The relationship between risk and salaries
How does risk impact the salaries that businesses are able to pay their staff? And how does the sum a firm pays out in wages affect its risk profile?
Risk and salaries have a very close relationship, with companies needing to be in a comfortable, relatively risk-free position to be able to pay their employees a reasonable wage.
The gender pay gap has made global headlines in recent weeks, affecting every industry from Hollywood to business management, and significantly impacting the risk profile or organisations that are embroiled in the row.
Meanwhile, the British government is preparing to introduce the new National Living Wage from the start of April 2016, with firms’ risk profiles set to soar if they do not pay their staff in line with this new legislation.
Companies’ reputations can suffer long-term damage as a result of failure to pay their employees fairly, but how else does risk impact salary?
What are businesses paying their staff?
According to the latest figures from the High Pay Centre, the average UK salary currently comes in at £26,500, while statistics from the Recruitment and Employment Confederation (REC) for its January 2016 JobsOutlook survey revealed that the majority of businesses (97 per cent) are in a position to pay both their temporary and permanent staff the same sum. Some are even so comfortable that they can afford to pay locum workers more.
The REC also found that 80 per cent of organisations feel optimistic about the months ahead, indicating that current salary levels will be maintained or increase in the near future.
With the lion’s share of firms able to pay their staff a fair wage at present, this suggests that financial risk is not an issue for most businesses.
However, from April 1st this year, employers across the UK will have to pay their staff at least £7.20 per hour by law. Those who fail to do so could face significant financial penalties, as well as potentially irreversible reputational and legal damage.
UK business secretary Sajid Javid commented: “The government believes that Britain deserves a pay rise and our new National Living Wage will give a direct boost to over a million people. We are building a more productive Britain and giving families the security of well-paid work.”
But can businesses enjoy the same level of security when it comes to salaries impacting their risk profile?
Gender pay gap risks
The most up-to-date figures from the Equal Pay Portal show that as of April 2015, men in the UK earned an average of £567 per week, while women took home £471 for the same number of days work.
Since 1997, the gender pay gap has remained largely the same, at around £100, but this gap does not tend to be as pronounced for younger females. Statistics show that women aged between 22 and 29 often earn more than their male counterparts, but it is around the age of 30 to 39 that the gender disparity becomes more prominent – possibly due to the fact that this is when many women return to work after starting a family.
The size of the gap also varies significantly from industry to industry, with the Equal Pay Portal finding a 4.3 per cent gap between the earnings of men and women in the sales and marketing sector, but a 24.6 per cent difference among skilled trades professions.
However, as of 2018, all businesses throughout Britain will be required to report on what they pay their employees, in a bid to increase visibility and end gender-related discrimination in the workplace for good.
The UK government has announced that it will begin collecting data from firms in 2017 to find out the size of the bonuses they pay both men and women, and how their salaries differ.
Commenting on this move when it was first announced last October, Ann Francke, chief executive officer of the Chartered Management Institute, stated: “The government’s new reporting legislation is a welcome step forward and will be good news for business.
“Clearer employee data, improved recruitment and a reinvigorated focus on business culture will help unblock the talent pipeline and support more women to become senior managers and leaders.”
Therefore, as this plan is rolled out over the next few years, businesses will need to take what they are paying their employees into account when devising their risk management strategies, as this information will be made public for the first time.
As a result, workers may see changes to their pay as their employers strive to protect their reputation and comply with the new legislation.
How risk management specialists can help
This is where risk management specialists come into the equation. By recruiting a specialist in this area, businesses can ensure they are remaining compliant with the new government rules and increase their chances of retaining and attracting the best staff.
Ultimately, by keeping their risk profiles to a minimum, firms can ensure they are in the best possible position to pay their staff the wage they deserve, perhaps even above what the government states they must pay as a standard.
Fair wages mean happy staff, and fewer resignations means a reduced risk profile, so it’s vital that organisations take salaries into account when devising their risk strategies.
Our Market Reports combine our review of the prevailing conditions in the risk management recruitment market together with the results of our latest employer survey.
Image: iStock/Ivelin Radkov