Negotiating a pay rise in a challenging financial climate

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Negotiating a pay rise in a challenging financial climate

Executive pay is always a sensitive subject, not least during a cost-of-living crisis when inflation has been in double digits until recently, interest rates are at their highest for almost 15 years, and indications are that 30% of employers are likely to make redundancies between now and March 2024 (according to a recent survey by Acas).

?In contrast, however, is the research by Deloitte, which shows that pay for FTSE 100 chief executives rose by 12% in 2022 – from ￡3.72 million in 2021 to ￡4.15 million in 2022?(based on data from the first 55 companies to file their annual reports). Energy Voice reported in March that the CEOs and CFOs of oil giants Shell and BP were paid around ￡27 million in 2022. According to the Economic Policy Institute, this is not a recent trend - CEOs were paid 399 times as much as a typical worker in 2021.

This was during a year in which the UK’s cost-of-living crisis caused much financial despair, with Oxfam reporting that workers in the UK took a 2.5% real-term pay cut in 2022. As a result, we have campaigners calling for a windfall tax and investment managers calling for pay packets of senior leaders of FTSE companies to be kept in check during the ongoing cost-of-living crisis.

In the first quarter of 2023, many businesses gave out pay rises of around 4-6%, and few pay rises countered inflation. Only senior leaders’ pay rises, it seems, were above inflation. Research by Robert Walters found that C-suite leaders received average increases of circa 20%.

Pay ratios are a crude mechanism and are highly charged. The role of a CEO (or other C-suite executives) is not the same as the average worker. It is not a like-for-like comparison. A good CEO, and executive board, can bring considerable benefits to an organisation, not just profit but also positive cultural changes. Money attracts (and retains) that highly sought-after talent.

However, employees and workers want to be treated fairly and their salary (and overall remuneration package) to reflect their hard work, value and loyalty in these continuing tough times.

Is asking for a (significant) pay rise a futile exercise in 2023?

It would seem that asking for a pay rise at the moment would be a lost cause. However, all is not lost. In an article recently published on the London Stock Exchange website, Julia Hoggett, the LSE’s chief executive, called for higher salaries for those running UK companies which find it challenging to attract and retain executives because they offer smaller remuneration packages than their US counterparts.

Hoggett’s article was published shortly after the FCA announced its proposals to reform and streamline the UK listing rules to help attract a broader range of companies, encourage competition and improve investors’ choices. It is clear that, despite difficult trading conditions, employers are not ruling out the possibility of salary increases. The fly in the ointment though is that you will likely need to move jobs to get the benefit.

But what if you don’t want to leave? And if you’ve done an excellent job for your employer, why should you?

Steps to negotiating a pay rise

First things first, as is generally accepted in any business, it is worth paying top dollar for top talent. Your job is to ensure that your employer knows you’re the top talent and that you are worth every penny you are asking for.

Asking for recognition at work and more pay can feel incredibly daunting. Remember two things: you are entitled to a fair reward for the work you do, and if you don’t ask, you won’t get it.

But you’ve got to put the work in.

Step 1: Do your research

Undertake a benchmarking exercise, and, if your remuneration package is lower than the average for your role/sector, this gives you a strong argument that you are entitled to an increase.

Look at the wording of your employment contract – what does it say about annual pay raises? If there is a custom and practice of awarding a pay rise each year, this may give you a contractual entitlement to an increase, despite what your employer may argue.

Step 2: Show it, explain it and tell it

Most important is your performance – your value to your employer. In some roles, added value can be difficult to measure objectively, so think about what you contribute, not only in terms of the bottom line but also the other skills and benefits you bring.

Don’t expect your employer to read your mind; bring evidence (show them), talk through the numbers, the charts, the before and after, the client feedback etc. (explain it) and talk through what you can do for them going forward, with reference to where the business is going, its aims and objectives (tell it).

