Why your wages aren’t going up

Salaries are failing to match the rocketing cost of living. But are the benefits being offered by companies to lure new workers doing enough to make up for it?

At the beginning of her career Lucy Kirkness felt poorly paid and received no extra reward for excellent performance. This left her, she says, with an “overwhelming feeling of being undervalued”.

Determined to do things differently, the London-based SEO and digital strategist now runs her own business, and works hard to ensure her employees feel valued.

“We have a starting salary of £30,000 ($39,800),” she says, adding that she offers 10% commissions on any new business won by employees, as well as profit-share opportunities. Kirkness says she is trying to create an environment with “almost untapped potential for higher pay over and above the basic salary.”

While many national economies are growing and companies report higher profits a decade after the financial crisis, only those at the very top are feeling the benefit. The cost of living has increased, but many workers have not seen their salaries rise accordingly  and are worse off than they were a few years ago.

“The traditional relationship between economic growth and pay growth seems to have broken down in a significant number of mature economies,” says Duncan Brown, the head of human resource consultancy at the Institute for Employment Studies in Brighton, UK. “There’s evidence that the rate of pay growth has slowed even as economies have recovered. In some cases that means real incomes have stagnated. That’s something we’ve probably not since the 1860s or 1870s.”

What’s driving this? Over the past 30 or 40 years, governments in countries such as the UK and Australia have liberalised their economies, loosened employment regulation and weakened the unions, tipping the balance of power in the labour market back towards employers. Simultaneously, more people are working on short-term or freelance contracts and therefore have fewer rights to argue for better pay.

Instead of increasing salaries, many companies have shifted their focus to rolling out a raft of benefits and perks to keep employees happy. The latest data from the US Bureau of Labor Statistics reveals wages and salaries now account for 68.2% of total employee compensation, while 18 years ago it was 72.5%. Across the G20 nations as a whole, the labour share of income has been falling, suggesting companies are holding onto their profits rather than sharing them with the workforce.

“Businesses will take whatever they can get away with, that’s the basic law of the free market,” says John Buchanan of Australia's University of Sydney Business School. “Institutional agencies and minimum wage structures emerged to discipline employers, so if you weaken them then you take that discipline away.”

There are some positives: benefits, like flexible working and a commitment to work-life balance, can be win-wins for both company and employee because they boost productivity, according to many studies. Others, like pensions and health insurance, help workers with their future finances and medical well-being.

However, others look a tad superficial. Free booze, discounts at shops and company cafes might seem cool when you’ve just landed a new job, or have few financial responsibilities, but these perks don’t add up for everyone in a company. And at a time when property prices – both to buy and rent – have reached astronomical levels in major cities around the world, these perks do little to help keep a roof over your head.

“It’s great when companies focus on making work a fun and social place, and it can actually be good for productivity,” says Frances O’Grady, general secretary of the Trades Union Congress (TUC) in England and Wales. “But perks should never be a substitute for good pay and conditions. Bosses must not think they can pull the wool over young workers’ eyes with gimmicks – they need good pay, good progression and decent pension schemes.”

Practical ideas

A handful of firms are taking action. Seattle-based Gravity Payments, a credit card processing company in the US, announced a minimum salary of $70,000 for all of its 120 staff in 2015 in a move it says was about “improving lives and alleviating financial worry and distraction”. Before the announcement, the average salary at the company was $48,000. Founder and CEO Dan Price, meanwhile, reduced his pay to the same level.

Gravity says the higher wage has helped its staff pay for better housing (property prices have soared in Seattle in the last decade) and even fuelled a baby boom, while many employees have also chosen to increase their pension plan contributions.

This move has boosted staff retention and led to other benefits, too. In the year after the policy was introduced, staff turnover fell to an all-time low, more people sent in their CVs, and client attrition (the number of clients lost to competitors) dropped.

“Today’s youngsters, when they graduate, they need money,” says CY Chan, head of talent engagement and corporate social investment at HK Broadband, which provides high-speed broadband to residential housing blocks in Hong Kong. Chan says the company’s pay rates can be “even more competitive” than the market.

Although the firm does offer some benefits – sponsoring staff, including promoters and installers, to pursue degrees – Chan is dismissive of perks like free food. “We don’t go in that direction,” he says. “We try to focus on what can really motivate our people.”

HK Broadband launched a co-ownership programme in 2012 as part of an exit plan for a private capital firm that had previously bought out the telecommunications company. It lets employees use their savings to invest in the company’s stock, with the firm itself offering bonus shares. Currently more than a 10th of HK Broadband’s 3,000 staff are co-owners, including Chan, who’s been with the company for seven years.

There’s a long history of companies that have forged a more progressive approach. Co-operatives like the John Lewis Partnership, where everyone from the boss to the shelf-stacker on the shop floor get the same annual bonus, and the Quaker-influenced businesses of the late Nineteenth Century and early Twentieth Century that ensured workers earned a wage that they could live on, got regular time-off and were involved in the business through work councils. Some, like chocolate-maker Cadbury, even built entire communities around their factories.

“They knew that was a way to produce loyal staff,” Brown says. “I think we have kind of lost focus on that. You don’t get into business if you can’t afford to pay your suppliers, so why should you go into business if you can’t pay staff enough to live. It’s simple really.”

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