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Three things retailers must do in response to the living wage

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Retailers have attracted special attention in the press in recent months for their failure to pay the living wage. Of course, retailers were not alone in paying below the living wage of £7.85 per hour (£9.15 in London), but were an easy focal point for the debate. After all, they employ large numbers of people in every town and city across the country and are highly visible to the public – everyone knows someone who works in a shop!

Many retailers declined to enter the debate, and while their reticence to comment was understandable, it also gave commentators a free rein to discuss them in purely negative terms, causing damage to their employer brands. Many big chains were cast as huge profit-making machines that could afford to pay their employees more, but chose not to. Little mention was given to the fact that retailing is a people-intensive business with narrow margins.

The Chancellor’s decision to introduce a National Living Wage, increasing the minimum hourly rate for workers over 25 to £9.00 per hour by 2020, changes the debate. The discussion is no longer about whether retailers should pay the Living Wage, but rather how should retail businesses respond to the requirement to pay people more?

A retailer currently paying its customer assistants £7.00 per hour will need to increase pay by around 5 per cent per year for the next five years. While changes may not affect all colleagues (and this itself presents a dilemma), there will still be a demand for significant investment from retailers, who will need to contemplate the implications in three areas:

Employer brand

Retailers need to consider what they offer employees and where pay fits into this. Many offer good training and development opportunities, the chance to progress, flexible working hours, pensions and in-store discounts - amongst other benefits. But do potential employees know this?

Additional perks such as these are highly appreciated by employees and have huge potential to elevate employer brand. This is important as an organisation’s employer brand impacts its ability to attract and retain the talent needed to be successful, and supports its commercial brand. Retailers need to offer colleagues a great place to work and a reward package that meets their lifestyle needs – not just one that complies with legislation.

Productivity

Retailers need to see an improvement in productivity in response to their investment. This doesn’t mean driving people into the ground. Rather, it means investing in store leadership to help create the conditions that allow people to give their best, and equipping people with the technology they need to use their time efficiently. Communicating reward strategy in a way that helps people feel their pay is fair is also critical to engagement – and a particular problem for the sector, according to employee opinion surveys conducted by Hay Group. Shops can be really engaging places to work, but only if retailers make them so.

Re-shaping roles

Retailers shouldn’t assume they need to pay people more money for doing the same thing, however, the shape of the store workforce may need to change. Technology has a role to play here, but the new legislation could also provide a catalyst for reviewing the structure of management and the division of labour in stores. Retailers could create some bigger, more challenging and more interesting roles, providing clear career paths and progression opportunities for those with high potential. Of course, opportunities for career progression must be matched by sufficient financial incentive to progress now that the entry point is higher. This adds cost, and adds to the requirement to review store management structures.

Retailers would be optimistic to think that the new National Living Wage will end discussion on low pay - it’s already been criticised for not going far enough. Nevertheless, they should certainly see the change as a positive step and an opportunity to shake off their ‘bad guy’ image and reposition themselves as organisations with a focus on their people. 

Jamie Davidson, Managing Consultant, Hay Group

Published on Thursday 03 September by Guest Piece

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