Paying out bonuses in uncertain times

Bonus payments are now offered by 80% of employers, with just 14% of those surveyed here definitely not offering such payments.

Whereas firms planned to increase basic pay by 2.8% on average last year, the out-turn was an increase of 3%, according to the results of a survey carried out by Industrial Relations News and the Chartered Institute of Personnel and Development (CIPD Ireland), the representative body of human resources practitioners.

The survey was in January and was completed by 536 organisations.

When it comes to basic pay, employers could hardly be said to be losing the run of themselves.

Smaller firms were better than their larger counterparts, delivering average increases last year of 5%.

This compares with an average increase of 2.5% in companies that employ more than 250 people.

With the official Irish unemployment rate now back at levels last seen in July, 2008, the labour market has tightened and this is reflected in patterns of remuneration in a broader sense.

Almost 40% of respondents indicated that, this year, they would be offering additional pay, over and above a basic increase, while 25% of the sample had yet to reach a decision.

Just one-third of employers indicated that they would not be offering anything extra, over an increase in basic pay.

Bonus payments are now being offered by 80% of employers, with just 14% in the survey definitely not offering such payments. Two-thirds of employers plan to maintain or increase non-pay benefits.

What is striking is the sector-by-sector difference in the plans of certain employers to offer these additional pay increases.

90% of construction-service firms plan to award such rises, a reflection of the rebound in the sector and of emerging skills gaps.

The equivalent figure in information technology and software is 44%.

But in financial services, human resources, recruitment and in healthcare, only 30% plan to top up on basic pay.

One-third of employers who responded to the survey made counter offers to staff who had put in their notice.

This is perhaps not surprising, given the often high costs associated with the recruitment of people to fill vacancies.

The willingness to make such counter offers rises to just over 40% in the case of firms employing more than 250 people, but is as low as 10% in the case of firms employing 50 or fewer staff. An explanation for this discrepancy is not hard to find.

SMEs, in most cases, may simply lack the resources to make the sort of offers that could spark demands from elsewhere in the organisation.

It is harder to keep such matters under wraps in a small firm.

The British labour market is particularly tight, at the moment, with the employment rate at just under 75%, well above the European average.

Headline unemployment is below 5% and real wage growth has been underway for the past two years, but at modest levels.

The average, budgeted pay settlement has been hovering at 2% over the past four years.

However, recruiters, Innecto, estimate that the increase in 2016 was 4.6% in the case of employees staying in a role for more than a year.

This increase comes on top of a rise of 4.3%, in 2015, for employees in that category and is a truer reflection of the labour market. In such an environment, human resources experts are advising managers to be more strategic in how they divvy out the spoils from the annual pay pot.

They also suggest that senior management, in this period of great uncertainty, need to send the right messages of positivity and stability, if they are to keep hold of their top talent.

Both the British and Irish labour markets look set to be shaken up significantly, as Britain’s exit from the EU gathers pace.

Nobody quite knows what form the shake-up will assume.

Last week, Philip Andrews, of McCann FitzGerald’s EU, Competition and Trade Group, speaking at the IRN conference, predicted that “Brexit would certainly lead to restrictions on the freedom of movement of workers”.

While the Taoiseach, Enda Kenny, has stated that a key priority for him is the protection of the core EU principle of free movement of people, goods, capital and services, in practice there will be serious implications, with respect to the movement of talent in and out of the labour markets of Britain and those of the remaining EU countries.

The UK has traditionally absorbed large quantities of Irish labour, while also soaking up talent that is in short supply.

Could this alter in the wake of Brexit and, if so, would the Irish economy be a net beneficiary, given greater skills retention, or will a young, generational cohort, and society as a whole, lose out?

Britain, and London in particular, has also attracted much talent from the continent.

Could some of this continental talent be diverted to Ireland and to Dublin, putting downward pressure on wage rates across the economy?

Against such a background of political and commercial uncertainty, it is no surprise that employers in the private sector are reluctant to enter into long-term commitments in relation to basic pay, opting, instead, to pay bonuses and boost overtime payments.

And, yet, the survey highlights a countervailing tendency, a willingness, in unionised companies, on the part of management and unions alike, to enter into longer-term pay agreements.

More than two-thirds have entered into agreements of at least 19 months in duration, including 44% opting for deals of more than 25 months.

Experts suggest that such deals are driven by a desire for stability and control over the pay budget into the foreseeable future.

Such deals could be viewed as a legacy of the era of national social partnership, which ended in 2009, as the economic crisis deepened.

According to Gerry McCormack, a senior SIPTU official in the manufacturing sector, the pay landscape over the next two years will be similar to that of the recent past, but the Brexit vote, and the Donald Trump presidential victory in the US, have introduced uncertainty.

Mr McCormack repeats the point that what occurs in basic pay does not capture the whole picture.

He points to areas such as pensions, holiday pay, and agreements on the use of agency workers, which also constitute important elements of collective agreements in unionised firms in the private sector.

An important recent element has been the payment of bonuses of up to €500, for which tax relief is allowed.

Such bonuses are highly significant awards for those on modest pay.

Recently, the Irish Congress of Trade Unions raised the stakes with a call for a 4% pay increase across the board.

This initiative has been criticised by business group, Ibec, and, at first sight, its timing would appear to be strange, given the pressures that many unionised manufacturers are likely to face, and are arguably already facing, as Brexit kicks off.

As indigenous firms come under the cosh, in the wake of potentially severe disruptions in key markets, the post-2010 era of recovery in manufacturing could come to be viewed as something of a golden age, in retrospect.