by | Mar 2, 2017

I get the feeling that the Living Wage discussion is gaining momentum in New Zealand, and I’m getting a feeling of Déjà vu.  Although I’ve been in New Zealand for over 13 years now, I know many business organisations in the UK that have been through this process, and I’ve followed them with interest.

On the 1st of April last year, approximately 1.8 million of Britain’s low-wage workers got a pay rise as the living wage came into effect and the minimum hourly rate jumped from £6.70 to £7.20 for those aged 25 and over. More importantly the Living Wage is planned to be increased year on year until at least 2020.

There were a number of approaches taken by various business organisations that I became aware of and concerned by:

  •  Pay the Living wage, but reduce staff hours (and output)
  •  Reduce other staff benefits including overtime rates
  •  Large capital investment in automation to reduce labour
  •  Absorb the cost increase but lower profit margins

It’s too soon to establish the impact of the above approaches, especially with Brexit and the fall of the £ confusing matters.  They’ve had a rough time over there, that’s for sure, but lots of organisations could have responded and adapted much sooner instead of taking a “let’s wait and see” approach.  I get the feeling that many UK businesses relied too heavily upon EU migrants, happy to work hard for a low income without the need for all of that hard stuff like reward and recognition that takes management effort.

Now?  It’s a different story.  The EU migrants are beginning to leave, either back home, or to another employer willing to pay them more.  So, we share a problem with the UK which is rising labour costs (with or without the Living Wage), and employee retention – it’s always the good ones that leave, isn’t it?

There is another option –

What are the successful businesses doing? How are they dealing with labour cost increase? After all, the Living Wage is only one example of potential staff cost increase, and it’s not confined to the low income bracket. Some organisations take the brave road:


The Chicken and Egg question

Let’s face it, the most successful organisations are often ranking as both the best place to work, and the best paid. So, the question is what came first, success that affords benefits, or benefits that afford success? I believe the latter.

Don’t get me wrong, I don’t support rising costs that reduce profits, but rising costs that support rising profits is different. The key here is productivity lift – people output increase that is greater than their cost increase. Here is a perfect opportunity for a call to action.

It starts with the “WHY”

Any change that involves large numbers of people requires a strong change management framework and approach. In turn, a strong change management approach starts with “why”. Why must the organisation become more productive? Why do we need to change the way we do things? Why must we continuously improve? Without a compelling reason (the why), the outcome will be lame.

Toyota were always very good at this.  They made it very clear that inflation was no guarantee of salary and benefits increase due to the cut throat market competition and pricing pressures.  They made it clear that profit increase must come through productivity improvement, and without making any promises, made a clear link between profit and salary increase. Toyota have the best labour efficiency rates in the car industry.  They also pay amongst the best salary rates in the industry.  The two go hand in glove.




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