Benchmarking: Vital for Retaining Staff During Cost Increases

In the last two years, since Covid-19 restrictions kicked in, a seismic shift in the way businesses operate their HR employment strategies has been created.

Starting and stopping furlough, implementing work from home policies, encouraging people back off furlough and into the office, incorporating hybrid as a new way of working – these have all presented challenges that none of us would have even dreamed about five years ago.

A squeeze on salaries

Today, the latest issue we all have to contend with is the monumental rise in inflation rates and cost of living, which is applying pressure akin to an adult elephant stepping on a jam doughnut. With the official rate of inflation currently at nine per cent (and the real ‘on the street’ version coming in much higher), the average salary is becoming increasingly devalued against the true cost of living.

While the government is implementing various strategies to help alleviate that pressure for those most vulnerable, this band aid approach will not touch the sides for the average UK salary. Many within the public sector are seeking a pay rise to offset their salary against inflation, and threatening strike action to try and achieve that. However, there are still thousands of small and medium sized businesses, employing hundreds of thousands of people who are falling through the gap of government support and relying on the foresight and generosity of their employers to help get them through the next couple of years.

A growing need to tackle the UK skills gap

It is also important to factor in the skills gap into this conversation. Across many industries – digital, technology, engineering, trades – there is a growing skills gap which is causing problems when it comes to recruiting enough qualified and skilled staff. The Office for National Statistics announced, for example, that during the first three months of 2022 there were 48,000 vacancies in the construction industry, and not enough skilled people to fill them. Far from there being a shortage of positions available – there is a shortage of suitable candidates to fill them, creating an increased demand from an ever smaller talent pool.

Focus on retention as well as recruitment

Companies need to focus on both looking after and nurturing their existing employees, while making themselves more attractive to new potential new recruits.

Market intelligence for better decision making

Salary benchmarking has become an invaluable resource for companies seeking to implement a recruitment drive in sectors where there is significant competition to find the most suitable candidates.

Salary benchmarking is the process by which a company can identify, track and compare salaries across a business sector to determine the salary and rewards package for existing and potential employees. Whether you choose to match or exceed a benchmarked salary will depend on the size of the available talent pool. Under offering will set you against the competition in terms of finding the best people to work in your business. Over offering will leave little room for motivation and establish salary precedents which may be unachievable in the medium to long term.

While current cost of living increases are unsustainable in the long term (hopefully), so would it also be unsustainable for inflation-linked salary increases to be implemented. Again, this sets a precedent which could undermine financial planning.

The value of one off payments against salary increases

As an alternative, to offset increasing pressure on individuals, some companies are choosing to make a one off payment, or bonuses, as opposed to implementing excessive pay rises. Lloyds bank, for example, is giving 64,000 workers an extra £1,000. Rolls Royce is giving 14,000 UK workers a £2,000 one off bonus. Many companies that profited exponentially well during the pandemic, are now giving back to their employees in gratitude and recognition.

If this is something that your company can budget accordingly, it is worth considering it – it demonstrates your commitment and gratitude to your employees, making them feel valued. It will also relieve the pressure on them – if a lump sum payment means that they can survive a few more months without worrying, then that will come through in their overall performance.

As well as salary benchmarking, such ad hoc payments can also be benchmarked. This provides companies with crucial market intelligence which will help them create and implement recruitment, retention and engagement strategies that will take into account rewards programmes designed to counteract the cost of living crisis.

Benchmarking is a highly controlled area that meets stringent requirements in terms of data protection. Because all companies that participate also have access to the data, the anonymity of the company and its individual employees is protected.

Paydata is highly specialised in creating bespoke salary benchmark reports across a number of different market sectors. If you would like a consultation to look at how your industry is rewarding its workforce, then contact us for a consultation.