Step 3: The risk factor

This might be viewed as the stick to the carrot above. But your employer needs to know the reality of the situation. Loyalty doesn’t pay the bills.

The more unique your strengths, the more difficult you will be to replace, and therefore the more valuable you are to your employer. Don’t expect them to acknowledge your value – it’s not in their interests in a pay negotiation. It’s your job to bring it to their attention and to do so in no uncertain terms. It’s a simple equation: value = ￡.

Even if the ‘value add’ argument lands flat, all is not lost. Your employer has spent a lot of time, money and resources on you. Assuming that you are at least a good team player, there may be a team morale dip if you were to go. Your next job is to convince your employer that it will be a false economy for them to lose you from the business and bring in a replacement, what with recruitment costs, onboarding, training time, gearing up, embedding them into the team – and there is a real possibility they will be looking for a higher salary than you are.

An even worse-case scenario for your employer is you moving to a competitor. Even if you have to wait a few months for your non-competes to expire, your employer knows this carries risk beyond enticing clients, prospective clients and suppliers – your knowledge, which they have invested in, will now benefit a competitor.

Step 4: ‘Quid pro quo’

Don’t underestimate ‘quid pro quo’ in a pay negotiation. What can you offer in return for a pay rise, over and above your continued loyalty, valuable input into the company’s success, and avoiding the ‘risk factor’? Employers may be more likely to agree to a pay rise if there is an element of ‘quid pro quo’ – can you assume more responsibility or agree to higher targets to seal the deal? If you are smart, you can make much of very little further investment by you. Formalise tasks you are already doing. Do you have an easy win in the pipeline, which would mean a higher target is not that much of a challenge?

Step 5: Be tactical

Choose your moment. Is now an opportune moment, or is there a better opportunity on the horizon for a pay discussion? Ask for a meeting, don’t pounce on your boss over the coffee machine. Don’t corner them before they take annual leave. Don’t miss an opportunity that’s just waiting to be grabbed. Have you been instrumental in a big win? Do they need you for a new project?

A final but important point

One less altruistic reason employers may be prepared to offer pay raises is to avoid the risk of costly discrimination and equal pay claims. It was reported recently that Goldman Sachs will pay ￡170.5 million to settle a class action lawsuit brought by approximately 2,800 female Wall Street employees who were allegedly offered lower pay and fewer opportunities than their male comparators.

The cost of such claims for employers, both financially and reputationally, can be huge. If you believe you may be paid less than a male counterpart, this may give rise to an equal pay or sex discrimination claim.

One starting point is to look at your employer’s gender pay gap report. Remember, however, that a gender pay gap is not the same as unequal pay – but it can be a good indication of it.

Equal pay and the gender pay gap

Unequal pay means that employees performing equal work, or work of equal value, are not receiving equal pay. A gender pay gap may mean that men and women are paid equal pay for the same (equal) work but that more men are in senior roles, meaning that, on average, a man’s pay is higher in that company.

The existence of a gender pay gap may, however, suggest discriminatory practices, such as routinely rejecting pay rise requests by women in a particular role – that may, if you are a woman, impact your salary package.

Ethnicity pay gap

Male employees who cannot bring an equal pay claim may nevertheless be able to bring a sex discrimination claim or a claim for discrimination based on one of the other protected characteristics under the Equality Act, such as race, disability or sexual orientation.

While ethnicity pay gap reporting is not mandatory, many employers are choosing to publish information relating to their ethnicity pay gap, which can be helpful for those wishing to state their case for a salary increase and to support a discrimination claim.

Negotiating a pay rise is never easy, but it is even more tricky in a harsh financial climate. What is clear, however, is that if the CEO deserves a pay rise, you almost certainly do too.

Feel free to?Get In Touch ?if you are an employee experiencing problems at work, we will be happy to assist you.

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https://www.penningtonslaw.com/expertise/employment/senior-executive-employment

Ruby Dinsmore Employment Lawyer (UK)

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