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10 Aug 2023
by Debi O'Donovan

REBA Inside Track: Why employers should look beyond inflation when making pay decisions

The pressure from employees to award pay rises that match or exceed inflation is high. But employers need to look ahead to bigger workforce trends that will influence reward strategy in the near future, as REBA’s director Debi O’Donovan explains.

Thinking about pay, bonuses and other forms of cash reward purely in terms of inflation in 2023 misses the bigger, more vital, factors that need to be changing pay decisions. Our working world is undergoing enormous change which is having, and will continue to have, an almost incomprehensible impact on workforce planning and reward strategies in the near future.

Here are five shifts I believe will change pay thinking:

1. AI, Net Zero and skills

The types of skills employers need is changing. It wasn’t long ago that techies and coders could charge a premium (some still can), but now we’re within sight of Artificial Intelligence (AI) doing the bulk of this. So the types of skills we’re prepared to pay for is shifting fast. In lower paid jobs the role of AI is already playing out strongly, for example with self-service check outs from airports to takeaways. 

Instead, there is rising demand for skills and knowledge (even at Board level) that will allow organisations to successfully achieve Net Zero in a sustainable manner, so the organisation both survives and makes a profit.

2. Shrinking population

The talent pool is gradually declining. Money is ultimately the wrong tool to use to attract talent in a country where a falling birth rate has been predicted for the past 50 years. Put simply, paying more for fewer people is not sustainable. Rethinking the future human skills versus AI skills your organisation will need is a better starting point in order to map out pay decisions.

3. Older workers have different needs

As your workforce ages, its needs and objectives change. Unlike younger generations, it might not be all about the money. Especially among your higher paid employees. The older they get the more likely they’ll value their time, flexibility in working patterns and the sense of community they achieve by still being employed. Broader benefits and HR policies might be the places to start with to keep this group engaged with work.

4. The social fabric of work decaying

Many in Generation Z are disillusioned with work. Many of us might have felt the same when we were that age, but this time it feels different. Back in the day, earning a low wage at the bottom of a hierarchy working nine-to-five in an office we had to commute to every day was a rite of passage. It’s how many of us met our partners and friends. We learned from our colleagues and built our expertise. 

Inflation-linked pay rises for the young are not going to fix this, nor are they going to solve the seismic change to our economic system that has left older generations with all the housing assets. We’ve barely scratched the surface on rethinking wellbeing, especially social and financial wellbeing, for our youngest employees, but it is now urgent. Pay is vital when you’re young, but so is wellbeing.

5. Time to rethink who pays for the next generation

Women are not falling out of the workplace when they become parents because of low pay. It’s because the childcare system in the UK is completely unfit for purpose, and it’s the mothers who are picking up the tab in lost earnings, careers and quality of lives. 

Linked to this, the cost of childcare is putting people off child-bearing. This needs State-level vision if we want to improve productivity and quality of life across our population. Yes, employers will need a play a role but the current set up isn’t working. See also point two above – if this isn’t tackled further problems await.

No doubt you can think of other huge shifts that will change pay and how we reward people. Inflation is certainly putting huge pressure on millions (but by no means all) employees, but it is not the go to issue when thinking about the future of reward strategy.

My recent reading list that helped create the five points above: