Recent headlines have featured much on how real pay is falling for most people. A lot of airtime, a lot of talking heads but hardly any HR people (that’s being kind I haven’t seen any). We’ve heard from politicians, unions, thinks tanks etc but not HR. Why is that?
Well, it could be a case of ‘not me guv’, that is, HR doesn’t have a role or responsibility in managing pay, it’s someone else in finance or the board. That doesn’t hold up. HR formally has some significant responsibility for setting pay in most organisations. There may be variations by company or industry and levels of influence but where an organisation has an HR function, the answer can’t be zero. After all, what are those reward people doing on the payroll?
It could be a case of ‘it is what it is’, that is, this is the way things are in our austere recession-hugging world. The general economic environment is the main driver of setting pay levels and that environment is, at best, gloomy. The Profit watch UKstudy published by The Share Centre in June gives data that could explain this. Its analysis showed that for FTSE-350 companies, while revenues had risen by 2.1%, pre-tax profits had dropped by a quarter and the net profit margin had fallen from 8% to 5.5%.
Given that, the drop in real income levels is understandable. According to the Trades Union Congress, the average worker on an annual median income of around £26,000 is around £4,000 worse off in real terms than in 2009. While inflation continued to rise through that period, employers have needed to restrain pay growth or even to cut pay to manage the tough economic conditions. Hence the fall in real pay.
That kind of makes sense until you look at other data.
The bosses of these hard-pressed enterprises which have had make these tough decisions about their workers’ pay have themselves been enjoying fairly decent pay rises. According to the Executive director total remuneration survey 2012 by Manifest and MM&K, the 100 best-paid chief executives of UK companies received, on average last year, an increase of 13% on 2011, mainly driven by long-term incentives.
At the same time, average pay rose to just 0.8% (the lowest increase since the Office of National Statistics (ONS) began collecting comparable figures in 2001).
Likewise, research by Capita Registrars in January 2013 showed that dividend payments from UK-listed companies rose by 19% last year versus 2011 and forecast these rising by 11% in 2012.
So something doesn’t add up, companies seem to have the resources to reward executives and shareholders but not their workers? Hence the latter have see their real incomes fall. Does it matter? Yes, whether you’re an austerity addict or a growth champion, this situation makes it more difficult to cut state spending if welfare needs to keep making up the gap in incomes. Likewise, if people, as consumers, don’t have money to spend, growth is less likely. That can only make the economy worse and we get into this particular vicious circle, bad economy, poor pay, bad economy and so on.
I don’t know what the answer is or what the way forward looks like, however, I think whatever your view, as a a profession, HR can’t be out of this conversation.
Dev Raval has held a number of senior reward positions including at GSK, Vodafone and BSkyB.