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Challenges facing employers this pay-review time

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Escalating inflation and energy costs plus staff at a premium have turned gauging remuneration levels for employees into an art form.

8th Dec 2022
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Over the past decade and more, most accountants have found reviewing salaries a relatively simple and stress-free task.

With inflation barely noticeable, it was easy enough to announce either a freeze or a, say, 2% average rise and then try to give the excelling performers around 5% and lazier staff nothing at all. I can speak personally on this, having had the great pleasure of receiving not a single penny of enhancement to salary over a period of five years during the period after the 2008 financial collapse.

All of that has changed, which is likely to give anyone running a business a bit of a headache.

With all of the information now available on the world wide web, you would think that judging pay rises should be much easier. However, that is necessarily the case. Over the past 12 months, the Consumer Prices Index has risen by 11.1%. Is that the right answer or should it be the Retail Prices Index, which has increased by a frightening 14.2%?

Finding a level

The good news is that since no practising accountants are members of trade unions, at least we won’t have to face collective bargaining demands that not only expect this year’s rate of inflation but also want to catch up for all of those years when we could not (or would not) splash out on a respectable increase.

Those are not the only figures available since it might make more sense to base our review on wage inflation. Even that is not straightforward, since in the private sector the current rate is 6.6%, but that includes bonuses, while in the public sector the increase has been a mere 2.2%. Perhaps the right answer is to use the average uplift without bonuses – 5.7%?

If you were to ask staff, they would almost certainly point to double-digit increases in energy costs, the increasing price of fuel and the fact that taxes are going up.

Just to make sure that life is even more complicated, if highly publicised results from the Big Four are anything to go by, top equity partners raked in £1m plus and profitability in the profession seems to be rising inexorably, making even a 10% pay increase sound rather mean.

Staff shortage

There is an additional problem for employers at the moment, given that the profession is suffering from a severe shortage of staff and it is painfully obvious that if you undercook a talented employee’s review then they will walk off to a competitor as the recipient of a much higher salary.

This could get even more critical at a point when your best leaders of the future want to buy a flat or house and can’t get a mortgage unless their salary reaches a level that makes your eyes water.

One possible way to keep a lid on staff costs might be to consider tempting people with packages that are enhanced by benefits that do not hit the profit and loss account.

Some might love the idea of working a four-day week for four-and-a half-days’ pay. Others may be desperate to work from home and could even be more productive, while accepting a modest increment that makes you smile in return for the privilege.

Difficult conundrum

As I have demonstrated, there is no correct answer to what is going to be an increasingly difficult conundrum. If you get it wrong, disaster could ensue with costs running out of control and/or staff rushing out of the door.

The key must be to consider the position of each member of staff individually. The top performers should get increases that persuade them you are their future. The next level down should also get a fair whack, at the expense of those who never quite perform as you would like.

In this way, it should be possible to maintain partner profit shares at a reasonable level and invest in what shows signs of being a very prosperous future for a  profession that has weathered both the pandemic and the recession very well so far.

Replies (2)

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By Hugo Fair
08th Dec 2022 18:53

I was beginning to despair as I read the opening series of paras ... until fortunately common sense seemed to return towards the end.

I would *never* tackle this issue (and never did at any point in the last 40 years which included equally turbulent times) primarily on the basis of external factors/rates/etc.
They will be relevant but only *after* getting a grip on the internal factors ... forecast business & profitability, resource & skills plans, and so on.
When you've got a handle (alright a set of guesses with which you're comfortable) on the business aspects, then you can indeed turn to issues of retention & motivation - which with some creativity (as mentioned per working conditions) may actually make staff and partners happier.

Of course you still need to stay aware of the external factors and how they're changing, but they should help you polish your plans - not form their foundation.

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All Paul Accountants in Leeds
By paulinleeds
14th Dec 2022 11:58

If my utility costs have risen by 10%, say from £2,000 to £2,200 pa and similarly for food costs, say from £2,000 to £2,200 also, then I’m £400 worst off.

Even if utility costs doubt, I’m only £1,200 (£1,000 + £200) worst off in total.

If I was earning £30,000 pa, I’d only need a 4% pay increase to keep my net pay the same.

I therefore cannot agree that staff require an 11% increase., just to keep up with inflation! Of course, if they have progressed and are more valuable then that is different.

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