How the cost of living crisis is pushing open doors for proper pay and prosperity
The award for this month’s less-than-mind-blowing research finding must go to Indeed’s latest survey of 2,500 British workers, 52% of whom believe they are being underpaid in the current cost-of-living crisis. Your response, like mine, is probably: “only half?”
Given that price inflation is running at 9.9% and earnings increases at an average of 5.3%, the last quarter saw the largest fall in real wages and household disposable income (and living standards) ever recorded by the Office for National Statisitics in the UK, of 1.2%. Adecco found that 61% of the 34,200 workers across 25 countries it polled, for its Global Workforce of The Future 2022 report, highlighted cost of living and inflation as major concerns, and most worryingly for employers, a driver of higher turnover as employees seek higher pay elsewhere.
How employers are responding to a tight labour market and the cost of living crisis
The discussion and insights from our Institute for Employment Studies (IES) HR Director’s Annual Retreat confirmed that this is the major issue for HR and reward leaders to address right now. And it raised questions going way beyond the obvious about how best to compensate affected employees, down to the underpinning philosophies of people management and how to achieve high and sustained performance in our organisations.
Sure, at the Retreat we had a good debate on the compensation front. This highlighted the evident employer response cycle we are seeing, as the queues at foodbanks of mostly people-in-work (latest forecast from the Living Wage Foundation is 2.7 million workers this year), and the estimates of child poverty numbers (a record 37% of all children according to the Resolution Foundation), grow ever longer and bleaker. Hardly surprising perhaps that food retailers including John Lewis and Sainsbury’s are making free food available to their employees in their busy run-up period to Christmas.
A growing number of responsible employers appear to have progressed on this broader response cycle, initially offering the types of financial wellbeing support which REBA surveys revealed had expanded during the Covid crisis (for example, almost two-thirds of firms are now providing financial education and one-third financial advice to their employees). But recognising that finances trump financial advice when you are facing an 80% hike in your energy bills, a growing minority of employers have progressed onto awarding lump-sum emergency cash payments – made by 14% of employers so far, according to a survey published last month by Partners&. These include, for example, Virgin Money, Beazley insurance and Barratt Homes, with another 19% of firms considering them.
As price pressures continue and inflation escalates further, we are now seeing employers progressing into making additional and higher base pay awards. This is despite the warnings of setting-off a ‘stagflationary’ crisis from the Governor of the Bank of England, Andrew Bailey, who questioned the current direction of causation in this high, but still well below inflation, pay awards spiral.
Banks such as Santander, which made an additional 4% pay award for those earning under £35k, are being followed by firms in the sectors experiencing the most severe labour shortages. Retailer Aldi will shortly award a second pay increase this year, making for a 10% annual increase in total; and travel firms and airlines including BA, which just made a 13% award for check-in staff (admittedly after a strike threat from their trade union Unite), are also increasing base pay.
A growing number of us are perhaps coming to agree with Labour Party leader Sir Keir Starmer, who in dancing around questions about his apparent lack of support for striking workers, said that he did feel it was ‘reasonable’ for people to expect their wages to take account of the rising cost-of-living.
The consequences of low-paid, low-skilled employment
The deeper question raised by the current situation is just why so many employees are unable to deal with this economic ‘shock’? Kate Bell, the head of economics at the TUC, observed that while “of course workers will take any form of help they can get this winter, but the only real way to give working families security is a decent pay rise.”
The investment in skills and training required to get a decent return on these higher pay levels? Professor Ewart Keep, chair in education, training and skills at the Department of Education, Oxford University, recently highlighted that training investment by UK employers is still less than half of what it was in real terms in 1997.
What many HR functions actually gave their workers during the 2010s was ‘flexibility’ for their employers, which translated into insecurity for their employees. The so-called ‘jobs miracle’, with its current legacy of low unemployment and extensive and severe skill shortages across all areas of the economy, largely saw growth in low-skilled, low-paid, low-security, low-HR-investment jobs and employment.
The ensuing Covid-19 pandemic highlighted the essential role and often awful pay and conditions of front-line workers, for example in care and retail. It also emphasised the short-sightedness of the unfortunately common cost-efficiency and shareholder-return-driven cuts in employee benefits, such as sick pay, that many employers made during that decade. As public health expert Professor Sir Michael Marmot quoting Camus expressed it: “Pestilence brings the hidden truth of a corrupt (and divided) world to the surface.”
Yet as a society, we still don't seem to have learned the lessons from Covid-19 – to invest properly in our people’s wellbeing, pay and career progression. The awful outcomes from this are being highlighted by the huge queues for treatment now evident in the NHS, and at our community foodbanks in this cost-of-living crisis. P&O may be an awful outlier, but there are still many employers pursuing the ‘low road/low cost/low HR’ employment model. That’s why so many have employees, as the TUC put it, “one pay-day away from poverty”.
A high or low investment route to high performance and prosperity?
Is this low cost route really the way to high profits and performance? As our entertaining guest speaker at the IES Retreat, Perry Timms highlighted, HR professionals need to go on the offensive now, on the back of their ‘Covid dividend’, supporting a purpose, prosperity and triple-bottom-line of people/planet/profit corporate agenda. A great-sounding philosophy. But what does this actually involve for our HR and reward strategies?
IES’s director Tony Wilson highlighted the need for genuine supply-side investment by government in skills and support for the economically inactive (especially the over 50s), to address our national low productivity problem. Similarly, the Recruitment & Employment Confederation’s chief executive, Neil Carberry, argued strongly for employers to “grow (more of) their own” and invest in the critical line management and cultural support that underpins employee retention and performance.
A stronger emphasis on delivering fair pay and employment, including pay progression for all and stable working hours contracts; and of course more comprehensive and tailored employee benefits strategies, were the themes most commonly raised by the research and case examples we considered at the IES HR Retreat to achieve sustained high performance and productivity.
We were perhaps ‘preaching’ to the already-converted on the people-investment route to high performance. But the signs are that this message is at last starting to spread more widely, with the number of Living Wage Foundation-accredited employers for example, having doubled since the start of the pandemic; and similar growth evident in the numbers of employee-owned firms recorded by the Employee Ownership Association.
Christian Kaberg, managing director of the St Pancras Hotel Group, in a sector beset in the past by low pay and high employee turnover, and now by extensive skill shortages, told the Financial Times last month: “It’s easy to blame this (labour and skills shortage) on the pandemic or Brexit…but the industry is experiencing staff shortages that are partly self-inflicted.”
His lessons from the past and path for the future for people and reward management in his firm and the sector is: “As an industry and an employer, we need to start doing the right things — one of them is paying people properly.”
The HR leaders at our Retreat will hopefully be pushing at far more open doors in pursuit of the necessary investments in people, their development and their pay, in future, rather than having to break them down.
