Written by Don Young on 25 January 2022
This article was published on https://management.co.nz
Don Young explores the paradox of recent low market movements against the response to the Great Resignation and other attraction/retention issues that many organisations are facing in New Zealand.
It’s the end of the world as we know it.
The song was not referencing 2020/2021 or what work, medical science, social interaction and life generally would look like after the pandemic. But it has a certain ring to it in the REM space at the moment (pun intended). There are no prizes for guessing that the market has slowed when the old ‘normal’ ended dramatically. The pandemic hit remuneration levels hard as the market data (*) clearly shows.
We have seen this pattern previously during the Global Financial Crisis. But when the market slowed employees battened down the hatches and rode out the storm. However it is very different this time because the ‘Great Resignation’ is gathering traction in New Zealand. Growing attraction and retention issues for technical specialists and executives abound and reactions to this shortfall will have an impact on the market.
A survey of listed companies in New Zealand showed that 22% have changed their CEO/MDs this year and Strategic Pay’s Pulse Survey suggests that 52% of companies are struggling to recruit and retain talent across more than one job function. In the past we’ve seen spot-market issues where certain roles or functions sit above typical market movements because of unique (usually short-term) influences e.g. in engineering, construction and IT.
But clients are reporting to us that the issue is not limited to a select few roles or functions as might have been the case in the past. Different sectors are struggling to attract and retain totally different types of jobs, also at differing levels (all sectors struggle to acquire IT staff ).
As organisations react to the market issues (and potential loss of key staff ) they continue to explore total rewards options (including non-monetary benefits) to attract and retain employees. Despite this, most still have to show the money to attract and keep good people.
70 percent of our clients surveyed report they paid a premium to attract staff this year.
Organisations view this recruitment process as something that just has to be done to attract and retain candidates with the right skills.
Managing this from a remuneration perspective we discovered that 72 percent of surveyed organisations have applied premiums to the base pay. The majority of these said they had to pay 15-20 percent more for the roles. 10 percent of respondents from the not-for-profit sector reported needing to pay an additional 25 percent as a premium. Here is the concern - increasing base pay by these significant amounts is unlikely to be sustainable long term.
Strategic Pay knows that most clients have predicted higher wage increases next year than recent years (not just in the past two years). This is especially true when one drills down to function and job level where client predictions for some roles are two/three times higher than we have seen in recent years. Even if companies increase their wage budget by percentages not seen since pre-GFC days they are still going to have issues with internal relativities from what they paid certain individuals/roles during this talent melee.
Because obviously bringing people in on higher rates is going to cause general internal relativity issues. So does the answer lie in increasing base or fixed remuneration? What happens at annual salary review time? Simply applying increases across the board will spread the jam too thin.
It’s also unlikely that salary budgets are going to grow enough to keep pace with the levels of increase that this might dictate.
What options do you have? Sign-on bonuses or equivalent used to be a characteristic of executive pay (mostly in Australia) but is being reconsidered again in this changed environment.
Could variable pay be an answer? Possibly, but would the delayed gratification be enough of an incentive for those in technical roles that are so hard to recruit? For executives it may be increasing the quantum of variable pay (mostly short-term incentives). We have uptakes in requests for Strategic Pay to review and/or design incentive schemes around Executive and CEO roles.
Looking ahead to next year ensure you have the basics right to manage any anomalies.
Traditionally our clients have created good, solid remuneration structures that have enabled them to manage the ups and downs of remuneration in a way that is fair, equitable and financially sound. These structures will help to provide a clear picture of where they need to focus their efforts and provide a justifiable rationale for remuneration decisions in a challenging time for key decision makers.
One thing for sure, we will see some interesting developments in the remuneration space in the next few years as organisations grapple with certain decisions they were forced to make at short notice. Do you feel fine? Credit REM.