The UK’s inflation rate hit 9%, a forty-year high, in May this year – rising inflation is largely linked to the crisis in Ukraine. While the Bank of England has raised interest rates to try to control the rapid growth in the costs of goods, individuals are still struggling to make ends meet on their current salaries.
As a result, some employers are intervening to support their workers. A recent example is aircraft engineering giant Rolls-Royce Holdings Plc.
As reported by the Financial Times, in a memo to staff, Rolls-Royce CEO Warren East, wrote: “We are living through exceptional times, with economic uncertainty largely driven by the continuing impact of the global pandemic and more recently the war in Ukraine. All of this is impacting each of us at home, at work and in our pockets.”
In the same memo, he announced that Rolls-Royce would be awarding a £2,000 bonus to 14,000 workers, this includes 11,000 shop floor workers and 3,000 junior managers. Rolls-Royce employs a total of 20,000 workers in the UK.
In addition, Sky News reported that the shop floor workers would receive a 4% pay rise (back dated to March) if the deal was accepted by Unite the union. This pay rise is “the highest annual pay rise for at least a decade”.
Rolls-Royce claimed that the bonus and the pay rise were the equivalent of a 9% rise in compensation for the year, which is the same the rate of inflation.
East wrote in the memo that a “simple wage increase” wasn’t “affordable” and it would be “irresponsible”.
Sky News reported that the pay rise and bonus is expected to cost Rolls-Royce around £40 million, which isn’t insignificant given that the COVID-19 pandemic impact severely impacted the company’s business.
While the company reported more than £16 billion in revenue in 2019, this dropped to just under £12 billion in 2020. It reported a gross loss of £210 million in 2020, after a profit of $942 billion in 2019.
The company had been forced to lay off significant numbers of staff – Fortune reported that they slashed 9,000 jobs globally. It also had to introduce debt and equity financing to balance its books.
It remains unclear if Rolls-Royce will be offering a similar bonus or pay rise to any of 30,000 employees outside of the UK – the company has employed in the US, Germany and Japan, and all of these countries are being impacted by the cost of living crisis.
Rolls-Royce’s move to raise pay and use bonuses to support employees through the cost of living crisis comes hot on the heels of other UK brands doing the same.
A noteworthy example is Lloyds Bank. Just last week, Unite the union announced it had won a £1,000 bonus for all staff at Lloyds to help them deal with the cost of living crisis. The bonus will be paid in August.
Of course, supporting employees during periods of high inflation is likely to help retain them in the ongoing ‘Great Resignation’.
However, some employers, particularly smaller brands, may feel that they cannot afford to pay bonuses or introduce pay rises in this current economic environment.
Instead of doing nothing – and risk sky high attrition rates and the need to spend on recruitment – employers can focus on supporting employees’ financial wellbeing.
Research by WTW found that worker financial wellbeing has declined significantly over the pandemic, and they want support from their organizations.
Rather than a pay rise, this could be access to financial management tools, financial advisers or earned wage access solutions so they don’t have to wait to the end of the month to get paid.