Businesses are urged to find non-financial employee incentives to help attract and retain talent as wage growth slows
Australian workers should forget the pay rise next year with average salary increases about to hit their lowest point in almost a decade, according to a study conducted by global management consultancy Hay Group.
A predicted moderate rise in inflation for 2016 could mean ‘real’ salary increases of -0.3 per cent next year, the first negative wage growth since the Global Financial Crisis. The projection follows on the heels of an already bleak year for Australian pay checks—with average salaries in 2015 having increased by just 2.7 per cent, down from 3.6 per cent last year.
The Australian Salary Movement Index (ASMI) is an annual overview of the national reward climate. It features data from Hay Group’s PayNet database – which includes results from 440 local and multinational organisations and 260,000 jobs.
One of the worst performing industries in 2015 was the financial services sector, with fixed wages growing at only 2.6 per cent, down from 4.0 per cent last year. Industrial and service roles fared marginally better with salary movement at 2.8 per cent (down from 3.5 per cent in 2014).
The industry that experienced the most drastic change is the resources sector, with fixed wages growing at 2.1 per cent, down from 4.0 per cent last year. Taking a closer look reveals that the pay movements within the Oil & Gas sector have been decelerating at an extremely fast rate, in line with the steep drop in oil prices since the end of 2014.
Study co-author Steve Paola, Consultant, Hay Group, said the downturn in the resources sector, low unemployment rates and oversupply in technical roles had all played a role in the slow pay movements observed in this sector.
“The data will come as a reality check for many workers who had experienced almost unprecedented wage growth during the past few years. Salary increases haven’t been at sustainable levels for a number of years and we’re now seeing a uniform correction,” Paola said.
“We have seen salary movements consolidate in almost all of the country’s major business sectors and in almost all roles. Unlike in the past few years, there are very few standout roles or industries when it comes to salary growth. This is seen with the salary movement predicted to be at 2.5 per cent in 2016.”
Australia was amongst one of the worst performing countries in the world, with inflation-adjusted salary growth at 1.2 per cent for 2015, below that of our New Zealand counterparts at 1.6 per cent, as well as Asian (3.1 per cent), European (1.6 per cent) and African regions (2.0 per cent). Only North America (0.7 per cent) and Latin America (-1.1 per cent) faced a bleaker outlook.
Pressure on businesses to recruit and retain
Many Australian organisations are looking to overcome the looming business pressures by capping salary increases in 2016, according to a recent spot survey of 50 senior HR executives on the ASMI findings.
According to the survey some 10 per cent of Australian businesses already implemented pay freezes, while close to 15 per cent expected to take similar measures in the coming year. The move is likely to cause plenty of headaches for the human resources department with 24 per cent of businesses already finding it difficult to recruit or retain talent for certain roles.
Many HR Directors said their company would become increasingly reliant on non-financial incentives to reward performance – such as improving work-life balance, remote working and extra leave.
“Organisation-wide salary freezes are unavoidable for many companies and could cause discontent amongst the workforce. To cushion the blow, organisations need to make existing non-financial reward programs more accessible and ensure they are completely transparent when it comes to communicating with their employees about reward policies.
“In this pay climate, it is important that businesses invest in areas such as training and development, as well as non-monetary rewards to keep employees engaged and upskilled. Done properly, this approach presents an opportunity for companies to weather these difficult business conditions while maintaining internal equity,” said Paola.
Technical wage downturn
The downturn in business conditions will be keenly felt by those in technical roles.
The ASMI report found that an oversupply of talent drove a downturn in salary premiums for roles such as petroleum and mining engineers and geologists, as well as technicians in the utility industry, building and construction jobs, energy traders and plant operators.
While still commanding a premium when compared to non-technical roles, the salary advantage for technical positions has dropped considerably in the past two years. Qualified technicians now only command a pay premium of 17.7 per cent, compared to non-technical roles, down from almost 30 per cent two years ago. While managerial roles have seen an 18.3 per cent pay premium drop to 8.1 per cent this year.
Paola added, “The pay gap between non-technical and technical roles is rapidly closing with less demand for these types of skills and an increase in the number of qualified people within the market.”
“There will always be a need for highly skilled employees, however businesses aren’t currently able to provide a significant premium to attract and retain this talent.”
Resources salary movements continue to head underground
Salary trends that emerged this year, and in some cases for the past several years, are expected to continue in 2016.
“Salary movements have been consolidating across all sectors; however the most notable decline has been that in the resources sector. Pay growth has been slowing since 2012 and this year marked another dramatic drop,” said Paola.
Annual fixed wages in the resources sector slipped to just 2.1 per cent this year, down from 6.4 per cent in 2012. There has also been a particularly severe drop in areas such as regional Western Australia – where total annual reward packages have gone from commanding 21.9 per cent premiums compared to the national average in 2013, to 13.6 per cent this year. Average total annual reward (which includes annual bonuses) for the mining sector was 25.8 per cent higher than the national average in 2015, while the oil and gas sector commanded a 20 per cent premium. In the mining industry, lower-level and junior employees could expect salary packages of up to 30 per cent higher than in similar positions in other industries.
Areas less reliant on the resources sector were largely spared any dramatic change. When compared to the national average, wage premiums in Sydney were -1.8 per cent, Melbourne -1.4 per cent and Brisbane -1.1 per cent. Salaries in Tasmania (-7.7 per cent) and Adelaide (-5.0 per cent) were the most heavily impacted.