PRESSURE ON employers to increase wages is continuing as Australia experiences growth in employment, and strong economic growth in Asia fuels demand for labour, recent research has found
PRESSURE ON employers to increase wages is continuing as Australia experiences growth in employment, and strong economic growth in Asia fuels demand for labour, recent research has found.
Nationally, salaries have increased by 4.5 per cent over the last 12 months for incumbents. Overall, salary movements taking into account new and incumbent personnel have increased at the slightly lower rate of 4 per cent.
This represents a shift in focus for companies, based on the previous year’s findings, where the trend has been for overall salary movements to outpace salary movements for incumbents, according to Ken Gilbert, head of the broad-based rewards group at Mercer Human Resource Consulting, which conducted the research.
“Businesses are beginning to concentrate as much on retaining employees, offering incumbent workers more attractive remuneration packages than their new counterparts, indicating organisations are starting to realise the true cost of replacing workers.
“In 2005, we were seeing businesses focusing on bringing staff in as people tried to combat the labour market shortages. However, perhaps as a result of them and their competitors doing so, they may have begun to lose many of their own staff to higher bidders,” he said.
Gilbert said that while remuneration was increasing it wasn’t showing signs of running away as it did in the mid 1980s.
“We still have a number of factors such as stable inflation and interest rates, a softening housing market and increasing production costs that are keeping a cap on upward remuneration movements.
“What we are now seeing is not a clear seller’s nor a buyer’s market. Businesses are trying balance their remuneration spend where it delivers the most value, which is somewhere between retaining existing staff and luring new talent,” he said.
Stiff competition for accountants and lawyers are examples of where salary increases for incumbent staff are a key focus for companies trying to retain existing valued employees, he said.
“Professional services organisations, such as accounting and legal firms, are coming up with new ways to retain employees who often leave to take up lucrative posts in the corporate world.
“Many of these businesses are looking at whether reviewing remuneration on an annual basis is regular enough to keep them competitive in attracting and retaining staff,” Gilbert said.
The research also found that many companies are rewarding high performing individuals. The study revealed that the average reward payment is above, or well above the median, indicating that there is a large variation in how businesses are rewarding individuals within an organisation.
“Companies are using variable reward payments as a stronger means of differentiating performance – focussing large payments to those individuals regarded as the high performers or critical talent for the organisation,” Gilbert said.
He pointed out that while most businesses tried to retain and motivate workers through performance rewards, the rewards themselves often don’t achieve the desired outcome.
“Forty per cent of businesses believed their performance rewards were neither effective nor ineffective, with just five per cent of organisations believing that their incentive programs were very effective in driving desired performance,” he said.
“Businesses really need to strengthen the link between performance and reward. Employees need a clear understanding of how their performance links to business strategy, and how this then affects the company’s performance. Our research shows employees are much happier and are more likely to stay when they understand how and why they are remunerated,” he said.
