Is it reasonable to ask for a 10 per cent pay rise? Yes, here's why
Will you be a double-digit wage winner this year? While some will balk at negotiating a pay rise with an employer as the Omicron variant begins to hit, it is certainly time to rebalance the scales.
2022 is shaping up into the year of the great squeeze. Our cost of living is rising in all directions. We are no longer the flat-white economy – more like a frothy cappuccino.
Inflation heated up to 5.9 per cent, and don’t forget that’s looking in the rear-vision mirror. It’s already happened and we’ve worn it.
Many of us are in jobs where employers are making good profits and driving GDP in New Zealand higher. Think banking, construction and agriculture, for a start. Even the Government is pulling in a larger tax take and earning gains from investments in property and shares.
Both the public and private sectors now need pay increases that more accurately reflect both the inflationary environment and the position of their employer.
The minimum wage is about to increase 6 per cent to reflect inflation, but would you settle for the same?
For those who can, my advice is to aim higher. Much higher. The Consumer Price Index (CPI) might be a perfectly valid benchmark, but it doesn’t always tell the full picture in a wage negotiation.
Our CPI is a simple price tool. It doesn’t reflect the 42 per cent of New Zealanders who failed to get a pay rise in 2021. The 58 per cent who did overwhelmingly got less than inflation. Nor does it tell the story of 2020. There’s an urgent element of catch-up at play. Our CPI may include the wildly irrelevant cost of vaping, but it fails to embed the rising cost of a mortgage.
Accommodation is reflected only by rental and construction costs. These make up 19 per cent of the index, but if you’re spending more than a fifth of your wages on rent, it’s not a true reflection of your personal squeeze. Nor is it a good proxy for your mortgage situation in many cases. Some families have up to half their earnings going on accommodation costs.
The index is also not a tool that alerts you to any of the silent wage gouges like tax. Tax brackets should move with inflation, but you guessed it, they don’t. The drift into a more expensive bracket means many more people are now paying a higher rate. It’s another squeeze on your cost of living and one that gets forgotten in wage negotiations.
The trio of squeeze merchants – inflation, your personal housing costs and the impending tax whack in the form of 1.39 per cent unemployment insurance and tax-rate drift – all need factoring in.
With some sectors suffering dramatically under Covid-19, further government subsidies to support wage pressures are needed. The tactic of pay suppression has simply burnt out.
It’s a global squeeze
In Britain, where inflation is running at an annual rate of 5.5 per cent, the Tony Blair Institute for Global Change calculated the pay rise required for workers to maintain their standard of living.
Of course the structure of the trio of squeezes is different (inflation, mortgage increases and tax), but still share more than a passing likeness to New Zealand.
It’s estimated the average UK worker requires an 8 per cent pay rise to maintain their standard of living. In the bottom fifth of workers, a 10 per cent increase is needed to keep on top of bills.
The Unite Union in Britain has pushed for a 7.5 per cent pay round, but much higher negotiations have already taken place in different industries.
One group of heavy goods vehicle drivers at Luton Airport achieved 20 per cent, and vehicle technicians at Mercedes negotiated 13 per cent.
Double-digits isn’t a wild fancy. Like anything in economics, averages don’t tell the story.
How to conquer the price squeeze
If standard pay negotiations don’t work, respectfully exit and keep moving during the next five to eight years. While job-hopping isn’t good for the CV, the winners will choose their moves carefully and not get in a rut. At any life stage, it is important not to get wage gouged by a static salary and rising costs.
If you’re in a struggling industry that doesn’t get government support very soon, cut and run. This is your life and your financial security. If your skills are transferable, go.
Have an up-to-date CV, increase your activity on LinkedIn, stay in touch with old colleagues and managers from the past and treat your job like a house purchase, i.e. push refresh on the job websites. Keep that balance between loyalty and knowing your worth.
Ask for promotions in your pay negotiations. Delivering more responsibility or higher productivity for an employer can disguise a pay rise or make it more palatable.
Negotiate bonuses as this demonstrates a willingness to share risk.
Continue to educate and upskill, showing an employer they are getting more for their money.
Use your negotiations to get cost benefits. If work-from-home suited you and cut your transport costs, work this into your negotiations and maintain it for a portion of your week.
Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. Opinions are a personal view and general in nature. They are not a recommendation for any individual to buy or sell a financial product. Readers should always seek specific independent financial advice appropriate to their own circumstances.