Does flexible approach to pay threaten Ireland’s labour cost competitiveness?

01 March 2016

March 2016

CIPD highlights need for employers to balance wage bill demands with boosting skills

Plans by half of Irish employers to provide above inflation pay rises and take on more staff in 2016 suggests that the labour market is tightening, according to new research from the CIPD, the professional body for HR and people development, and Industrial Relations News (IRN). The research not only raises questions about cost competitiveness but also highlights the need for organisations to train their staff and invest in young people to avoid future skills shortages and stay competitive.

The CIPD/IRN survey of 582 HR professionals in private sector employers in Ireland indicates that half (50%) of companies plan to provide basic pay increases of 2.7% this year. Just over a third (36%) said that they are likely to make further pay increases for specific individuals or groups of employees and 29% said that this was either possible or not yet agreed. The survey also found that over a third (37%) of Irish employers are offering pay increases as a counter-offer to employees that are planning to leave the organisation.

At the same time, the survey finds that 47% of companies plan to increase their workforce in 2016 and just 8% planning to reduce employee numbers, suggesting that unemployment will continue to fall over the next 12 months.

Mary Connaughton, Director for CIPD Ireland, said: “Our survey has some welcome positive findings suggesting the economic recovery will continue to contribute to robust employment and wage growth in 2016. However, while increased wages and more jobs is good news for individuals, there is a chance that this trend could erode many businesses’ hard-won labour cost competitiveness. The increased use of counter-offers to keep talent also highlights that many Irish employers are struggling to keep key people at current pay levels as employment opportunities in the labour market increase, raising questions about organisations’ future talent pipelines.”

The research found that pay increases as part of a counter-offer to staff planning to leave was most evident in large organisations with over 250 employees, where 45% made such an offer in 2015. It also suggests that this risks becoming the norm in IT and software companies, where more than two-thirds have made a counter-offer (68%). Over half of financial services (55%) and food and drink companies (53%) made counter-offers in 2015.

The wage bill is being stretched further by the recent increase to the National Minimum Wage. The CIPD/IRN research found that the 50c an hour increase to the National Minimum Wage that took effect January 2016 will directly affect 28% of private sector companies. Furthermore, almost three-fifths (57%) of companies reported that they would be affected if they adopted the National Living Wage rate of €11.50 per hour.

Connaughton said: “The 50c increase to the National Minimum Wage will have a significant impact on employers’ wage bills and their ability to develop and attract key talent. We need real, concerted action on education, housing and health infrastructure to attract the talent we need into the Irish labour market. We also need to look more closely at the home-grown talent we are creating here in Ireland, and build a society that educates young people to be ready for the workforce. Employers play a key role in this by building links with schools and colleges and helping to ensure young people have the soft employability skills they need in the workplace.

“Failure to address this will ultimately leave employers paying through the nose to recruit and retain staff. While employees may feel the benefit of this in the short term, it will undoubtedly prevent employers from investing in key areas, such as innovation and workforce development, which are key to safeguarding both individuals, and organisations’ financial futures.”

You can download the results of the survey below.

CIPD IRN Private sector pay survey 2016.pdf (2 MB) CIPD IRN Private sector pay survey 2016