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The 2024-2025 Outlook for Wage and Pay Rates

I have been involved in bargaining for collective agreements for over 25 years now and the bargaining environment over the last 12 months is nothing like I have ever seen before.  Expectations between Employees, Unions and Employers are wildly apart.  Bargaining is taking significantly longer and there is a greater willingness of Employees to resort to strike action if their claims are not being met.  The crux of these differences in 99% of cases is a focus on wage and salary increases for Employees.

Unions, having to be responsive of the desires of their members, are quite rightly pushing harder and seeking larger wage and salary increases with a focus on this, over and above other terms and conditions that are bargained for.  Employers are balancing massive increases in operational costs, supply chain inefficiencies, increases in overhead costs such as insurance premiums and interest on borrowings, as well as a shrinking economy and little to no growth for a sustained period of time.

In some ways it’s an imperfect storm.  Expectations versus realities and significant changes to the labour market over the last 2 years (famine to feast) as the result of the ending of COVID restrictions and the start of record-level immigration.

With the end of the financial year approaching there is a big focus for organisations on wage increases and asking – how are organisation’s planning to approach wage and salary increases in the coming financial year, and the future 2 to 3 years?

This is a critical question to ask in what is currently a tough economic time for both Employers and Employees.  Each organisation will have to look at the different conditions and challenges it is facing in the short, medium and long term, to balance those at times competing priorities to determine what, if any, increases may be right for it.

There are a multitude of different factors organisations should consider when determining the approach to remuneration, and in particular wage and salary increases.

Factors to Consider

For many years prior to COVID there was a big focus from organisations on an organisations EVP – the employee value proposition.  What is it that attracts and retains employees to work for us?  What are the overall factors that make our organisation a desirable place to work?

While an organisation’s EVP is absolutely still relevant and critical long-term, I think one key thing that our emergence from COVID taught us is that where there is a labour supply shortage, cash is king!  While a lot of people may dismiss this, and I have heard a lot that pay is more of a hygiene factor than a true determinant of attraction, (which I agree with), in the conditions that we faced in emerging from lockdowns and a shortage of labour, it was a reality that wage and salary rates for most roles had to increase to meet the demands of the labour markets.

The flood of immigration since the last restrictions of COVID was removed, leading to NZ’s record immigration levels over the last year, has had a sobering impact on the availability of labour in many industries.

The current reality is that NZ is experiencing economic downturn and there are forecasts for a prolonged period of low growth in the NZ economy.  Where Employers were once struggling to find anyone who may in interested in a job, that situation has dramatically changed with record number of unsolicited CV’s and continued restructuring and downsizing becoming more common over the last 6 – 12 months.

Employees, coming from 2 years of reasonable increases in many industries where labour was difficult to find or significant increases when changing jobs, still have their expectations reasonable high in an often quoted “cost-of-living-crisis”.

However, everyone is facing significant challenges in terms of the costs they are experiencing from increases in; rent, mortgage interest rates, rates increases, insurance premiums and continued increases in prices of everyday goods and services.

I’ve seen an increase pressure on Employers to ensure any increases in pay rates meet the level of inflation (currently the Consumer Price Index (CPI) is 4.7% per annum to end of December 2023), to maintain relativities with increases in the minimum wage (2% from 1 April 2024) and are seen to be fair and reasonable while trying to meet at least the current Living Wage (currently $26 per hour and  set to further increase from 1 September 2024 in the range of an estimated further 5%-6%).

A common occurrence are Employees and Union quoting profit levels and CEO salaries (where these are publicly disclosed), during negotiations in efforts to “shame” Employers into agreeing to higher increases. It is my view that this approach often takes no account of the risks and relativities of organisational size, scope and medium to longer term impacts of providing increases beyond what may be prudent, given all the circumstances.

There has also been a recent push for Employers to consider the Household Living Costs Price Index, (HLCPI, – currently 7% per annum to the end of December 2023), as a more accurate measure of the real costs of living.  Stats NZ define that the purpose of the HLCPI is to provide insight into the cost of living for different household groups therefore the Unions may have a valid point.  However, if you look at the CPI vs HLCPI over time, CPI has historically been slightly higher until the recent impact of COVID from 2020.

All of these economic tools to measure the costs of living and operating in the economy usually bring a common and very true response from Employers, Employees and Unions – which is that each of us, (Employers, Employees and Unions), use the particular economic statistics that support the story we are trying to sell tell!

Throughout this time, we have also had a public sector whose levels of increases over the last 2-3 years has outstripped the private sector.  Certainty, growth in salaries and job security in the public sector, (at least up to the election and current change in government), have been unprecedented in the last 30 years.

You may be asking, how is the public sector’s growth relevant to your organisation and industry?  When there was once a limited pool of labour across NZ, the impact on private organisations was an increased  pressure to match the wage and salary levels offered in the public sector. This is despite private organisations having little ability to increase prices changed for goods and services to match the increase in labour costs, as well as all other costs faced by private sector employers, such as; supply chain and transport increases, insurance premium increases, borrowing cost increases.

So, with all this going on, what does it mean for Employers thinking about what should they do regarding wage and salary increases over the next year?

Take Care!  Reflect on what it is you are trying to achieve with your remuneration?  Consider the following:

  • What is your budget?
  • What are your growth (or non-growth) projections for your organisation in short, medium and long term?
  • What is your understanding of your market and the economic outlook for your organisation?
  • Do you have a people strategy/plan?
  • Do you have a remuneration strategy?
  • Does any proposed approach to pay increases align with your organisational values?
  • What are the pressures on your recruitment and are their particular roles, trades or professions that are difficult to fill?
  • How do you support retention of mission critical skills, knowledge and experience?
  • Are their issues with retention of key people or job functions?If so, what is driving this?
  • How do you ensure that you are treating people fairly regardless of gender, members of a union or not, ethnicity, age etc…?

These are the types of questions our Associates at Three60 Consult ask when working with our clients in collective bargaining to help us understand not just what we may have in terms of any mandate in bargaining, but so we can represent the reasons for any proposals to Employees and Unions aligned to the goals and objectives the organisation is seeking to achieve.  A lot of what is fuelling the high expectations from Unions and Employees is reference to; what’s happened in the past, how people perceive they are rewarded compared to others, and challenging these expectations at both a logical and emotional level is important to reaching outcomes that all involved can live with.

Setting you next budget for wage and salary increases is going to be more challenging than ever.  The specific factors that are present for your organisation and how you communicate and share these with your employees will be critical to managing expectations.  The next 12-24 months are likely to be extremely challenging for Employers in terms of setting remuneration levels, engaging in bargaining (where there are unions) and that fine balancing act between wage and salary levels and continuing to reinforce a positive overall EVP for all your employees.

 

Good luck and let me know if you have any questions!

 

Written by Adrian Tocker, Senior Associate

Ph: 021 791 044

email: [email protected]

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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