The Big Pay Freeze?

Many companies have frozen pay awards in order to protect jobs in the recession – but is this truly a viable business strategy? Gary White, Business Advisory Partner at Essex-based chartered accountants CBHC LLP examines the issues.

The Big Pay Freeze?At the height of the recession, freezing pay awards was an understandable action – and given the fact that living costs were not increasing, partly thanks to nationwide initiatives including the zero interest rate, the case for this action couldn’t really be disputed. There was a general understanding amongst most staff that such a move was necessary, and some took reduced hours or even worked for no pay at all. More recently, however, talk of economic recovery (combined with a rise in the cost of living) has challenged this general attitude of acceptance.

There has been much criticism of bankers’ bonuses – but these institutions have defended their actions by citing the need to attract and retain talented staff, and this is a factor that every business should bear in mind. If staff begin to feel undervalued, they may take alternative career opportunities in the subsequent upturn, and take valuable knowledge, experience and contacts out of the company. That said, with the outlook still largely uncertain, there hasn’t been a rush of companies returning to pay awards just yet.

Of course, there is another way of ensuring that staff remain motivated and engaged without increasing pay. Remember that they aren’t simply motivated by monetary gain – they also want to feel valued, and also enjoy a sense of progress within their role. The first step is to demonstrate that the company appreciates its employees, which could be as simple as a personal phone call or a letter thanking people for their commitment and support during a difficult time. It’s also vital to keep people informed of the status of the company – as far as is reasonably possible. Keeping employees in the dark can engender anxiety and resentment, which decreases productivity and creates a negative-thinking and risk-averse culture. Keep communicating with them too – tell them that it’s too soon to resume pay awards if that is the case, and schedule in dates to review the situation.

Tougher economic times don’t necessarily mean you have to stop rewarding staff. Thoughtful yet inexpensive incentives such as spot prizes, ordering in pizza at lunch or being more accommodating with requests for flexible working hours will go a long way to encourage trust and loyalty. Another way to keep hold of your top performers and ensure their commitment is through training and incentive schemes. For example EMIs (Enterprise Management Incentives), which are tax efficient for both employer and employee, and give employees a vested interest in the company’s future without significant outlay.

The last recession proved that a company which communicates will with its employees, and invests in them in some way despite the downturn, reaps the reward of a competitive advantage in the subsequent recovery. Which goes to show that pay freezes may be necessary – but if other measures are in place to keep staff morale up, this measure will not damage your business.

Gary White is the Business Advisory Partner at CBHC, one of the largest independent firms of independent Chartered Accountants in Essex and East London. With over 30 years of experience in corporate finance, working with large organisations such as Unigate and DairyCrest, he is ideally placed to advise on all aspects of commercial financial strategy. An entrepreneur in his own right, Gary is passionate about helping businesses to grow and fulfil their potential. He is also firmly committed to football, and is the Financial Director of Colchester United Football Club.

CBHC Charted Accountants LLP has offices in Essex and London, and works with over 4,000 SMEs across a range of industries. To find out more visit

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