I heard a well-known economist and speaker being interviewed on the radio this week. He was asked about the effect of wage increases on inflation and the risk of an inflationary spiral. His answer was that increased pay would not lead to inflated prices if productivity increased to match the increased cost.
By chance, a conversation with a client at around the same time resonated with this. We were talking about how he could afford to give a key employee a pay rise. He wanted to recognise the employee's contribution and hang on to him but his manufacturing business, like many other businesses, is under pressure from increased material and labour costs and aggressive competition holding down prices.
The employee concerned is willingly (and competently) taking on more responsibility and as a result my client is able to spend more time winning new business. We were able to construct a simple business case that shared this continued improvement in productivity (that is, profitability) in the business with the employee concerned.
A couple of points struck me:
Firstly, I think my client only talks about productivity when I raise it. Certainly the economist's point would not to him seem relevant to his business. The concept of making increased reward conditional upon increased productivity, whilst not startlingly new, would be seen as contentious and likely to upset employees. In this case it worked because the pay increase followed the productivity increase.
Secondly, the increased productivity of the employee concerned, and more generally across his workforce, has come about after years of effort by my client to manage people differently, dozens of incremental process improvements, implementing structure and standards...and the occasional backwards step.
Sustainable productivity improvement is not something that can be achieved overnight, by fiat, or (I suggest) as part of a pay negotiation.
You can get help, information and resources to improve the productivity of your business here.
