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Where do we go from here: Understanding pay in a vulnerable economy?

Written by John McGill on August 14th, 2020.      0 comments

Written by John McGill on August 14, 2020.

Remuneration Commentary from Strategic Pay

Where do we go from here: Understanding pay in a vulnerable economy?

On the surface dealing with remuneration and remuneration related issues during the current pandemic should be straightforward: cost structures are under enormous strain, jobs are clearly on the line across the board, and for many organisations their very survival is at stake so pay related matters will take a back seat. Right?

Not in the minds of the HR profession following our recent survey of what they are thinking. Issues, particularly those related to gender, flexibility in working arrangements, and pay transparency remain important to their thinking (the pay equity legislation passing through Parliament in recent weeks has not gone unnoticed by the profession, and nor should it).

Don’t misunderstand me, dominating replies of course was the Covid-19 pandemic and its ongoing effects. It was clear from the replies that the impact of the pandemic will be long lasting and HR professionals are very aware of how it is affecting their organisations.

While (as at the time of writing) New Zealand has successfully controlled the pandemic internally, the government initiatives to date can only go so far in moderating the immediate and medium-term effects. Throwing money wholesale into wage subsidies will stop soon, likewise paying for returnees to sit in hotels for weeks at a time on the government.  So-called “shovel ready” projects have their place in infrastructure development and while their immediate short-term impact on jobs is welcome this will be limited. The government has been successful in its short-term strategy, very successful in fact, but that strategy has a limited life. To say our future is uncertain if the economy hasn’t improved before the money runs out is an understatement.

We would argue the recent outbreak starting in the second week of August only reinforces the above comments. Yes, further assistance in a specific targeted way is appropriate but it will of necessity be limited from now on.

The impact on tourism, hospitality, hotels, leisure activities generally, parts of the education sector and other sectors is now seen as long term. The rest of the economy is weathering the storm. Barring the miracle vaccine (yes it may come early next year but its only a maybe until it arrives) and even when/if it does appear the self-righting of the world economy will take some time.

So back to pay: where does that leave us? Pay levels are stable at present, expectations have generally lowered (we saw in the Strategic fortnightly Pulse Surveys from earlier this year overall pay budgets/expectations fall from around 3% to 1%), both generally and in the profession itself. Exceptions are those that have lost their jobs of course or are in particularly vulnerable industries. The pay cuts that many (particularly private sector) organisations underwent will only carry them for so long and are unlikely to be a long-term solution.

Interestingly, we note the Public Sector has generally held on to employment levels and pay arrangements to date. While there have been some signs of staff reductions (Auckland Council for example) they appear to be minor across the country. One does wonder what all those customs people are doing though? It is clearly the governments policy to retain both pay and employment levels in the public service a laudable and humane policy but at what cost?

The economic forecasters suggest unemployment rising to little more than 10% and then slowly reducing. They are sticking to their forecasts despite the unusually low unemployment figures released in early August. Should unemployment peak in low double figures will mean New Zealand has escaped very lightly I suggest. If that scenario plays out, we predict that pay levels will remain relatively stable over the next two years with minor levels of increases. Collective agreements that are running for a number of years will likely be honoured, and the government will continue with the final stage of increasing the minimum wage to $20 per hour (slated for April 2021) – well a labour government will.  The newly introduced pay equity law will generate a number of cases, and there will continue to be increased scrutiny of executive pay levels.

Likely to continue to gain traction will be better use and understanding of WFH and flexibility in working arrangements again the subject of a number of comments from HR professionals. These trends have accelerated dramatically by the pandemic and appear to be one of the few win-wins of our current crisis – we all wish there were more.

So if present predictions around unemployment hold, government assistance becomes more targeted, and our export sector holds up, we see the broader issues around pay as continuing to be important, relevant and likely to command time and resources. While the impact in tourism, travel and hospitality is very clearly grim that is not the case across the economy as a whole. That most of our economy is both resilient and dynamic with economic policies designed to hold up the level of liquidity is serving us well at present as we all work our way out of this.

 

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