Solving your pay structure challenges caused by the current economic landscape

Organisations are facing into a dual challenge in today’s economy: the impact from the rising cost of living and the need to adjust to ever-increasing minimum wage requirements.

These pressures are leading to lots of organisations experiencing compressed pay structures, affecting both employees and organisations. In this blog, we’ll explore the impact of these factors and propose solutions that a strategic HR consultancy can offer to address these challenges.

The cost-of-living crisis and its workplace effects

1. Cost-of-living trends

It’s no secret that the cost-of-living crisis is impacting people’s ability to meet their financial commitments. In the UK, for instance, the annual rate of CPI inflation surged by 10.4% in February 2023 and, as a result, fewer employees find it easy to pay their bills, leading to financial stress and overall reduced wellbeing. The same is true of businesses, whose costs have also gone up.

2. Declining ability to pay bills

Between winter 2022 and 2023, the proportion of employees who reported keeping up with all their bills and credit commitments without difficulties fell from 61% to 48%. Female employees, those earning less than £20,000, and staff with disabilities faced even greater challenges. The ability to maintain an acceptable standard of living, cope with sudden financial emergencies, and save for retirement also declined significantly.

3. Impact on employee morale

Pay compression, made worse by the cost-of-living crisis, can create serious employee morale problems. When employees discover inequities in pay, trust can start to decline and job satisfaction with it. Organisations risk legal action, equal pay claims, and long-lasting damage to their workforce.

Understanding pay compression

Pay compression occurs when:

  1. A subordinate earns close to, the same as, or more than their supervisor based on regular pay (not overtime).
  2. A lower-ranked faculty member earns close to, the same as, or more than a higher-ranked colleague in the same discipline.

Solutions for compressed pay structures

  1. Transparent pay frameworks
    Establishing transparent pay frameworks is crucial. HR consultancies can collaborate with organisations to develop clear, easy-to-understand pay structures. These frameworks should reflect commitment to equity, ensuring that every employee understands their pay in relation to their role and impact.
  2. Future-proof reward strategies
    Forward-thinking reward strategies are essential to stay competitive. HR consultancies can help design innovative, adaptable reward schemes that recognise diverse employee contributions. Beyond salary, consider unique benefits and recognition programs aligned with changing employee needs.
  3. Practical tools
    Effective pay and reward strategies require practical tools. HR consultancies can provide resources such as clear salary scales and job evaluation tools. These tools empower organisations to implement pay frameworks consistently.

Mitigating pay compression: a collaborative approach

HR consultancies play a vital role in addressing compressed pay structures. By co-creating solutions with organisations, they can:

  • Develop impactful pay and reward strategies
  • Future-proof reward schemes
  • Ensure transparency and equity
  • Enable benchmarking of both pay and benefits
  • Provide practical tools for effective implementation

Remember, while complete eradication of pay compression may be challenging, minimising its impact is essential. By prioritising fair compensation practices, organisations can foster employee trust, enhance morale, and navigate the complexities of the cost-of-living crisis and minimum wage increases.

Get in touch

Does your business needs help mitigating the impact of pay compression? Reach out today to discuss how we can support you with a robust, strategic solution that is tailored to the needs of your business and your people.

To speak to one of our experts, give us a call on 01491 414010, or email info@connor.co.uk.

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