with soft benefits, such as a change to their role and a better job title,” Hayes says.

Win-win wage rises

If you do have to pay more to attract and keep the right staff, make the most of it.

Hayes says that when an employee asks for a rise, your first step should be to determine what the market is paying for similar roles, what you can afford to pay, and, most importantly, the importance of the employee to your business.

If you decide a pay rise is warranted, then your should consider how to structure the remuneration package.

Hayes says that although cost minimisation strategies such as salary packaging can be useful, the most important thing is to ensure an increase in benefits works to the advantage of your business.

“Especially with higher-paid employees, it is crucial to line pay up with outcomes, rather than adopting a process-based approach,” he says. “Staff need to know they’re not being paid just to be there 40 hours a week; they’ll get the money if they produce the results.”

A performance component will be particularly helpful in keeping high-performing staff who are dissatisfied about being paid the same amount as less-productive colleagues. “You build in performance incentives that reward the people who outperform their peers,” Hayes says.

But incentive systems will only work if there are proper performance measurement systems supporting them, Bombardiere says.

“It won’t help your business if you don’t give the money no matter what the increase in performance is,” she says. “If you don’t put the work in to make sure it’s a meaningful process, it can have a negative effect – employees will know if you’re not really walking the walk on wages and conditions”.

The outlook for wages

The good news is St George’s Milch believes the cycle will turn and businesses just need to hang on. “Pressure on wages will continue over the next six months, but if you can hang on beyond that, the softening in the economy should lead to moderating wage levels,” Milch says.

NAB chief economist Alan Oster agrees. “We are likely to see wages pressure come off, but it could be six months or so.”