Competing for talent: what if you don't have the cash to pay more?

Job mobility is set to rise sharply over the coming year, adding to the pressures on salary costs. Many businesses will be wondering whether they can afford to pay enough to compete for top talent. But new Randstad research suggests that working environment and work-life balance could be just as important as salaries in attracting, and certainly retaining, high performers. So how can your organisation secure the talent you need without having to pay over the odds?

As people become more confident about their prospects, they’re increasingly on the look-out for better offers. A survey of more than 10,000 people of working age in the UK, which was carried out for the 2015 Randstad Award report, found that one in five plan to change employer in the next 12 months, a 25% increase from the year before.

Workers’ growing readiness to switch jobs is both an opportunity and a threat. Clearly, many employers will welcome the greater availability and choice of talent opened up by an increasingly mobile job market. But having struggled through the downturn, others may lack the funds needed to match the enhanced pay rates being offered by cash-rich competitors.

Another reason why funding for pay rises may be limited is the need to bridge pension deficits. Rather than putting a squeeze on staff to bolster profits as many headlines would have us believe, the proportion of national income that goes to workers in the UK is much higher than other major economies, albeit the gap between the top and bottom ten per cents is higher (figures from European Commission and International Labour Organisation). But a lot of the money that would have gone on pay has had to be diverted to cover shortfalls in company pensions instead. And with a study by PwC suggesting that it could take at least another ten years for companies to fill the hole in their pensions, finding enough cash for salary increases will continue to be difficult.

Productivity and pay

In recent years, the likelihood of receiving a pay increase has varied little between regions or those receiving high and low pay. But there have been significant variations between sectors, with power, mining and professional services most likely to get a rise and those in the public sector most likely to miss out (figures from the Resolution Foundation). Overall, pay rises are now picking up once again (just under 2% in the year to March 2015), though more than half of public sector workers once again received no increase in 2014.

Looking ahead, the prospects for higher pay will be determined by affordability on the one side and the need attract and retain key skills in a more mobile job market on the other. Improvements in the UK’s flat-lining productivity are needed to fund higher salary costs. While a record number of people are in employment and GDP is now above the pre-crisis rate, output per worker is still down on 2008, which makes higher salaries hard to either fund or justify. But as demand, investment and productivity climb back up again, the Bank of England expects annual pay increases to reach 4% within the next two years. And in many of the most sought-after skills areas, the rises could, of course, be much quicker and much higher.

Skills gaps

The pressure on skills and corresponding competition for talent looks set to intensify. A survey of more than 600 employers carried out by The Prince’s Trust found that around two-thirds believe that faster growth in their organisations will lead to skills shortages and nearly 60% are concerned that growth could stall as a result. Overall, the skills needs in the evolving UK economy could be said to resemble an hourglass. Demand for typically lower skilled personnel such as shop assistants and high skilled people such as data analysts and research teams has increased, while the number of mid-level positions in areas such as machine operation has declined. According to research carried out at Oxford University, for every ten mid-skilled posts that have been lost in recent years, about 4.5 of the replacement jobs have been high skilled and 5.5 have been low-skilled.

Many of the areas of skills shortages are familiar. The Royal Academy of Engineering says that the UK needs an extra 75,000 engineers every year until 2020, but only around 20,000 a year are being trained and brought into the workforce. Construction is also feeling the squeeze. Despite many bricklayers, plumbers and other trades people being brought in from abroad, pay is spiralling upwards, especially within the M25 where the shortages are most acute.

And as technology continues to open up new commercial possibilities and to transform customer expectations, businesses face the further challenge of how to attract and retain the people with the skills needed to drive innovation and keep pace with fast changing consumer demand. One of the areas in biggest demand is people with big data skills. The UK is expected to create more than 50,000 big data jobs a year up to 2020, according to research carried out by the Tech Partnership employers’ network. The demand has already pushed average pay up to £55,000 a year, more than 30% higher than the average IT post. Yet even with the salary hike, more than three- quarters of positions are considered difficult to fill.

A clear sign of the desperation to retain key personnel is the growing prevalence of counter-offers in a bid to hold onto staff offered new jobs elsewhere. Once the preserve of merchant bankers, Randstad research reveals that more than 20% of IT, construction and engineering professionals received counter-offers from their employers when they last moved jobs. Participants in the survey would want an average of 18% more than their current pay to re-consider the move, which make this an expensive approach. Even if they did accept the offer, nearly 40% would still want to move on within a year.

More than just pay

Are there ways to compete for key skills without stretching your finances to breaking point?

At the end of last year, Randstad interviewed more than 10,000 people of working age in the UK as part of the annual Randstad Award survey. The results confirmed that more people are looking to change employers than 12 months ago. The main reasons why people plan to switch are insufficient compensation and lack of career opportunities, but poor leadership, waning interest in the job, and work-life balance issues also rate highly. Work-life balance is by far the most important factor in encouraging people to stay with their employers (51% putting it in their top three), with compensation (40%) and flexible working (32%) next on the list. Work-life balance and flexibility are especially valued by the experienced personnel it can be most important to retain. The clear implication is that you can’t just rely on top rates of pay to secure the talent you need. While pay needs to be competitive, creating a pleasant, flexible and stimulating working environment can be just as important in attracting, and certainly retaining, high performers.

So drawing on this research what can you do to ensure you have a suitably skilled and satisfied workforce in today’s changing marketplace?

1. Don’t just rely on pay: make sure you understand the market value of the skillset you need and ensure your pay rates are competitive, while recognising that salaries aren’t the only motivator for top performers.

2. Make full use of contingent personnel: employing temporary workers, freelancers and contractors can provide more cost-effective and readily available access to the innovators, specialists and other ‘rainmakers’ you need.

3. Broaden your search: the make-up of the workforce in many sectors still fails to represent the UK population as whole. Women are still a minority within IT and engineering, for example. Clearly, the education system has a big part to play in redressing the balance, but so does the culture and working environment within many businesses.

Talent is also more global than ever before. If the skills you require are difficult to find at home, might they be available abroad? Technology is opening the way for the creation of more virtual networks of people working in different countries and will form an increasingly important part of how personnel are sourced, vetted and managed.

4. Work should be pleasant: what makes for a pleasant working environment would be an article in itself. But research regularly underlines the importance of engagement, empowerment and flexibility, along with adequate light and physical comfort, all of which could cost a lot less to put in place than simply hiking up pay. Our own research also highlights the importance of fulfilment at work, especially as once pay reaches a certain rate, increasing it actually does very little to improve satisfaction. Greater variety of assignments and autonomy over how goals are realised can provide a big boost to fulfilment. The balance of the team can also be important, as people tend to feel least fulfilled in middle age and therefore ensuring a broad spread of ages can boost both their morale and that of the team overall. 

5. Make flexibility a reality within your organisation: rather than just setting passive policies on flexibility and hoping they fit, it’s important to invest in the capabilities needed for more remote working and ask individual employees what would help them to balance work and personal lives.