Increased wage demands: Can you afford to play hard-ball or is it time to get smarter on package negotiations

The case for pay increase restraint is not made

With inflation at a 40 year high in the UK (9.4%) and a 31 year high in Australia (5.1%), the cost of living crisis is impacting economies around the world. However, it’s clear that wage packets of workers in some countries are under far more pressure than those in others.

Government finance chiefs and economists have been cautioning against employers giving inflation busting pay rises, with a narrative that goes something like this…

• In a nutshell, economic theory suggests that paying higher wages only serves to increase inflation further. You get paid more. You buy more. Demand increases. Supply can’t keep up. Prices go up, and that’s inflation. Therefore, wage increase restraint is needed to help control inflation.

Simple, isn’t it? However, some think not! For some, this logic doesn’t stand up in the context of the cost of living crisis that is impacting economies around the world. For many, the background to the cost of living crisis is best described by this narrative:

• The current high level of inflation is a spike mainly due to increases in the prices of food, road fuel and energy. This is a result of the conflict in Ukraine. Shortages of agricultural exports from Ukraine and uncertainty about Russian energy supply are driving up prices on world markets. Higher costs for food ingredients, energy for production and road transport propagate across the supply chain. This forces, up costs to end user consumers and businesses for practically everything. Increasing wages will only increase prices further.

In the eyes of many, this doesn’t quite add up. And for some, the case for below inflation pay rises is not made. To those who have in-demand skills the current job market situation is nothing short of a golden opportunity.

Skills in-demand and vacancies at record levels

It’s not only inflation that is at record levels. With vacancies also at a record levels in the UK and Australia, the talent gap is well documented by official figures. And anecdotal evidence from the recruitment industry lays stark how those with in-demand skills may be exploiting the situation by selling their skills at a premium.

Some good candidates are applying for multiple jobs and receiving offers from several. They are then able to pick and choose, with the toughest cookies playing prospective employers off against one another to write their own dream ticket.

Whether it is for contract and freelance, or permanent hires, agencies and employers may have to sharpen up their negotiating skills to prevent budget busting pay packets increasing fixed costs and impacting bottom lines.

Tough negotiation may be self-defeating

Tough negotiation maybe an option, but when the lack of skills is holding a business back by either preventing it servicing existing customers or preventing growth, then playing hard-ball on new hire pay and benefits may be self-defeating.

Conventional objections such as package expectations being unrealistic and that the wage is determined by the pay band that applies to each role are unlikely to put off new hires that are determined to get what they want.

Perhaps the best way to secure the skills your clients need on acceptable terms is to get smarter in the way that increased packages are put together and paid. Some examples of what this might include are:

• Index pay to performance – Although many roles are not sales jobs, consider ways of incentivising new hires where they must hit performance targets to earn their target package
• Defer payments – Agree to pay increased salaries and bonuses in the future
• Index payments to loyalty and commitment – Build in some handcuffs by paying increased rewards only after years’ 1,2,3…X years’ service
• Fix higher salaries and benefits packages – Pay higher rates, but fix them and leave new hires on increased rates out of the pay review process
• Engage with employee benefits partners – Engage and see what ideas employee benefits partners can come up with in the way of improved benefits packages

Meet the challenges of the job market with ETZ

The challenges of the recruitment market sure are complex! And it’s not just negotiating to secure the talent your clients need. Technology is also something of a minefield. ETZ is the RecTech partner of choice, helping agencies to navigate the pitfalls and obtain excellent value from technology.

ETZ’s leading timesheet, invoicing and payment solution, streamlines the back office processing of your recruitment agency. To find out more, call us on 0800 311 2266 or book a demo.