New Zealand salaries continue to rise

New Zealand salaries continue to rise despite GFC but change is on its way, Mercer survey reveals

·        Rate of salary growth remains unabated at around 5% for the past year 

·        Salary increases set to tumble in 2010 as labour market softens

·        Organisations are investing with a view to the future – existing staff and managers the biggest winners

Thursday 19th November 2009
 

The GFC hasn’t yet dampened salary growth in New Zealand but generous salary increases will soon be harder to come by with pay budgets expected to shrink in the next 12 months, according to a Mercer remuneration survey.

Mercer’s latest market surveys, conducted in July 2009, reveal that over the previous 12 months national salaries for same incumbents (those who had remained in the same job in the past year), has remained largely unabated rising by 5.2 per cent, a slight dip from 5.4 per cent the year prior. The public sector outpaced private sector salary growth rising by 5.3 per cent, compared to 3.8 per cent in the private sector

By contrast, across the board salary growth is expected to fall to around two per cent over the next 12 months.

David Little, Senior Associate in Mercer’s Information Product Solutions business, said salaries typically lag behind economic and labour market conditions, due to the elapsed time from salary budget decisions and implementation. This may go some way to explain the strong public sector movements as the majority of the budgeting decisions and salary movements would have occurred before the impact of the GFC was felt in New Zealand.

“Salaries in New Zealand have so far had a soft landing, but the lag effect of the GFC combined with rising unemployment and a decreasing demand for labour indicates a slowdown in salaries growth is inevitable in 2010,” Mr Little said.

Mercer’s market research shows companies are still treading cautiously with regard to hiring practices: 39 per cent of organisations are planning to hire in at least one career stream in the next six months, 13 per cent plan to put a freeze on hiring in at least one area of the workforce, while a further eight per cent still expect to reduce head count in at least one part of the workforce.

“Competition for jobs is going to become fierce with limited new jobs being created, involuntary turnover increasing and unemployment on the rise – now expected to hit seven per cent by mid-2010. This competition will place downward pressure on salaries, as will the recent fall in annual consumer price inflation which has hit a five year low.

“Employers shouldn’t take this to mean that the shortage of skilled labour is over. There is still reasonable competition for highly skilled people and specialists as organisations have been very careful to hold onto their top talent, rather than make broad-brush cuts to the workforce. As pay budgets become more constrained employers have had to think carefully about where they will get the best value for their reward dollars,” he said.

Mercer’s market surveys also found that switching jobs doesn’t always pay. In the current environment organisations are investing more in their existing employees, and taking the opportunity to recruit replacement staff at a lower rate than the departing employee.

However, salary increases are not being applied evenly across the board: Management received the highest median salary increases of 6.6 per cent this year, exceeding the 5.4 percent increase received in 2008, while entry-level staff received a 5.1 per cent pay rise, compared to 5 per cent last year. Executives received an increase of 5 per cent this year, down from the 5.9 per cent increases received 12 months ago and Professionals saw the lowest pay movements at 3.4 per cent, down from a 5.8 per cent pay rise in 2008.

 “With supply set to exceed demand and with smaller pay rises on the horizon, organisations are going to have to get creative and more strategic with how they reward their key people and top performers,” Mr Little said.

“A focus on benefits can be a differentiator in this market, when salary budgets are tight. This can range from career development, to the opportunity to move to a different part of the organisation, flexible working practices, wellness programs and access to financial education or insurance. Having a range of benefits can often strike a chord with employees in tough times and help sweeten the deal.

“The turbulent times place strain on organisations and their employees. Wise employers keep a close eye on the mood within the organisation and know how their people are responding to the conditions; and take steps to maintain engagement before it’s too late,” he said.

Regional differences:

Wellington experienced the highest rate of salary growth, with same incumbent pay movements rising by 5.2 per cent in the 12 months to July 2009, compared with 5.9  per cent in 2008. This makes sense given the higher proportion of public sector organisations in Wellington.

Meanwhile Auckland employees have seen less generous pay increases this year compared to last, rising by 3.8 per cent from 4.8 per cent in 2008.

Job families

Median salary movements for same incumbents in the 12 months to July 2009:

Highest movers:

·        Finance: salaries rose by 5.5%, compared to 6.3% in 2008

·        Human Resources 5.0%, compared to 5.1% in 2008

·        Administration: 4.9%, compared to 5.2% in 2008

·        Top management: 4.5%, compared to 5.9% in 2008

Lowest movers:

·        IT: 4.3%, compared to 5.1% in 2008

·        Sales: 4.2%, compared to 6.1% in 2008

·        Engineering: 4.0%, compared to 6.1% in 2008

·        Marketing: 3.7%, compared to 4.5% in 2008

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