In the first of a series of top trends for the 2023/24 financial year, we take a look at the question on everyone’s mind: How much should you be paying your employees?

As we approach the end of the financial year, I was asked about my thoughts on the top trends in workplaces for the next 12 months. In the next couple of posts, I will be discussing the three top trends for 23/24. Here they are, in no particular order:

  • Money The economy is currently challenging, with the rising cost of living and rising interest rates. The amount of money people are paid in the workplace is becoming increasingly important. This is expected to be one of the top trends in the workplace over the next 12 months. Businesses need to figure out how to keep paying their people competitively, so they can attract and retain talent.
  • Legislation Another significant trend is the changes to legislation in Australia, reflecting evolving societal expectations in the workplace. This has created a significant shift in how businesses need to operate today compared to just five years ago. This trend will continue to shape the workplace over the next year.
  • AI Artificial Intelligence (AI) is also a major trend that has been around for a while but is becoming more mainstream. With the increasing use of AI, including technologies like ChatGPT, it is important to consider the impact on the workplace. It’s going to be really interesting to see how that develops over the next 12 months. 

Now, let’s take a closer look at the first trend: money.

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Money

There are several questions to consider when it comes to the money we offer employees:

  • How do you ensure your pay is competitive in the market?
  • How can you help employees feel satisfied with the money you’re offering?
  • What processes should be in place to ensure fair compensation?
  • How do you attract and retain talent in a tight labour market, especially when some candidates may demand higher salaries than what you can afford?

The Research

As I mentioned, the rising cost of living and interest rates are on everyone’s minds right now. But arguably, they were on the agenda before this year as well. LinkedIn research from 2018 indicates that for 450 members looking at job ads, salary range and benefits are among the most critical factors highlighted by job seekers in job ads. 

Pay is often considered a hygiene factor, meaning dissatisfaction with pay can cause unhappiness, but addressing pay alone may not improve motivation. However, that doesn’t mean it should be ignored, some individuals are more motivated by money than others. Incentives, bonuses, and other forms of compensation can also play a role in employee satisfaction.


Pay Strategy

There are two key areas to ensuring you’re paying people the right salary – a pay strategy and conversations around pay. When you’re thinking about your pay strategy, key considerations include:

  • How do you determine salaries?
  • How do you decide on salary increases?
  • Do you consider Consumer Price Index (CPI) data?
  • Do you consider market data?
  • Do you (ideally) consider both?

If you’re not considering these things, you may be basing your pay solely on employees asking for more money. That’s dangerous because your strategy ends up being based on ‘the squeaky wheel’. It’s important to establish a strategy and process for pay determination. 

 That’s dangerous because your strategy ends up being based on ‘the squeaky wheel’.

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Market Data

I’m often asked ‘Where do we find the market data?’ There are a lot of salary reviews and documents online. However, I think the best way to get market data is to simply use a job search engine. Put in the job title and see what kind of salaries people are paying for it. That’s really what market data is, this is what an employee looking for a job today will see. 

While paid salary data subscriptions are available, this information will have a delay on it, because the data might be from six months or nine months ago. You’ve got to supplement it with more current information. 

the best way to get market data is to simply use a job search engine’

Internal Relativities

Considering internal relativities is crucial. Someone might say, ‘I want more money. I’ve seen the job ads, and I can get this amount’. But if you agree, it will have an effect on other roles within the business, for example, roles that are just as senior or employees who have the same level of experience.

You can’t simply change the pay for one role, you need to have a look at the salaries of other roles relative to that position. You may still decide to raise a salary, but it may mean you need to increase the salary of more than one person. If you don’t consider internal relativities, you can end up with inequity over time that can impact on employee engagement. 

Other Options

For smaller businesses that may struggle to compete on salary alone, exploring other options can be beneficial. This may include implementing incentive plans or retention bonuses – which means if somebody’s still with you in 12 months or 24 months to get a certain amount of money. 

You can also offer non-salary-related benefits. Exploring various employee benefits can also help attract and retain talent. For some ideas, check out my previous post 12 Employee Benefits that will Attract and Retain Top Talent.


Conversations

In addition to having a pay strategy, open and transparent conversations around pay are crucial.  You don’t want all your conversations to be ‘squeaky wheels’ asking for salary increases. That’s not fair and it’s not equitable. The people that are constantly asking for money are also going to feel dissatisfied, which is not good for your employees or for you as a business. 

Transparency

Transparency is key. Workday reported that people quit when they can’t discuss their pay, not necessarily when they’re not paid enough. Having something in writing outlining the pay strategy and processes around pay can help people to understand the system. 

people quit when they can’t discuss their pay, not necessarily when they’re not paid enough’

In my experience with employee focus groups across different businesses, employees often say they are confused about the process for salary reviews rather than voicing concerns about being underpaid. It’s really important to have this information documented and available to people. 

Affordability

You’ve also got to think about affordability. If the business is not in a position to afford a salary increase, this should be part of the conversation with employees.

However, if affordability is your primary concern, it’s important to review your pricing strategy for products and services. Are they priced to provide enough profit to afford the employees you need? Maybe you need to be more innovative and develop new products and services that you can offer the market, so that you can increase the salaries of your people. 

Business Structure

If people are saying ‘I want more money,’ maybe they’re asking because they’ve been given more responsibility. It’s crucial to evaluate whether they are in the right role and if their position has evolved. 

You may need to recognise them with a new position, title, or description, or even a hierarchical change. Reviewing your structure can be really important to understand how to accommodate your employees.

Culture 

In conversations about pay, it’s important for business owners and leaders to acknowledge that there will always be other roles that offer higher salaries.  But there may be other benefits to your workplace, such as the culture or the terms and conditions and other non-monetary benefits. 

When people are looking at the job market or when they have a recruiter calling them and offering them a role, they will be taking all of this into account. That is why building and cultivating your culture is so important. So don’t take your eyes off the ball when it comes to culture. And make sure that you’re building a workplace where people want to be. 

If they are considering other roles, they may stop and reflect and realise that their current workplace is a great place to work and that they want to stay. If you have a great workplace culture, you may be able to negotiate giving them a salary increase, but not as high as they were initially thinking

Obviously, if your business is very profitable, and you can afford their salary increases, then this is the year to offer them because the CPI has been quite high. Many businesses are struggling to determine a salary increase for the year. If you can afford it, it’s well worth standing out from everybody else to recognise and reward your staff. 

Look out next fortnight for our post on the second top trend for FT22/23 which is around the impact of employment legislative changes in Australia.

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