New data published by reward management consultancy Paydata captures the turbulent recruitment and retention landscape facing HR professionals. Here Paydata examines the top priorities identified by HR Directors, how they relate to these challenges and the strategies being put into action across organisations to attract and retain talent. Contributor Tim Kellett, Director – Paydata.
Ongoing recruitment and retention challenges
According to our UK Reward Management Survey Spring 2019, 66 percent anticipate recruitment difficulties over the next 12 months and 59 percent have had to offer new recruits up to ten percent higher salaries than those paid to existing employees. As 62 percent expect to experience retention issues, in contrast to 40 percent in spring 2018, paying competitively in the market has never been more critical to ensure talent is recognised.
Top five HR Director priorities: a focus on pay
Recruitment and retention challenges were acute last year according to the autumn edition of our UK Reward Management Survey and these levels appear to have persisted. This may explain the drivers behind the top items that feature on HR Directors’ agendas over the next 12 months according to our spring 2019 survey:
1.Pay benchmarking – 83 percent
2.Employee opinion survey – 79 percent
3.Pay review process review – 78 percent
4.Job evaluation and grading – 71 percent
5.Reward strategy – 69 percent
The renewed focus on pay and designing an effective reward strategy illustrates the value of a clear framework to organisations. Pay benchmarking is an opportunity to reinforce or question your current approach to reward spend and features at the top of HR agendas.
Constrained pay reviews
Official pay review levels on the whole range between pay increases of up to two and three percent, tracking inflation. These general figures are often used to inform pay reviews for the year. However, more respondents (five percent, up from one percent this time last year) indicate that there will be no pay reviews, suggesting pay freezes continue to operate and are potentially on the rise.
There has been relatively flat wage growth since the 2008 recession. High employment and a lack of clarity over what Brexit means in practice continues to hold back pay movement and impacts business confidence. Inflation has fallen over the past year and levels are expected to stay just under the two percent mark, increasing market pressure underlying pay reviews.
Making best use of limited HR budgets
HR teams increasingly have to achieve more with less. Given the talent shortages reported across all sectors, high performing people should be recognised in order to engage and retain the talent employers require to drive ongoing business success. Pay benchmarking can ensure that organisations are aware of their pay practices in the context of the wider market: ensuring pay and benefits levels are competitive locally and nationally, by industry and by role.
Whilst reward has traditionally been seen as a tool to drive engagement and performance, poor remuneration governance poses a significant reputational risk. Transparency around pay is crucial to ensure employees are being treated fairly, especially in light of increased scrutiny around pay data concerning gender, ethnicity and CEOs.
Factors escalating the true cost of reward
Employers are increasingly examining their pay structures and putting in place salary scales to ensure that pay is awarded at a competitive and consistent level. Ensuring that there is a framework in place to make pay decisions fairly and transparently ensures that consistent decisions can be made. As a result, HR teams fulfill their affordability objectives when it comes to working effectively within their pay budgets.
However, some strategies are more costly. Two thirds of employers have had to offer higher salaries to new recruits than those paid to existing employees, clearly a highly popular recruitment device.
Furthermore, we continue to monitor the impact of out of cycle pay increases on HR budgets, as some businesses use this to bridge the gap between ‘official’ wage increases and responding to market and economic pressures. Accounting for an additional one percent of employers’ annual pay bills on average, 81 percent of respondents used these types of increases in 2018, which risk escalating the true cost to employers over the course of the year and undermining pay structures in place.
The impact of National Living Wage (NLW) rises is a key concern, particularly across Housing Associations, Residential Care and Healthcare sectors. For the more junior level of roles and the remuneration on offer, wider market considerations come into play as carers and junior nurses can be offered the same level of pay to work in less physically and emotionally demanding jobs, driving recruitment and retention issues in these sectors.
NLW rises also mean that pay scales risk being undermined, with employers still needing to acknowledge increased responsibilities for more senior roles through meaningful pay increases. The NLW therefore creates additional pressure to make adjustments across the pay scales.
A creative approach
Employers are taking a holistic approach in adopting strategies across their organisations to address their recruitment and retention challenges.
1: Embracing multi-phased careers
In an age where the defined ‘three stages of life’ model is more fluid, with people phasing their retirement and having multi-faceted careers, the idea of job loyalty and joining a company for life is equally outdated.
Employer branding needs to embrace the more agile workplace by considering why individuals should join their organisation. The employee value proposition needs to recognise this shift in power to a more equal employee-employer relationship and support individuals’ understanding of the role they can play in delivering the greater vision and purpose of the organisation.
It is estimated that 25 percent of organisations make mistakes when hiring that costs the average business £133,000 for a £42,000 a year role. Yet businesses still use corporate language and formal processes in the recruitment process, when candidates want to engage with the authentic culture of the company from the outset.
Younger generations want greater clarity and regular reviews around pay and progression, with companies focusing on creating well-defined career paths and a clear sense of where individuals fit into the delivery of their vision. The opportunity to upskill whilst giving back to society is a compelling message to candidates and a persuasive reason to stay in a role if an employer delivers on its promises.
2: Building a talent pipeline
The potential return on human capital has never been greater. According to Kevin Green, former Chief Executive of The Recruitment and Employment Confederation (REC) and previous HR Director at Royal Mail, who Paydata recently partnered with for a customer seminar, people’s ability to generate value is also at an all time high despite the rise of artificial intelligence.
Traditional roles that are labour intensive, such as those across the workforce at GM, mean that the return on human capital is lower (the market capital for each of GM’s 118,000 employees is $298k) as opposed to technology companies such as Facebook where the market capital is much higher ($21m for each of their 25k employees).
The skills shortage threatens the opportunity to maximise this innovation, with many sectors lacking a strong pipeline of talent coming through the ranks. The shortage of specialist digital and engineering talent is being tackled with initiatives such as the apprenticeship levy and more bursaries for university students studying sought-after skills. These initiatives are critical to harness the opportunities involved in machine learning and AI, which will be inherent in the workplace of the future.
3: Maintaining momentum behind engagement
Listening to employees is at the heart of actively engaging people across the organisation. Opinion surveys are one way of achieving this, creating a direct feedback channel that can inform management decisions. Furthermore, targeted action plans, creating clear career pathways and exploiting training and technology channels all seek to elevate the employee experience.
Promoting wellbeing within the workplace is vital to engagement levels. Fostering a sense of ‘belonging’ and acceptance is critical to a thriving and innovative culture. Overwhelmingly, 86 percent of respondents to our spring 2019 UK Reward Management Survey offer equality and diversity initiatives, demonstrating the emphasis placed on effecting long-term change and championing a fair workplace.
Future-proof your recruitment and retention strategy
The future of HR analytics is a key opportunity for people management. Organisations hope to use this data intelligently and more regularly to monitor and predict labour turnover trends and drive equality and fairness across organisations.
The frameworks that reward strategy can offer introduce consistency and accountability in pay and reward decisions. Pay benchmarking and job evaluation allow evidence-based decisions to be taken across the organisation and ensure that reward is a cohesive tool to drive positive engagement and performance. Effective reward design is a key element of this data driven picture of pay practices that employees and candidates increasingly expect. A proactive reward strategy can pay dividends in the long-term and future proof your organisation – get in touch if you would like to discuss your reward design today.