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02 Aug 2019
by Debi O'Donovan

Debi's inside track: Reward professionals must consider the wider consequences of low pay

I expect most reward professionals are familiar with the rather superficial and inaccurate argument that real wages have fallen since the recession, and this is somehow linked in various ways with poor productivity, the rise of insecure work and the gig economy, as well as automation of jobs. And, of course, the greedy elite and big business are too tight to pay the bottom grades of staff enough – let’s not forget that chestnut.

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Of course, as professionals who work on all things pay and reward, we probably all know it isn’t quite as simple as that. Influences on pay are very complex.

So I’d thought I’d do a bit of digging on the fabulous Full Fact website to see what is really going on. If you haven’t come across Full Fact before then it is well worth knowing about. It’s the UK’s independent fact checking charity, and they painstakingly check all the big stats and claims made in the media, often by politicians and other high-profile people and organisations. They are the anti-fake news brigade if you like.

First, overall wages did decrease after the recession in 2008 until 2014, then increased (while inflation was low) until 2016. Now, real wages are levelling and inflation has caught up. But it’s patchy, and depends on where you are working, what job you’re doing and what your gender and age is. There are winners and losers.

As Full Fact puts it, showing great graphs from the likes of the Office for National Statistics and the Institute of Fiscal Studies: “So although the drop in average earnings tells us something important about the economy overall, it’s not the same as what’s happened to everybody working in the UK.”

Weirdly, this effective decrease in average wage happened in a high employment economy. So why weren’t employees marching on the streets? I expect many a reward director is thoroughly relieved that this isn’t happening!

One argument is that it is all down to the rise in employment due to the growing gig economy, self-employment and zero-hours contracts. But the data does not bear this out, mostly because too few people overall work in these types of roles to have had an impact. Or to put it another way, the rise in employment is not down to a rise in insecure, precarious work in the UK.

But we should still be concerned, because what these stats do show is a direction of travel. If those making pay strategy decisions do not stop and think about the long-term nationwide consequences of their decisions today, then they are culpable for where we land up in the future, with many more people in precarious jobs on appalling pay. It’s a bit like using plastic – if we each stop, think and do our bit (especially the biggest suppliers of plastic) then we can avert environmental disaster.

Those of us in reward are in a position to push back at Boards setting too tight pay budgets and squeezing margins in order to generate profits. But ethical reward professionals need to use hard data, business reason and long-term strategic thinking.

If you want to beef-up your long term strategic thinking about pay and how it affects society, people and productivity in a world of automation, you could do worse than to pick up a copy of David G Blanchflower’s new book Not Working: Where Have all the Good Jobs Gone? (Princeton University Press, 2019).

His take on the failure of UK firms to automate particularly caught my eye. He points out that low wages encourage employers to hire more staff instead of investing in labour-saving and productivity-improving capital. Much has been written about the threat to workers from automation, but it is the lack of automation in the UK that is at least in part responsible for problems such as poor productivity – and the lack of automation is partly a result of low wage growth.

Reward directors can really make a difference to their own staff, their organisations but also to society. To do that we all need to step up and become ethical reward leaders with a sense of purpose, and not simply followers.

And finally …

While we are on the topic of pay, is it just me that finds it shocking that the lowest paid people in Britain are not currently eligible for sickness benefit, because you have to earn more than £118 a week to receive it? Two million people, most of whom will be part-time workers, earn less than that.

The government is currently consulting on Statutory Sick Pay, but I’d say we are in a pretty bad place if, as a nation, we cannot support the lowest earners if they are ill, or cannot support those working reduced hours while they strive to get back into the workplace after illness.

But perhaps I’ll leave getting fully up on my pay and wellbeing soapbox for another day and another column.

The author is Debi O’Donovan, co-founder and director of REBA.

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