Staff churn continues despite pay hikes

by 10 Jun 2008

AUSTRALIA’S LARGE companies are under increased pressure from growing wage costs. Annual salaries rose by 4.7 per cent in the 2007/2008 year, up from 4.6 per cent in the previous year and 4.0 per cent in 2003/2004, a national salary survey has found.

Large companies in the resource boom states of Western Australia and Queensland have been hardest hit, with salary increases substantially outpacing the national average – at 6.4 per cent and 5.7 per cent respectively.

The survey, conducted by the Australian Institute of Management (AIM), was based on responses from 723 companies, comprising large companies (504 contributors) and small companies (219 contributors).

The survey revealed further negative fallout from the ongoing skills shortfall, with voluntary staff turnover rates at 13.3 per cent for 2007/2008, up from 12.6 per cent in the previous year and significantly up from the 9.9 per cent rate in 2003/2004.

This amounts to a significant cost for organisations, with nearly a third (31.4 per cent) of large companies in the survey estimating that the average cost of replacing an employee is more than $20,000.

This includes the costs incurred for recruiting, training and operational costs.

The most common reasons for staff resignations from large companies were to pursue a new challenge (in 73.1 per cent of large companies) and to obtain better pay (in 56.7 per cent of large companies).

“While pay is important, clearly there is a need for employers to ensure that employees have the right skills to take on more challenging roles” said Jennifer Alexander, chief executive, AIM NSW/ACT.

In 2007/2008, the survey indicated, only 56.6 per cent of large companies had a dedicated training budget, while only 55.6 per cent of salaried staff in large companies were reported to have a development plan in place.

“In addition to hefty pay hikes, savvy employers look at creative ways to attract and retain good people,” Alexander said.

“They identify them at the onset and put in a place a career development plan, complete with an extensive training program, to give these employees the skills they need to progress to the next level within the organisation. In this way employees get ‘that great career move’ and employers get to retain high-performing individuals.”

The survey found that the tight job market has led employers to look offshore for skilled staff, with 38.7 per cent of large companies already employing staff from overseas and as many as 70.3 per cent indicating they would be willing to employ overseas candidates to cover a skills shortfall if needed.

Currently, the most common source of migrant labour for large companies are the United Kingdom (54.1 per cent) and Asia (45.1 per cent), with the new arrivals primarily filling construction and engineering roles.

On an industry-specific front, the survey recorded the highest salary increases for the business and professional services industry at 6.5 per cent.

“According to our forecasts, pay rises in this industry will continue to lead the pack next year at 6.0 per cent, signalling ongoing optimism for growth in the sector,” Alexander said.

The employment outlook remains positive, with only 8.4 per cent of large companies expecting a decrease in permanent staff levels over the next 12 months, down from 8.8 per cent in the previous year, while more than a half of large companies (59.7 per cent) expect permanent staff numbers to increase (up from 50.8 per cent in last year’s survey).

Since last year, a comparatively higher proportion of large companies have also elected to use performance-based pay as a means to incentivise staff and profit-sharing schemes to improve individual, team and overall business performance.

“Given the increased operating costs incurred as a result of high levels of staff turnover, it is perhaps not surprising that a comparatively higher proportion of large companies are electing to use low financial risk variable reward incentive schemes, in order to improve business performance” Alexander said.


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