Can you keep employees happy without a pay rise?

It’s time for performance reviews at many companies. If firms are unable to offer pay rises, investing in professional development and keeping communication open can help re-energise employees 

Coworker comforting stressed and discouraged woman in office.

With high food prices and household bills, many workers are hoping for a pay rise that will offset the effects of high inflation. 

But with bottom lines under pressure, employers are looking for cost-cutting measures and pay rises may be neither practical nor sustainable. 

While 23.5% of more than 900 workers surveyed for recruitment agency Aspire’s Q1 2023 report were awarded a salary increase in the last year that matched the rate of inflation (which was 10.1% at the end of March), 24.4% received a pay rise of between 6% and 10%. The other 52.1% saw their salaries increase by between 5% – and zero. Inflation has slipped slightly since the research was published but remained stubbornly high at 8.7% in June. 

For those businesses unable to afford pay rises, the challenge is how to keep staff happy and motivated. 

Flexible ways employers can help workers in a cost-of-living crisis

Sophie Bryan is the founder of consultancy and training organisation Ordinarily Different. She points out that, given HR’s role is to advocate for employees’ wellbeing as well as represent their best interests to management, HR leaders should be exploring alternative solutions when pay rises are out of the question.

The most important thing is to talk to employees, offer them different ideas and ask what works best for them

Research by Blackhawk Network published in March found that 69% of 500 HR decision-makers feel a sense of responsibility to support their employees through the cost-of-living crisis. Furthermore, 86% believed this should be done through the benefits package they offer.

The HR decision-makers surveyed are supporting employees by offering them work-from-home options – helpful for those with expensive commutes – subsidised food and free financial advice

It may also be useful to help employees with their financial behaviour, in particular to manage their cash flow so they don’t have to dip into their cash reserves and then wait until the end of each month to reclaim, suggests Jane-Emma Peerless, director of people at payments fintech Caxton. Some businesses might find a better approach is to offer employees interest-free loans that can be repaid through payroll over several months, she adds. 

A further option is to consider being flexible about employee terms and timeframes. Fortnightly salary payments, for example, could give employees peace of mind that they can pay monthly bills on time, says Sir Cary Cooper, professor of organisational psychology and health at Alliance Manchester Business School.

“It’s an effective solution in the right environment but it isn’t a one-size-fits-all solution,” he stresses.

Invest in professional development to keep staff motivated 

Flexible payment terms and perks may assuage employees’ fears about lack of disposable income or even making ends meet, helping to generate their commitment. But those measures of themselves won’t be enough to stop employees from leaving if they don’t feel valued or that their work is being rewarded. 

The current economic climate is impacting business confidence. In June, the Institute of Directors Directors’ Economic Confidence Index suffered its biggest month-over-year decline since the start of the war in Ukraine, slumping to its lowest level since last December. Pessimism can easily filter out to employees who, in turn, can feel less secure in their jobs

“Investing in employee development eradicates some of that insecurity because it reassures them that they have a vital role in the future of the business. It gives them the motivation to push themselves; to keep striving for more. And that will only make them more productive when they’re at work,” says Cooper.

Peerless agrees and suggests setting out career and pay path progressions. “It’s important to break through inertia and give clarity on progress and opportunity to re-energise employees.”

By showing employees what pay and success look like at each level within the business, employees can get a real sense that career progression is possible, she adds. This gives them a target to work towards, even if their pay has currently been frozen. And if they see there’s room for growth, they’re more likely to stick around. 

Long-term employee retention requires talent development and upskilling and reskilling. While BIE Executive found that there’s a willingness to invest in employee learning and development, with 86% of 200 HR leaders surveyed citing it as critical, half were concerned about the cost. 

What to tell staff when you can’t give pay rises

If businesses are unable to invest in learning and development in the near term, there’s still a risk that employees could prefer to quit. For this reason, it’s vital that businesses communicate with their employees. 

This needn’t require a complete shift in the HR-employee relationship, says Bryan, but rather open dialogue, active listening and empathy, so that employees know they’re being heard.

For starters, HR leaders need to make it clear why exactly pay rises can’t be awarded at this time. “When employees believe such decisions are unjustified and their employers are using the cost-of-living crisis as an excuse, they’re more likely to withdraw,” warns Rita Fontinha, an associate professor of strategic human resource management at Henley Business School.

Peerless advises HR leaders to provide employees with regular updates on cost pressures, the firm’s financial health and performance, and how this may affect compensation decisions. This will build trust with employees, who will then have clarity and potentially a timeline of when they could maybe expect to receive that delayed pay rise.

Cooper sums it up neatly: “The most important thing is to talk to employees, present them with different options and ask what works best for them. Quite often, they will come up with the best ideas.”