A&A Blog – Rational Commentary on Employment Issues

2018 – 2021 THE NEW MINIMUM WAGE ENVIRONMENT IN NEW ZEALAND

02 November 2018

We ran a half-day update session earlier this week and put the questions below to the various presenters from the different organisations.  Below is our summary of the answers, as well as our opinions also.

How do you maintain wage scale relativity?

You need a structured and well formulated wage grade and wage band spread. Each organisation will need to decide on a starting point. Should this be the statuary minimum or something higher? This is for each company to look at and factors which will impact this are – what the business can afford and how do wage rates compare to others doing the same job at other companies.  When this has been decided upon, each job grade then needs to have a higher starting rate. The degree of this will depend on a % based formula. Wage grades normally increase as job complexity demands higher skills.

What do you budget for increases in 2019, 2020 and 2021?

This is a bit of an unknown as the government has started by setting the minimum wage for 2018 at $16.50 and an end point in 2021 of $20.00. There is also a provision for the government to vary the 2019, 2020 & 2021 increase depending on the economic viability. Some organisations have simply incrementally estimated a $1.17 increase for each of the three years. Some have frontloaded it by $1.50 with two further $1.00 increases thereafter.  Look to the worse-case scenario as a starting point.

How will supervisor and middle management pay be affected if you lift the pay rates for lower level wage workers?

If a wage percentage increase of around 5% - 6% is applied to lower level jobs, because of the hike in the minimum wage and then a lesser increase amount of 2% - 3% is applied to supervisors and middle management you are in effect flattening your organisation’s wage curve. This means the pay differential between wage grades is reduced. This can cause dissatisfaction and discontent as supervisors/front line managers may feel undervalued. This can lead to more interest in wanting to join unions and or employees looking elsewhere for better paying jobs. Companies who can’t afford to pass on the full % wage adjustment to middle managers and supervisors may want to explore other benefits for these employees e.g. one-off bonuses; gym membership payment; extra day off once a month; a monthly fuel voucher etc

Are we likely to see increased staff turnover as employees chase top dollar?

Very possible! However, this is not specifically linked to an increasing minimum wage – employees at the bottom end of the wage scale will typically chase a few extra cents per hour anyway.  With a predicted increase in the cost of living due to additional expenses on fuel, food, rent, clothing, health services and entertainment, it is probable that employees on the lower end of the pay curve may be tempted to look for a job at a better hourly rate. Employers are already struggling to find and retain staff of reasonable quality. This could get a lot worse if pay and remuneration is not managed pro-actively. Doing this however will be expensive. Hence the forecast hike by various economists of overall labour cost increases for companies of anything between 20% - 30%.

After lifting wages to the new minimum other companies may go even higher. Rather than following this should you consider one-off payments, bonuses or rewards?

Yes, if you don’t wish to institutionalise a higher wage regime that then flows into all other pay related aspects e.g. leave pay, overtime calcs, sick leave etc. However, if you go this route it requires careful analysis, costing and planning. Plus, it needs to be managed well.

If your company has a stated policy of not being a minimum wage employer and you now can’t afford to pay more than the new minimums announced, can you renege on your policy?

Yes, you can. However, if you have included this policy into any negotiated agreement you can only renege by agreement. If it was simply a stated intent as part of your overall employment brand you can withdraw this, but it will require very careful communication as employees may lose trust & respect in management.

With labour costs set to rocket upwards by around 25% what can you do to recover some of this cost?

Companies are evaluating their whole employee value proposition and also looking within the HR portfolio at how to off-set some of the costs, for example by reducing turnover and absenteeism or upskilling.

One way is to increase price points. However, the consumer may resist price hikes and sales may drop. Automation – working smarter and cleverer by using technology. There is often an additional cost of setting this up, but once installed it can add hugely to productivity. Spend more time on recruitment and focus on bringing better quality staff on board. Better quality staff are good candidates for upskilling through training. Well trained staff deliver better outputs and up goes productivity. Performance bonuses and awards can further entice employees to be more engaged and productive.

How do you go about evaluating job skills and deciding on correct pay rates?

There are many different Job Evaluation methods in use currently. Choosing what works best for an organisation is essential as some can be complex to implement and work with. The best system to consider is one that is simple and can be easily explained to the average employee. There are 4 main methods - 

1: Factor Comparison (Jobs are graded to market rate data)

2: Ranking (Detailed job analysis are completed and then ranked in order of importance)

3: Job Classification (Jobs are slotted into pre-defined job grades)

4: Point Ranking (Separate job factors are scored to produce an overall point score. The total score is then linked to pay grades)

The Point Ranking system tends to be the most objective, consistent and limits bias.

Managing a Job Evaluation and Job Grading system is best done by experts. This can be delivered internally by HR or Rem managers, or by using external experts. When using external resources make sure you do a due diligence on providers as they can be costly.

Why is it essential that employers have absolute clarity as to the difference between pay parity and pay affordability when debating wages, in the current volatile management/union negotiating climate?   

Pay parity is based on comparing pay rates either internally or externally for jobs of a similar nature and pay affordability is based on what an organisation an afford to pay. In negotiations, unions often use both or the one argument that strengthens their position. Comparing wage rates for similar jobs either internally or externally (including off-shore) requires a well thought through response. Similarly, if organisations have had a record year, unions are likely to run the discussion on the basis of “you can afford to pay more”. It’s all about exerting pressure on management to pay more be it an overall % or simply lifting the starting rate. This becomes especially difficult when claims are made for employers to pay the Living Wage rather than the national Minimum Wage. 

Fred Adelhelm & Anna Holmes