Wage increases a short term fix

NZ Business, Jul 2006

Companies are increasing wages to retain key staff but this is only a short term fix that will not address the ongoing labour market shortage, according to Mercer Human Resource Consulting's latest New Zealand Remuneration Review.

The Review reports that nationally base salaries have increased by 3.5 percent over the last 12 months for same incumbents. Base salary movement across the whole market, including both new and incumbent personnel, has increased at a lower rate of 0.5 percent, a symptom of the tight labour market where employers are focusing their salary spend on retaining existing employees.

The significant difference in wage movements over the last 12 months, compared to the results of the previous survey period, is that fixed packages (including superannuation and other benefits) have increased by 5.2 percent. Variable pay has increased by 7.3 percent, substantially more than fixed packages.

John Ellen, Principal at Mercer Human Resource Consulting said the survey showed that the trend was moving towards creating tailored remuneration packages, and linking a greater proportion of an employee's pay to performance, which may also serve to control ongoing fixed remuneration costs.

"The remuneration review shows that in the continuing tight labour market employers are increasing wages and utilising benefits and variable pay to motivate and retain staff. But they are in fire fighting mode - they're not doing enough to address their workforce planning for the long term.

"Over the past few years Mercer's research has shown that while wages have continued to increase, vacancies haven't decreased, which indicates that the current tight labour market will continue to be a problem for employers. The challenge for companies is to focus on future needs and to start planning now to create the workforce required in five years time."