Tips on reviewing pay fairly during an economic downturn

Many NZ businesses are doing it tough. When economic pressure bears down on organisations, Board conversations pivot to actions that will promptly control costs while maintaining or increasing revenue. How do you set pay in that environment?

Reflecting on my many years as a remuneration consultant, I have pulled together some ideas to help you plan for your 2024 pay reviews. There are six critical remuneration influences or levers you should focus on in a downturn. Below are one or two insights for each of these levers. For a comprehensive handout, please email or DM me.

▫ Know your numbers and facts

Ensure you are up to date on the position of your organisation so that your decisions and actions are aligned and focussed on conserving costs. 

Gather all key internal and external remuneration-related information.

Understand the remuneration review budget and how it was calculated/created. Do those criteria still apply? 

▫ Review your remuneration strategy and policy

Review how your policy works in the current environment. Consider what is working and what isn’t. Look at your market data selection, remuneration ranges, matrices as well as how you allocate and apply the budget.

▫ Leverage total rewards to achieve your goals

Look to incorporate non-cash elements that your employees value.

Don’t underestimate L&D opportunities that can be targeted to support revenue generation, e.g., low cost ‘on the job’ development in areas such as client/customer or service delivery, product knowledge and sales skills.

▫ Create models to cost options

Be aware that across-the-board increases are not inherently fair and a nuanced approach taking to account the employees pay + performance vs the organisations pay ranges, is more defensible.

Create and cost a menu of options for the review along with benefits and risks for each model/element, advising your insights and recommendations.

▫ Understand your employees and the talent pipeline and profiles

Before the review gather insights into employee expectations about the pay review and increases so that your outcomes and messaging are aligned. 

Update your knowledge on key employees e.g., the high performing, business critical, those in hard-to-recruit positions etc.  

▫ Communicate with confidence

Ensure all people managers are trained and are communicating clearly about the organisations position and how it affects pay this year. Even if the budget percentage is below CPI, it doesn’t mean employees will automatically be disengaged. If there has been regular and open communication to employees about the challenges and constraints the organisation faces, they will understand why the % movement is pitched conservatively, and they will not be surprised.

Cathy Fitzsimons

5 June 2024