Break the bank

Effects of National Living Wage increase on employee perception.

When I graduated in 2000, I returned to work for my Dad’s Exec Search firm.

He paid me the dizzy heights of £18,000 which was around the median salary for a grad at the time.

Considering minimum wage was £3.60 / hr or around £7,500 a year, I was rolling in the dough*.

*By which I mean I could pay bills, my monthly student debt, go out at the weekend, and on holiday once that year.

Of course, inflation has a part to play and my salary would be worth a staggering £38k in now money, compared to £16k for minimum wage.

Whichever way you cut it, I was on 2.4x minimum wage.

That £18k was the figure the hiring manager suggested for a recent early career role.

I don’t do these often, but I like the company and they let me consult on what to do, for their benefit.

So I said to Aladdin (name changed to protect identity),  ‘did you know National Living Wage (NLW) is going up to £10.42 an hour in April? That works out to £21,600 against your employment contract.’

We’re roughly the same age so we reflected on similar stories to the one at the top.

Of course, no one wants to offer a salary that will quickly be 20% below the legal minimum, so we settled on £23k, which was gladly accepted by a candidate keen to get his teeth into an IT support career.

Today the median salary for a graduate in the UK is £30,000, ranging from £26k for public sector workers up to £55k for London solicitors.

While I’m sure public sector pay may go up to reflect NLW, can you imagine those poor grads, coming out of Uni with £45k of student debt? To a salary that’s £4k more than the legal minimum?

Or you could skip Uni as an 18-year-old and work hard at Aldi for close to what a graduate earns.

Tough maths for people entering their careers.

Given the median graduate salary has changed from 2.4x to around 1.39x minimum wage, it’s likely a similar story for equivalent salary ranges in general, everything else being even.

That’s before the last year’s inflation shenanigans.

Inflation which seemed to be abating until this week’s news, and let’s see what happens with interest rates today (predict another .25% raise).

Here are some links if you fancy crunching your own numbers.

https://www.acas.org.uk/national-minimum-wage-entitlement

https://en.wikipedia.org/wiki/List_of_countries_by_average_wage

https://www.in2013dollars.com/uk/inflation/2000?endYear=2020&amount=1

While inflation is talked about everywhere, there’s a practical impact for employers in the NLW increase in April, both in terms of where the money’s coming from and in terms of how you compensate your low earners for whom inflation has the biggest impact.

Compensation which has meaning for retention and recruitment.

I don’t know about you, but I see many employers advertise jobs at the salary their departing employee was on. Salaries that decrease in value every year.

Given the rote habit of pay rises being 10% to 15% in a job move, these adverts effectively offer the opportunity cost of a pay cut to new joiners unless it’s for a step up in their career.

And every time this happens, the £Competitive salary gets a little bit closer to the legal minimum.

What do you think your low earners are considering when they read about NLW increases?

“I do all this work, with all this experience, and I’m only on £1k more than spotty Kevin gets for stacking those £1.99 loaves of bread”, said Jasmine disdainfully of what is a necessary career many people find suitable.

It’s no surprise that salary is consistently the biggest reason people think to move jobs, in any poll or survey you might read.

And if they do leave, to get what they think they are worth, what’s the cost in replacing them?

Not just new salary or cost of recruitment, but knowledge lost and potentially that seed of a thought being planted in their colleagues.

And what’s the impact if you can’t replace those people, because your salary isn’t attractive?

Cultural, functional, opportunity and lost revenue.

If anything, the NLW increase should be a catalyst for employers to understand what market-fair pay is for their people, before they get caught out and face the piper.

Focus on retention to avoid recruitment.

How much more is the capability your people have worth, compared to the difference between their salary and £21,600?

And what about next year if NLW tracks with inflation?

That’s a good sense check for what you should be paying.

Thanks for reading.

Regards,

Greg

p.s. While you are here, if you like the idea of improving how you recruit, lack capacity or need better candidates, and are curious how I can help, these are my services:

- commercial, operational and technical leadership recruitment (available for no more than 3 vacancies)

- manage part or all of your recruitment on an individually designed basis for one client (no availability until June)

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- outplacement support

Just hit reply to check if my approach is right for you.