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Managing pay rise pressure as an employer

Few doubt that the business world is on the precipice of a particularly challenging next 12 -18 months. The cost of living crisis is expected to bite this winter. Interest rates and inflation are set to rise, and investment bank, Citi, has warned inflation could hit as much as 18% next year.

One likely impact of these predicted financial conditions for employers is an increase in the number of employees actively seeking pay rises. Many of our employer clients have been experiencing a highly competitive recruitment marketplace and are fully aware of the need to retain talent, and the costs of not doing so.

With more conversations about pay inevitable, at the same time as employers are also feeling the financial strain, many businesses will not find such conversations easy.

How to respond?

A straight rebuttal is highly likely to leave that employee feeling unheard, undervalued and frustrated – it may even lead to the individual leaving. If you consider a pay rise unlikely or not financially feasible, it is still important to demonstrate you are considering the request.

Ask the employee to explain more about what they are seeking and the reasons for it. Ask the individual to summarise their request in writing, as this can provide highly useful insight into the employee’s wider desires.

Saying no?

Delivering bad news like this should, of course, be done sensitively. Place emphasis on the careful reasoning and consideration you have applied to your decision-making process. An employer may, for example, point to the challenging economic outlook, necessary contingency planning and the need to ensure the business can weather the storm for the long term benefit of all.

Other approaches include explaining that whilst you cannot agree the rise now, you value their input and you will schedule a pay review meeting in the future. Setting performance criteria as a precondition of a rise or looking at other benefits and ways to enrich the employee’s job are also alternatives worth considering.

Many studies indicate that pay is not usually the primary motivator for employees and it is worth looking at what other perks and benefits could be offered. Life insurance, medical cover, more flexible working (perhaps homeworking to limit an expensive commute), or bonus schemes are a few to consider.

To speak to us about your employment issues, whether to do with strategic business decisions or a particular issue involving an employee, get in touch with Alex Kiernan or another member of our Employment Law team on 020 7377 2829.