Rising wage pressures demand a total rethink of pay, benefits and employee value, writes Simon Cook
Where margins are tightest in business, change imposed from global and domestic shifting policies will always bring jeopardy.
The National Living Wage (NLW) increases annually but the most recent rise is above the current inflation rate and comes in addition to an increase to Employer’s National Insurance Contributions. If they weren’t already, employers throughout the UK are waking up to the harsh realities this April presents. In the FMCG and manufacturing sectors in particular, these changes are a further hammer blow for many who are still reeling from the supply chain after-tremors of Brexit and the uncertainties of recent global tariff announcements.
While much hard work is being done to automate, streamline and mitigate the risks being faced, the FMCG employment model is still fundamentally labour intensive. Many of the simple daily tasks at the core of operations – product assembly, packaging, delivery – rely on entry-level workers, many of whom have received an above inflation pay rise.
For many businesses running on low margins this will soon start to bite, putting an intolerable squeeze on profitability. CEOs recognise the importance of ensuring the lowest paid employees receive appropriate pay increases. In the context of rising costs for FMCG and manufacturing businesses, the latest rise does lead to some uncomfortable questions on the current business model such as:
- Do we raise prices and risk decline in sales and market share?
- Could this further compound the current uncertainty around tariffs?
- Should we make redundancies, rethink staffing levels or reduce employee hours?
All these measures might save money but could negatively impact employee morale, efficiency, productivity and customer service.
A major challenge for employers
These changes for the lowest paid are likely to impact up the chain as businesses respond by revising down their pay budgets. Employer’s face an uphill battle trying to balance the books while remaining competitive in the talent market. In a recent survey by Innecto, the average pay award in 2025 is expected to be somewhere between three and four percent, a long way behind the 6.7 percent NLW uplift.
For many, the NLW rise will also create pay compression challenges, where the difference in pay between the lowest-paid and the next up the rung, including supervisors, is squeezed. Smaller pay pots create tougher circumstances for employers because they restrict the ability to vary reward and provide targeted increases to specific groups to differentiate on responsibilities or technical skills.
The major challenge for FMCG and manufacturing businesses with diminishing pay budgets is how to retain high performers, flight risks or those whose pay may be lagging behind the market rate. The focus for many in the sector is to move beyond just the pay conversation to ensure the total reward package is an attractive proposition for new and existing employees.
Redefining flexibility and benefits
While businesses have spent the last few years trying to match pay with living costs, the role of benefits may have taken a backseat. Many companies are now choosing to revisit their schemes and sense-check them for relevance. If they were designed pre-pandemic, they may now seem outdated and unattractive due to the pace of technological changes and shifts in the working norms.
While the debate on flexibility has mainly focused on working-from-home, it is not the only factor at play. There are many ways flexibility can enhance the lives of workers without hitting the bottom line. FMCG and manufacturing, of course, tend to require more of a full-time presence in depots, factories and operational hubs, certainly for the lowest paid. The make-up of the working week can however play a big part in helping people achieve better work-life balance.
The question for FMCG businesses is how to make workers more ‘time-rich’ without impacting productivity. Is it possible to pay someone the same, while also letting them balance work better with ‘life’ duties like childcare or caring for an elderly relative? Can rotas be more agile? Could a four-day week work, or other compressed hour models? Studies have shown how flexibility that aids retention can actually boost productivity in the long term.
Rethinking the power of an EVP
Beyond simply adjusting pay scales, we would argue that this challenge calls for a more creative rewiring of the entire Employee Value Proposition. Too often, we reduce our EVP to pay, perks and benefits. These are all important, but a compelling EVP should also influence employee satisfaction, loyalty and effort. When organisations align their EVP to business outcomes using the service-profit chain, encompassing more value-led principles like purpose and culture, they can achieve tangible results. It is a well-established customer experience model: employee satisfaction drives customer satisfaction, which in turn fuels revenue and profit.
One UK hospitality brand recently saw a 5% increase in employee satisfaction, leading to a 1.3% boost in customer retention and a £2.4m boost in additional revenue (ref: Institute of Customer Service). Rather than seeing it solely as an HR tool, businesses like this are finding a way to use their EVP as a business lever connecting employee experience and fulfilment with commercial performance and outcomes.
Financial and health wellbeing
With the after-effects of Covid still lingering alongside genuine cost-of-living concerns, providing workers at all levels with health support services and a sense of protection has never been more valuable.
No longer a tagged-on afterthought, benefits promoting financial and health wellbeing are now essential parts of a package extending to mental health support, preventative measures in health and wellbeing and financial support usually accessed via an EAP. Health services might include online GPs and access to one-on-one counselling or group therapy. Preventative measures can include screening, diagnostics and physio, all of which are increasingly available to manual workers through more affordable cash plans.
Affordable insurance products can cover loss of work and earnings for hospital stays or outpatient visits, and an EAP can provide a safety net of help and guidance around debt, workplace loans, financial planning, retirement and redundancy advice and insurance products.
Three key action points for 2025
Irrespective of the benefits you currently offer, we are flagging three key action areas for 2025:
Communicate – simple and effective communication around existing benefits can make or break workers’ understanding of what is on offer in the EVP and how much they use and value it.
Review your suppliers – by maintaining a healthy dialogue with your benefits suppliers you will maximise the value you receive and keep up to date with any changes, offers or perks.
Embrace tech – engaging fairly around reward and benefits with a dispersed or deskless workforce can be difficult, but it is much easier with the latest HR tech tools. A smartphone app can now make all these benefits and support systems available to every worker 24/7, also allowing you to improve benefits equality, personalise the offering, communicate seamlessly and measure engagement.
Simon Cook is a Senior Consultant at Innecto Reward Consulting
