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Management A vicious circle: Attractive offers and stagnant wages

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Anyone who has read Zen and the Art of Motorcycle Maintenance can appreciate the minor miracle that enables spark plugs, valves and other finicky parts to spit, sputter and somehow allow a motorcycle to roar down the highway.

That’s also, in effect, an analogy for the job market in late 2018. There are some inexplicable moving parts in the current market, even as the overall labour sector continues to roar ahead, says Rowan O’Grady, president of the recruiting firm Hays Canada.

Chief among these puzzling parts are stagnant wages, even as pay packages for new recruits are rising.

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More employers reported in 2018 that they gave their staff low pay raises or no raise at all. Yet, at the same time, a large number of these employers reported spending beyond their budget on highly competitive salaries for new hires.

It seems incongruous. Hays Canada found in its latest annual salary survey, which presents a snapshot of the hiring and business outlooks of more than 4,000 professionals and employers across the country, that only 23 per cent of employers gave their workers a pay raise of more than 3 per cent in 2018. This compares with 41 per cent in 2013.

And according to the Hays Canada report conducted this fall and set to be released next month, the wage scale for permanent staff is likely going nowhere fast in the coming year. Half of these employers that were surveyed plan to give pay raises of less than 3 per cent in 2019. A quarter of them are planning no pay raises at all.

However – and here again is the especially incongruous bit – new hires are being offered enticing pay packages. The survey found that 61 per cent of employers spent outside their budgeted range to recruit specific candidates.

It doesn’t help retention, obviously. Staff receiving low or no salary increases are more tempted to look elsewhere, particularly in our current relatively strong economy. As the survey says, “41 per cent of respondents are seriously considering leaving their current role, and the main reason for leaving is for a higher salary, followed by career growth opportunity.”

How to explain this vicious circle? Robert M. Pirsig in his Zen and the Art of Motorcycle Maintenance would chalk it up to gumption – that salaries look better elsewhere, and therefore give enough reason to take the risk, quit your job and look for better pay at another company.

Similarly, prospects that the economy in 2019 will continue fairly strongly, with more hiring expected, only gives people more confidence about wading into the job market, Mr. O’Grady said.

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“Right now, the fear has, to some extent, gone away,” he said. “And that causes churn in the marketplace to the disadvantage of employers.”

“The wage-stagnation conundrum baffles a lot of people. Employers, they please the shareholders first, the customers second and the employees come a distant third,” said Mark Thompson, professor emeritus of organizational behaviour and human resources at the University of British Columbia’s Sauder School of Business.

In a good jobs market, employers would like to keep wages as secret as possible, a tactic to avoid upsetting stagnant-wage staff who might otherwise look for higher-paying work. Yet secrecy is difficult in an age of online job postings. “People in human resources management, for 75 years, their role has been to have workers happy and productive without paying them more. And they say, ‘Oh, well, it’s not about money.' But it is about money, that’s why you are keeping it [wages] a secret,” Dr. Thompson said.

So, why aren’t more employers simply offering pay increases to encourage retention?

“I’ve got three or four explanations for this,” Mr. O’Grady of Hays Canada said. Part of it could be adjusting skill sets, with employers looking to hire those who have new skills, while weeding out staff who don’t. Part of it could also be employers’ perception of long-term staff, with long-term workers looking content to stay and therefore not needing a pay raise to keep them there. There’s a great deal of psychology rather than pure business in these decisions, Mr. O’Grady noted.

“There are also boring explanations as well.” These include the argument that because inflation is slow, employers have more clout in arguing that there is less reason of a need to raises wages, he said.

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Also, some employers in certain industries claim that low profit margins, in general, prohibit raises. “A lot of companies we deal with in construction, in real estate, in some professional services, they will tell us that it’s still a very competitive market out there among their organizations, so they are under tight [profit] margins. Therefore, they have to be conservative on salaries,” Mr. O’Grady said, but he added that he isn’t convinced.

“That one I do wonder about, because if your business is growing quickly, if you’re planning to hire a number of people, obviously the competition isn’t so tight that you are fighting over the same projects. So, I do wonder whether the tight-margin argument is completely valid or not,” he said.

The other major piece in the puzzle is temporary contract workers. There’s the fear among employers of being caught out if they have an overreliance on contract workers, and contract workers can be pricey if they are used long-term.

Yet, some workers with particular skill sets, such as certain information technology specialists, may never want to be hired full-time. For them, contract work is simply too lucrative. Information technology “is dominated by independent contractors, and if you’re good and you have the right skill set and the right experience, it’s absolutely in your interest to work as a contractor. And the companies literally do not have a choice,” Mr. O’Grady said.

And that may the crux of the situation. Employers are trying to maintain their options, to have a choice, even if it makes for more churn and less certainty in an otherwise healthily running job market.

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