Jul 28, 2022
High prices, high pay? How to attract and retain staff when inflation is high
With UK inflation rising to 9.4%, a 40-year high, many workers are eager for pay rises. ONS figures show wages increasing between February and April, but when inflation is accounted for, regular pay actually fell compared to 12 months ago. Meanwhile, the unemployment rate remains incredibly low, at just 3.8%, meaning employers are having to compete for workers.
Given the tricky economic situation, many employers are considering how they can best structure pay and reward to attract, retain and motivate staff, while balancing affordability. Pay rises, or other monetary support can shield low wage employees from financial worries, which harms performance at work. But what about other employees? And when significant pay increases aren’t an option for employers, what non-financial incentives can employers use instead?
We have published a literature review which provides insights into some of these questions. The review also includes an evidence-based framework for employers, setting out what works on structuring pay, bonuses, pensions, annual leave and non-monetary rewards to motivate staff.
Download the report
How should employers structure pay?
Contrary to what many would expect, more isn’t always better. Employees are most satisfied with their job and pay if they feel that their peers’ earnings are similar to their own, and that both their salary, and the process by which their salary is determined, is fair. And while pay is important for employee wellbeing, it’s by no means the most important factor, with work-life balance and work stress being equally, if not more, important. Similarly, work-life balance is more likely to influence employee retention than salary.
So what can help with employee retention? A survey of 2000 employees found one third reported that flexible working was a factor contributing to their staying with their employer. One study found that increased flexibility was associated with decreased sickness absence and improved job commitment over a 1-year period. Meanwhile, our own primary research found that offering part-time working or jobshare opportunities on vacancies increased applicant pools by 50% at John Lewis, and increased applications from women to senior roles by 19% at Zurich Insurance: it’s good for attraction and retention.
Are bonuses always a bonus?
Those employers who are able to provide increased financial reward may be wondering if providing a bonus is the best way to satisfy staff. One study found that bonuses are most effective when they are at least 25% of an individual’s salary, and that bonuses less than 1% of an employee’s salary had a negative effect on satisfaction — so if your total bucket won’t cover that, it may not make sense to provide a bonus. However, the same study found that removing an existing bonus scheme has a negative impact on job satisfaction, so it may be better to leave a scheme in place, or redesign it, than to stop it entirely.
If you are considering introducing or redesigning a bonus scheme, also think about rewarding group-based performance over individual-performance, as there is some evidence that this has a greater impact on staff wellbeing. Employers could think about ‘prosocial’ bonuses, such as donations towards charities, or allowing colleagues to share rewards with others. Indeed, different staff will place different amounts of value on monetary rewards, dependent on their own motivations, with staff who are ‘intrinsically motivated’ preferring non-monetary rewards, such as training opportunities or recognition.
One trial found that when a mixed cash and prize reward program was replaced with an equivalent value all-cash package, employee effort dropped dramatically, leading to a 4.36 percent decrease in sales that cost the company millions in lost revenue — another reason employers should think broader than financial reward alone.
What else can employers do to support financial wellbeing?
Both employees and employers may be struggling in the current financial climate, but there are still ways for employers to support their staff. For instance, payroll savings products deduct a portion of an employee’s regular salary and transfers it to a savings account, supporting people to build their financial resilience.
While some may not be able to save much right now, this can help build savings habits for when real wages recover. Indeed, our research has found that payroll savings increase employees’ confidence in managing their money and support them to build a regular savings habit, and that they have the most positive impact on low earners and those with little or no savings.
We recently shared results from a trial where we found that simple changes to emails made it four times more likely that people would sign up to start saving — this is a lesson all employers could adopt without any additional cost.
By Shoshana Davidson, Principal Advisor, Dr Georgina Bremner, Senior Advisor, Reny Kiryakova, Associate Research Advisor & Jess Rees, BIT
