How to negotiate a pay rise in a tough economy

The nation’s leading economists want you to get a pay rise, as does ABC business editor Ian Verrender, who calls asking for a pay rise part of our patriotic duty to save the economy.

However, increasing remuneration for workers appears to be firmly off the agenda for many organisations, spooked by economic uncertainty created by the pandemic shutdowns.

According to the Reserve Bank of Australia’s (RBA) Statement on Monetary Policy released in February 2021, “many employers have responded to the economic challenges of the pandemic by delaying wage increases, imposing wage freezes and, in some cases, applying temporary wage cuts. Forward indicators suggest wages growth will remain soft this year.”

While wage growth in Australia is currently at a record low of 1.4 per cent, this hasn’t always been the case.

As economist Jim Stanford explains in The Wages Crisis in Australia, “in the decade before the GFC [global financial crisis], labour incomes in Australia grew steadily and strongly, at annual rates of 4 to 5 per cent or even higher”.

The current deceleration in wages dates from 2013, when the Wage Price Index fell below 2 per cent, where it has stayed ever since.

During Dr Philip Lowe’s five-year tenure as RBA governor, he has repeatedly called on employers to increase wages to help keep up with inflation, which ideally tracks between 2 per cent and 3 per cent each year.

In 2018, Lowe gave 3.5 per cent as a healthy rate of growth for wages, far above the current rate of 1.4 per cent.

Economists' case for wage rises

Slow wage growth reduces household gross disposable income, which impedes consumer demand and results in lower government revenue. With interest rates at a record low, the RBA is relying on wage growth to boost inflation and kick-start economic growth.

Wage stagnation “is a real problem”, says Dr Mark Dean, Laurie Carmichael Distinguished Research Fellow at the Australia Institute’s Centre for Future Work.

“If businesses aren’t investing in new staff or other capital investments due to uncertain economic conditions, along with no wage growth, this can have a real effect on aggregate demand. There’s a total lack of spending.”

Wage growth can also benefit employers. Unemployment figures released in June 2021 showed a 4.9 per cent decrease in unemployment, and the participation rate remained at 66.2 per cent.

With skilled migration reduced due to the closure of Australia’s international border, there is a strong chance we are entering a new war for talent.

Dean says that, “as demand increases for accountants and finance professionals”, organisations that are willing to award pay rises to valued employees are more likely to secure – and retain – highly skilled and experienced staff ahead of competitors.

How to negotiate a pay rise

Securing a pay rise is, of course, easier said than done. If you are ready to do your “patriotic duty” and negotiate with your employer, career counsellor Lois Keay-Smith, founder of Career Wisdom, offers these tips to help improve your chances of success.

Do your research

Articulating a solid case for a pay rise requires preparation. “It is about doing your homework, looking at what you’ve brought to the table and reflecting on it,” says Keay-Smith.

Quiz trusted colleagues in an “informal 360” on their views of your strengths and achievements. “Talk to others about what they’ve noticed,” says Keay-Smith.

“If you’re sitting at your desk doing great work, but no one knows about it, it’s difficult to have a meeting with your boss to ask for more money.”

Consider your place in the market

Research the current state of play in your organisation and your industry more broadly. “Do your homework on current rates of remuneration for your role, and be aware of how you’re valued in the marketplace,” says Keay-Smith. “Salary surveys help.”

Dean adds that “employees are in a good position to negotiate for pay rises when there are skills shortages”.

Accountants are currently in short supply in South Australia, for example, thanks to the migration of services to larger cities in the eastern states.

In 2019, just 57 per cent of accountancy vacancies in South Australia were filled, placing qualified accountants in a strong position to negotiate for higher remuneration.

State your case

You should present a three-pronged argument for your pay rise. First, articulate the value you bring to the organisation in your current role and provide concrete examples of your success.

Second, outline the opportunity cost – ask, “If I wasn’t there, what would be the outcome?”. However, Keay-Smith cautions that “it’s important not to overplay this one, because no one is irreplaceable”.

Finally, speak to your values as a person – your strengths, attributes and commitment to your role – and your future contribution. “In these times, leaders are looking for people who can step up and bring new ideas and more value into the future,” Keay-Smith says.

Try and try again

If your request for a pay rise is refused, don’t give up.

Seek an agreement to review your request in three or six months, suggests Keay-Smith. Find out “what needs to change between now and then, and what you can work on during that time to put yourself in a better position”.