Limited budget for wage increases? Could better benefits hold the key to retaining staff as we finally emerge from the downturn?

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A surprisingly sunny and warm day recently encouraged me to take a stroll along the seafront not far from where I live, and I soon realised that I was not alone in such a venture. After so many bad weather days, the watery winter sun had tempted the world, his wife, children, and canine of choice to also leave the confines of the house.

And this seems a pretty good analogy for the UK’s financial state. After 5 years of the worst possible economic winter, businesses and individuals alike are only too keen to bask in the warm sun of an economic recovery, however fragile that recovery may be.

Yet the good news will present some old challenges anew for UK business. And perhaps the largest challenge will be one of pay and benefits for employees.

With the upturn comes the bounce-back in the jobs market. Recent official figures show record numbers in employment, and unemployment falling sharply to 2.34 million – a very long way short of the 3 million jobless that was predicted at the start of the recession.

Employers weathered the worst of the economic blizzard by trimming their sail appropriately. In practice this meant restricting, stopping, or even reversing pay awards. Employees, and even some unions, were prepared to accept this given that the alternatives were just too stark for anyone to consider. And not only did employees end up being paid less, many actually took on extra responsibilities and duties during this period as well.

Given the improved economic weather of today, it now seem likely that employees who have been effectively trapped in one job role will be able to move-on should they wish to. I have recently spoken to several employers, in very different sectors, who have lost a number of key employees in quick succession. All evidence points to a new war for talent looming on the corporate weather chart.

The obvious solution would be for employers to make significant pay increases, and take on more staff to reduce the burden on some employees. Are UK organisations able to do this at this stage of the recovery? Probably not.

For many organisations the overall pay-award budget is still rather small. Indeed the ONS found that weekly pay had increased by only 1.1% in the past 12 months. Many employees would find an award of just 1% laughable, or worse even insulting, after years of stagnating pay and increasing duties. So it’s possible that small pay rises could actually be damaging to employee relations rather than beneficial.

So the challenge for employers will be finding ways of making meaningful improvements to the employee’s compensation package – but within a still largely limited budget. Not easy.

Yet this is where employee benefits may have a key role to play for the savvy organisation. Let’s start with the basics. It generally costs less for the employer to put £1 into benefits than a £1 into the pay-packet because of tax breaks inherent in the products themselves. And the employee usually receives more value from the £1 as well, as they also avoid tax and national insurance liabilities on certain benefits.

But there is more to it than that. Additional employee benefits can also help the employer in ways other than cost alone. If used correctly, benefits can help reduce sickness absence, comply with moral and legal duties, and provide a clear edge against competitor employers. Build these facets into an employer’s business plan, and a more generous review of pay and benefits could perhaps be justified.

The key to achieve such additional positives is communication. Only by educating employees as to the value and usage of the benefits on offer will they fully appreciate what they have. The onus is therefore on employers, and the benefits industry, to better explain and justify the hugely important role that employee benefits can make in protecting employees and their families.

Finally, and not least, if communicated really well a good benefits package can also help improve employee engagement: a factor now widely accepted as being vital to the employer’s bottom-line. So food for thought for those actively considering the most effective route to staff recruitment and retention. Of course cash in the pay-packet remains king, but for many employers a tweak to the benefits package could be more practical, and cost effective, at this stage of the recovery.

And here’s to better economic weather ahead.

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