An argument in favour of UK pay rises comes from an unexpected source, prompting Duncan Brown to warn of the dilemma for HR
“Britain needs a pay rise!”
No, these are not the words of Frances O’Grady, nor Ed Miliband, The Guardian or even me. We’ve all regularly expressed such sentiments over the past five years of unprecedented real wage reductions for the majority of the British workforce.
This monetary demand was in fact expressed by Prime Minister David Cameron, who left his opponents somewhat incredulous with this apparent ‘volte face’ on the UK economy at a journalists’ briefing in Washington last Friday.
He’s right of course. But his supporting arguments for UK employers to act on pay were distinctively different from Labour’s critique of the cost-of-living ‘crisis’ occasioned under his watch or the TUC’s attacks on rising inequality and unfairness in British society.
The Prime Minister’s justification was an economic one, that the fall in oil prices in recent months has led to a 16-year high in the profitability of companies, with a rise to 12 per cent in the third quarter of 2014.
Mr Cameron said he wanted the success enjoyed by companies to be “passed through in terms of wage increases". He also said businesses which could afford to pay the Living Wage should do so.
"It's good and helps to reduce the welfare bill”, he said, highlighting that more than £5 billion is paid in benefits to the UK’s five million low-wage employees.
Yet the Prime Minister’s pleas seem to be falling on deaf ears in the corporate and HR world, with private sector pay awards continuing to congregate in the 2 per cent to 3 per cent range, according to IDS figures.
The trouble is that companies have got used to a situation termed “profits without (general economic and staff) prosperity”, coined by American economics professor William Lazonick in the Harvard Business Review.
Smaller and smaller proportions of the escalating corporate earnings on both sides of the Atlantic are finding their way into wage packets and workforce investment. Instead this financial growth is going towards share buy backs and dividends, which boost executive rewards.
Fewer than 10 per cent of UK employees are members of general profit sharing or all-employee share plans, despite the extensive evidence that such schemes are associated with employee engagement and higher employer productivity. And if you needed more evidence it’s a good idea, the Prime Minister’s own Chancellor has repeatedly emphasised that the recovery, driven by higher productivity, is a precondition for higher wage awards.
However, HR management philosophies, as Wharton management professor Peter Capelli points out, have shifted “from a paternalistic model, where the goal was to look after employees and treat them more or less equally, towards a market-based approach, where the purpose of benefits is to help the company improve its financial performance”.
So HR now finds itself on the horns of a similar dilemma to Mr Cameron. Does it continue winning plaudits and influence from chief executives and chief financial officers by holding pay awards down, reducing benefits costs and continuing to be silent on the Living Wage? Or do you recognise the benefits of high performing work practices and investing in your workforce to generate long-term competitive success?
I only hope we see more of you adopting the Prime Ministers Damescene-style conversion.