14 November 2007

Media Release

New Zealand’s labour market squeeze goes from bad to worse

Employers are battling record high levels of staff turnover and offering generous pay increases of up to 5.6 per cent to their existing workforce, to no avail, according to the latest Market Issues Survey from Mercer.

Mercer’s latest New Zealand remuneration review shows that organisations have been spending up to keep top talent in their existing workforce, with the median increase in fixed packages at 5.2 per cent.

However, this largesse was not distributed equally, with professionals receiving a 5.3 per cent pay rise, management 5.6 per cent, and executives five per cent. Staff at lower levels fared more modestly, with a 3.8 per cent increase.

The survey also revealed those who move jobs may not be attracted by money alone: when new employees are included in the sample the pay increases are not as high. The median increase was 3.4 per cent, but again, this was spread amongst the ranks, with Professionals receiving a 2.9 per cent rise, Management 3.1 per cent and Executives 3.4 per cent. The exception was for general staff, where the inclusion of new hires actually saw a slightly higher increase of 4.1 per cent.

According to Martin Turner, Principal at Mercer, one of the most worrying findings for employers is that the extra money paid to employees did little to stem the tide of voluntary turnover, which hit a record high of 18.5 per cent.

“The labour market squeeze is worsening at the same time as business confidence increases. If we look back to September 2006 when confidence in the NZ economy was shaky, people were nervous about changing jobs and voluntary turnover took a dive. Now that things are looking up, people are leaving their jobs because they’re confident they’ll find a new one,” Mr Turner said.

Another consequence of the tight labour market is that organisations are paying more for less talented or skilled people. The survey found that confidence in ‘people capability’ is low: one in three employers believe their workforce meets only ‘some’ of their needs, while just 6 per cent feel that all their people capability needs are met.

“There is a widening gap between the level of capability required to meet business objectives, and the people who are available in the job market. Employers are increasingly finding themselves hiring someone whose skills aren’t quite the right fit, because they have no alternative candidates,” Mr Turner said.

A solution, according to Mercer, is for employers to hire people at a lower level, then invest in training and development to upskill them.

“Such an approach also has the benefit of boosting employee retention, because today’s workforce is looking for more than money – they want skills development and career progression as well,” Mr Turner said.

While the survey’s generous salary increases suggest that employers recognise the importance of retaining talent, more still needs to be done, Mercer argues.

“One of the most urgent tasks for employers is to address the needs of older workers, who make up a large percentage of the workforce but are creeping closer to retirement age.

“Holding on to this ‘grey workforce’ is crucial to meeting the nation’s labour needs in the next decade, yet few employers are actively meeting the challenge. They need to get serious about offering flexible working arrangements, part time hours and extended leave to enable older people to continue working beyond the traditional retirement age,” Mr Turner said.

Other key findings of the survey found:

The job families which received the largest increases to fixed packages for existing employees were Engineering (7.4 per cent) and Marketing (8.7 per cent).
Employees in regional centres received a 5.3 per cent boost to their fixed packages – slightly more than Auckland (4.9 per cent) and Wellington (4.5 per cent).
Private sector pay packets rose 6.3 per cent - a larger increase than the public and government sector at 4.8 per cent.

“The fact is that with a shrinking labour pool and healthy economy, the pressures on employers are going to be felt for some time yet. Those who cope best will be the organisations that develop smarter retention strategies, hold on to their mature age workers and invest in the training and development of their employees,” Mr Turner said

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