How does falling real wages affect startups?

Real wages are expected to drop in 2018, according to Korn Ferry. What does this mean for the UK's startups?

How does falling real wages affect startups?

Britain is bucking the trend but not in a good way. By the end of 2017, Korn Ferry, a leading people and organisational advisory firm, released their estimations about how wages would evolve in 2018. And workers around could rejoice in seeing the average global real wage increase by 1.5%. However, that was not the case in the UK.

Instead, the decision to leave the EU combined with the 2.5% inflation rate is expected to cause real wages in Blighty to drop by 0.5% over the next year. Comparatively, workers France and Germany can on average expect their pay cheques to jump by between 0.7%  and 0.8%. The question is how this will affect Britain’s startup ecosystem.

Xenios Thrasyvoulou, founder and CEO, PeoplePerHour

The news that real wages are set to fall once again will be welcomed by no one but will particularly be felt by SMEs that struggle to retain talent on a stringent budget. Now these employers are faced with the choice to either lose money through enhanced staffing overheads or face lost productivity when staff jump ship.

In not increasing pay for employees, employers are exercising a false economy, throwing away talent for a short-term saving, which will bring long-term costs.

Mark Rhodes, marketing director, REED

Sourcing talent will remain a huge challenge for startups in sectors that already suffer skills shortages – such as technology and engineering.

While rising inflation will further pressure employers to review the salaries they offer, startups should consider how on-the-job training can develop the skills of existing staff or new employees. Positioning your startup as an exciting alternative to tertiary education could be a great way to attract talented young individuals.

Angelika Burawska, COO, Startup Funding Club

Startups usually cannot afford high wages anyway and their employees aren’t motivated purely by money but by the opportunity to grow within a successful organisation.

However, lower wages can discourage people from moving to the UK, particularly because the costs of living are generally higher than in other parts of Europe, potentially shrinking the talent pool. Overall, the drop in wages will impact startups less than larger organisations where salaries play a more important role.

Paul Tombs, head of SME proposition, Zurich

Falling wages and innovation are directly correlated. Innovation creates new opportunities and profitability, which pays for the talented people needed to innovate. Businesses struggling to increase pay must take stock of the bigger picture and assess whether their current direction is right for the future.

Talent is important to succeed in all sectors but its impact on maximising small companies’ commercial potential is even greater than for big businesses.

Chieu Cao, Co-founder of Perkbox

While there’s little the average organisation can do about declining real wages, there are many ways businesses can engage employees without breaking the bank.

In fact, when it comes to job satisfaction, financial rewards maybe lower on the list of importance than many people think. The stats speak for themselves: according to recent Perkbox research, 66% of today’s employees feel that regular personalised benefits and cost-saving perks such gym memberships would be appreciated as recognition of loyalty.

In the absence of power to change the causes of declining real wages, startups should focus on embedding cultures of trust, respect, praise and empathy in order to make up for slumps in salaries.

Eric Johansson
Eric Johansson

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