Salaries growth running at 3.5% per annum as employers feel wages pressure

Businesses must introduce alternatives to pay rises including reviews of how employees juggle their work-life balances, bonus structures and career opportunities, one expert warns, as new data shows pay rises increased during July for a ninth consecutive month.

The new Mercer survey reveals employees should not expect pay rises above 5% per annum in the year ahead as businesses remain cautious regarding remuneration budgets despite improved economic conditions and nine consecutive months of salary growth.

“These reviews can be anything from the bonus structure onwards, but they should really ask whether they are communicating the value they deliver to employees in everything they do,” says Mercer Human Capital principal Derek Berry.

“This could be in work-life balance programs, letting people know they have choices in that regard, positive relationships with the employer, what they are offering in terms of careers and so on.”

The new survey, which compiled results from 132 organisations, reveals salary growth increased to an annual rate of 3.5% in July 2010 as companies begin to inflate their remuneration budgets as economic conditions improve.

The survey also found that if economic conditions improve, businesses will continue to increase salaries with remuneration growth set to rise by an annual rate of 4% during the next year. However, he also warns businesses are still relatively conservative and “employees should not expect rises of above 5%”.

“I think salaries are creeping up more than a year ago, but I think businesses are still putting in conservative budgets. When things are tough the actual budget and pay are closer and there isn’t much room for movement.”

“The other point is that it really depends on what industry you’re in. In Queensland and Western Australia pay rises are often very highly tied into the resources sector, so it depends on what industry you’re in and what role you are in. The 5% figure would be a general overview.”

The survey found salary growth in those two states rose above the median to 4% from 3.5%, while salaries in New South Wales and Victoria were on par at 3.5%. Salary growth in South Australia fell behind the median at 3%.

But Berry also noted the danger of a two-speed economy emerging in both Queensland and Western Australia with salary growth set to rise to 4.5% in the next few years. He warns these regions may continue to break away from other states.

Berry also referenced the looming skills shortage and warnings from several recruitment companies regarding inflated salaries. The industry warns that as companies struggle to retain key staff, they will artificially inflate remuneration and create unsustainable growth.

Last month Hudson warned SMEs to avoid giving excessive salary increases in order to boost headcounts. Berry says businesses should instead offer other types of benefits that don’t put so much pressure on costs.

“Where there is fear about skills the first thing managers will say is that they need to pay people more,” Berry says. “That’s the easy, quick reaction. But organisations need to consider their overall offering and try to paint a clearer picture of the overall value proposition.”

“We are certainly seeing a lot of that happen because businesses are under pressure. They’re going to react by pushing pay up but that isn’t always the right outcome.”

Berry warns businesses pushing up remuneration will just lead to “more shortages and pressure”, and says “your long-term viability becomes a problem”. However, he says each company will need to judge their own strength when it comes to issuing salary increases.

“Looking forward I think it really depends on where your company is based. If you have organisations in the US then there is still pressure on the bottom line there, but obviously strength in Australia is growing. Companies are still pretty muted when it comes to concerns around Europe and the US.”