Is freezing staff pay a step too far?

When Selfridges announced it was bringing in a pay freeze for all its staff last month, it became the latest retailer to take drastic steps to cut HR costs. With budgets under immense pressure throughout retailers’ businesses, the most expensive cost of all – people –  always comes under the spotlight.

While making savings in the staff payroll is essential when turnover is hit, it is a dangerous tight-rope to walk. Not being able to offer rises in pay or commission for top performers exposes a retailer to the risk that staff morale will quickly plummet. And enthusiasm can mean the difference between a performing and underperforming business.

The question of which level to set remuneration is much debated among retailers. Russell Andrews, managing director of his eponymous HR consultancy, says: “Ideally all retailers would want to give a cost-of-living rise and reward the best performers. But some are having to cut costs to the level that they can’t afford to do that.”

So with no easy answer to the pay freeze dilemma, what do retailers need to be aware of before making the call? When discussing the issue of wages versus talent and retention in a Retail Week Conference session on protecting profit  Debenhams chairman John Lovering said: “One of the by-products of the recession is that if you’re working for a progressive company where the leadership can demonstrate a positive future, that’s more important than moving for a penny or two.”

Yet in another session on managing teams in tough times, Kingfisher chief executive Ian Cheshire said that financial reward is crucial. The retailer is, for instance, rewarding some of its best-performing store managers with shares worth up to six months’ wages. “It’s critical that people are recognised,” he said.

But, of course, delivering pay rises and bonuses isn’t the only way to boost staff morale. Being able to offer staff security might be the best attraction of all, and often a more imaginative approach can pay dividends.

Freezing salaries or cutting bonuses to directors might not necessarily save a vast amount in overall business-wide cost-cutting, but it will send a powerful message to the workforce. Andrews says: “What you will find is companies will freeze board or senior management salaries but give an increase to other staff. Those who can afford it best won’t get a rise and those who can’t, will.”

Retailers are feeling the pinch and people costs are being scrutinised.

However, companies should be wary of going down what looks like an easy route and freezing pay without first considering the alternatives.