I can’t afford pay rises but fear staff exodus
Straight-talking, common sense from the front line of management on how to stop poaching by rivals
Q
AS the cost of living crisis squeezes all of our wallets, my staff are demanding steep pay rises. Much as I would like to, I cannot afford to pay them. Now my largest rival is poaching them with bigger salaries I cannot hope to match. How can I prevent them from leaving?
A
WE are all discovering life was a lot easier when inflation was bumbling along at 2pc. Those of us who were running a business in the 1970s knew that already but it is easy to forget the tactics we used to survive.
When I was studying Industrial Economics at Nottingham University in the early Sixties it would have been very helpful if part of the degree had been devoted to “How to deal with inflation” but, in those days with average price increases below 2pc, it wasn’t something anybody bothered about. (Like the present generation of entrepreneurs and bankers two years ago).
So, using the lessons I learnt
50 years ago I have written the missing university lecture entitled “Trading through inflation”.
Suddenly you have to learn how to manage a business in which every key indicator is on the move. If inflation is 10pc, increase all the figures in your management accounts by 10pc and you will have a good idea of what things should look like in a year’s time. Hardly anything stands still, so you have to manage a lot of moving parts.
Let’s start with wages. You suggest that you cannot afford to pay your colleagues more money – in my view you have no option. It is your duty as an employer to do whatever you can to maintain your colleagues’ standard of living and that means increasing net pay in line with inflation. In the 1970s, we were forced to do so, government increased pay on our behalf.
In 1975, when inflation got close to 27pc, the Wages Council announced an across-the-board increase of £6-a-week. This measure, designed to curb salaries for the better paid, gave female shop workers on the basic minimum an increase of up to 60pc.
The modern day equivalent is the National Minimum Wage or National Living Wage which sets the tone for all wage increases. Higher-paid workers expect to retain their differential above the lowest-paid workers. So the April increase of approximately 10pc in the minimum wage sets a guideline for others to follow.
You must pay for the extra wages by improving your gross margin, increasing prices, putting up sales, cutting some costs – or a combination of all four. In the mid-seventies we reviewed our prices every three months and increased pay twice a year. It was important to make sure that prices were rising just ahead of the wage increases.
Most companies wait for a crisis before carrying out a cost-cutting campaign, but it should be a regular part of the management routine. Even the tightest-run organisations put on extra costs every year – managers find new ways to spend money and the head count tends to go up not down. A review of your staffing levels will probably pay for most of the salary increases.
You can’t stop competitors trying to poach and, if they are willing to pay silly money, you would be foolish to match them. In my experience many of those that are tempted by an offer they can’t refuse will be wanting their old job back within a year.
There is no need to overpay, but make sure you are paying the market rate and do your best to create a great place to work. Disgruntled colleagues usually leave due to discontent with their boss rather than having qualms with the company.
Losing good colleagues is a disruptive and expensive business. Recruitment can be costly and time-consuming, so don’t make savings by cutting the perks that put a smile on the faces of your team.
Keep paying good bonuses and don’t penny pinch on the away days, special rewards or paid birthdays off that are an important part of your employment package.
In the inflationary world we all have to run harder to stand still. Suddenly there are a whole load of new decisions to take on wages, prices, margins and cost control. You are running the same business with the same people, but, if inflation is 10pc you must, over a year, carefully and cleverly increase all the main numbers by 10pc.
If you manage to keep cost increases below inflation or increase sales by more, you will have done your job.
But don’t expect your finance director to pour praise on your performance.
Even if you increase your profits by 12pc, they will be quick to point out that is really only 2pc better than last year.