Maxumise/HRmonise – Australian Salary Curves 2018 – 2019

By Max Underhill from Maxumise Consulting Pty Ltd – August 2018

Well Scott Morrison tried hard to talk up salaries and wages while he was treasurer, with little success, so what will he try now he is PM.  These predictions were the most difficult we have every experienced despite a mid-term review earlier in 2018.

While the politicians and Reserve Bank of Australia (RBA) talking up the need for increased base salaries and wages, generally the 2017-18 salaries did not grow at the “budget forecast” rates.  The exceptions were the top-end positions in sectors where remuneration is in, or above the top quartile.  Contrasting with this the lower quartile total salary curves remained static or in cases drifted backwards, an unusual phenomenon in normal times.  Clearly these are not normal times and we feel there are still more surprises to come for salary predictors.

Maxumise/HRmonise develops the position size and value based on its contribution to the organisation i.e. ideal position design.  The HRmonise system can also assess the capacity of the incumbent to ensure equity is maintained and bias is removed.  Maxumise has been advocating for a greater focus on performance pay and a clear distinction between the base (contribution) value and other components of the package, especially performance reward.  This was part of the outcome of the Australia Productivity Commission Review of Executive and Board Remuneration – submission and hearing 2009/2010.  APC Commissioner stated that; “Maxumise put science into human resources management” referring to remuneration practices and methodology.

The 2017 budget was based on the Official Wage Price Index to increase from 1.9% to 3.75% in 4 years.  The Maxumise/HRmonise curves for 2017/18 predicted some significant increases for the top positions (especially Band 7 and 8) that were in organisations that paid in the top quartile and above.  Whilst these top-end base salary increases occurred, there was also a strong trend to increase the pay at risk component rather than further base salary increases.  As a contrast, bottom end increases for the lower level positions (Bands 1,2 and 3) were generally around 1% to 1.3% but in the bottom quartile and below there were even negative increases.

The Maxumise/HRmonise predicted curves for 2018/19 were developed in July with reviews planned in February/March.  These predictions are developed, firstly from an analysis of the previous year (2017/18) salaries based on our information and a number of salary surveys.  Secondly, on an analysis of the economic trends and projections as well as various wage & salary predictions for the next year.  In 2018/19 the previous year actuals were slightly lower at the top end predictions curve and adjustments were made (1.0% to 1.5%).  At the lower end, adjustments (-0.05% to 1.3%) were also made.  Therefore, the Maxumise/HRmonise curves provide modest predicted increases for 2018/19 as shown in the salary curve diagram below.

The HRmonise Band size is a continuous curve representing the contribution of a position designed using an outcome methodology quantified through the competency framework.  The band size is then converted to the appropriate salary curve based on location and market positioning.

There have been a number of factors that have impacted on the salary movements in the last 3 to 4 years and indications are that these influences will continue, with the addition of possibly new factors.  2016/17 saw higher increases in sections of the Public Service than the Private Sector.  These were largely “catch-up” salary adjustments so need to be viewed as “over time” increases.  In 2017 the median weekly pay increased by an average of 1.9% according to ABS.

A number of specific salary-based pressures, hence risk factors, exist including talk of base interest rate increases, which would impact many Australians, especially those described as currently in “housing stress” i.e. rent and mortgage.  Power prices is just one of the many other “pressure points”.  Between now and middle of 2019 will also see a Federal election as well as two State elections introducing additional uncertainty.  Maxumise continues to monitor the obvious risk factors and would review the curves if a trigger event occurs.

While there is a growth in employment figures there is an increase in under-employment and also a change in traditional employment with 1 in 11 employees employed under “casualisation” i.e. Gig economy.  With the increase of technological change this Gig employment is likely to continue to grow.  However the divide between the “haves” and the “have less” is also likely to grow.

As from July 2017 the Fair Work Commission (FWC) has reduced the penalty rates for a number of industry/positions with the corresponding decrease in take home pay.  The FWC also brings down a range of Minimum Wages for various classifications of employees.  In addition to the standard minimum wage a “Special National Minimum Wage 3 applies to an award/agreement free Junior employee.” Determination of wage based on “age”, we believe would be discriminatory under ILO Chapters, especially when other Special Minimum Wages are theoretically based on a capacity assessment process.

Consumer Price and Inflation Patterns:

Consumer Price Index and Inflation contribute significantly to the household pressures and while we hear about energy prices and childcare costs these are really not singled out in the ABS figures.  The difficulty is that the pressures depend on factors such as location but more importantly individual circumstances which can be different for each of us.

Consumer Price Index change for the twelve-month period to June Qtr. 2018 is shown in the following table by ABS:

Inflation/Consumer Price Index rates are key factors in the prediction of salary movements.  The last 12 months of total CPI as well as by group is shown in the table above.  The Australian overall inflation from 2015 is shown in the following graph which includes 2020 prediction of 2.5% which is in line with the trend line:

Maxumise is a leading organization in the development and application of competency-based organisational and HR programs.  Maxumise provides both the methodology and the Human Capital Management (HCM) software system “HRmonise” to support the methodology ensuring the true integration of human assets into the organisational planning and delivery.  HRmonise is a comprehensive management tool that integrates organisational and human resource management programs including the sizing and valuation of positions as an automated outcome of the design.  HRmonise also has an automated valuation of an applicant occurs as part of the recruitment or on assessment of an incumbent.  HRmonise also manages the performance which incorporates a predictive modelling approach to reporting.

In conclusion:  Maxumise is baffled as to why the Politicians and RBA are talking up just base salary increases to drive up consumption when properly designed and managed performance reward systems can have the same impact while improving efficiency.

Please contact: Maxumise Consulting Pty Ltd