Just Deserts: Rewarding Experiences: Should Companies Flash the Cash or Rev Up the Benefits of the Company Car? Sheffield's Sherry Maier on What Her Organisation's Local Remuneration Surveys Reveal

By Maier, Sherry | New Zealand Management, December 2006 | Go to article overview

Just Deserts: Rewarding Experiences: Should Companies Flash the Cash or Rev Up the Benefits of the Company Car? Sheffield's Sherry Maier on What Her Organisation's Local Remuneration Surveys Reveal


Maier, Sherry, New Zealand Management


Behind all the headlines marvelling at executive pay and bonuses lurks the less electrifying market remuneration practice for middle management and general staff. However, there's more going on here than many people may think.

Sheffield's 2006 Salary Review Survey and its Benefits Survey, published earlier this year, reveal conflicting pressures and tensions that place the average Kiwi employer in a virtually no-win position.

Base salaries remain open to strong upward market pressure. Since New Zealand businesses make relatively little use of variable or at-risk pay programmes which might absorb some market adjustments, the primary pay lever available to most employers is base salary. That is, often the only option for increasing an employee's cash earnings is to raise his or her base salary--which also means raising that employer's fixed costs. Consequently, much of the market action around pay necessarily centres on the base salary component.

Since 1994, annual base salary boosts for white collar staff in New Zealand have consistently remained in a narrow 3-3.5 percent range. That abruptly changed in 2005, when--exceeding forecasts--the median base salary increase for staff (except senior executives) hit four percent.

Sheffield's annual Senior Executive Survey indicates that senior managers received a median 5.5 percent base salary increase in 2005, also well ahead of projections. Compare these figures with 2005's 3.2 percent increase in the Consumer Price Index (CPI).

Within the Sheffield Salary Survey, the 2006 projected median base salary increase for 2006 is four percent for senior management and 3.5 percent for middle management (average increases of four percent and 3.8 percent respectively). These levels are far above 2005's 3.5 percent and three percent projections.

Unlike prior years, almost 15 percent of organisations in the survey are predicting increases of five percent for both senior and middle managers. In the past, organisations rarely indicated levels at or above four percent. As a result, Sheffield anticipates actual increases will again outstrip forecasts.

Record low unemployment and ongoing skill shortages are, of course, exerting great upwards pressure. Employers often have to pay a premium to attract the right candidate, and feel pressured to raise salaries smartly to retain precious existing staff. Above-market pay increases have become a defensive strategy.

This year, the CPI recently hit four percent--well above the Reserve Bank's one-to-three percent target range. Unlike 2004/2005 when the major contributors to CPI rises were construction and housing related--which the typical employee may be unlikely to experience personally--we now are experiencing double-digit rises in high profile items purchased frequently--such as petrol (as much as 33 percent above a year earlier), local rates and food. Sticker shock has become a weekly event as consumers brace themselves to brave the trip to the petrol station or grocery store.

A four percent CPI level is also significant because Sheffield's data shows that almost a quarter of New Zealand businesses base their annual salary budget on a combination of CPI movements and individual performance, and another 15 percent rely entirely on CPI to set annual salary budgets.

Meanwhile, employers may be experiencing tougher markets, given slower national growth, high currency levels and margin pressures. In the past, when there has been more work to be done, New Zealand employers have been able to simply add more staff--and thus gain more staff hours. New Zealand businesses have also asked--or expected--existing New Zealand employees to work longer hours.

Today, with record low unemployment, New Zealand has simply run out of "more people". Furthermore, according to reports by David Skilling, chief executive officer of the New Zealand Institute, employed Kiwis are working the longest hours in the OECD top 20 countries (with the exception of Iceland where they clearly have nothing better to do). …

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