The world of work has evolved significantly over the last two years both in terms of how businesses operate and what employees want or need from their employment. This means that how businesses must manage their people in 2023 and beyond now looks very different.
Current employment climate
To understand what the key areas of people management are likely to be moving forward, it is necessary to reflect on the past year and consider the current employment climate.
2022 was a challenging year because of the significant rise in the cost of living, the threat of a recession, and labour market challenges.
We carried out our annual SME Business Survey at the end of last year to understand the challenges facing small businesses. Here are some of the key findings:
- 51% predict continued rising costs will remain a challenge for 2023
- 50% believe employee retention to be the most important aspect of people management to focus on in 2023
- 70% stated that available finances will have the biggest impact on decision making.
No. 1 Employee wellbeing
In our SME survey, 85% of business owners reported that mental health was their most important area of Health and Safety going into 2023. This comes as no surprise, given the impact the pandemic has had on mental and emotional wellbeing, and now we are seeing how the cost of living crisis is also contributing to poor mental health.
We also know from the Health and Safety Executive (HSE) from their most recent report (published November 2022), 914,000 workers suffered from work-related stress, depression, or anxiety in the period 2021/22.
This is from a total of 1.8 million work-related ill health cases, meaning that, proportionally, work-related mental health cases amounted to 65% of all work-related ill health cases. The HSE also reported that these ill health cases equated to 17 million lost working days, higher than pre-coronavirus levels of 2018/19
No. 2 Employee Retention
Research in our SME survey identified that the biggest employment challenge from a people management perspective was employee retention (50%).
Retaining employees is certainly an area of high importance as it can be costly to replace your top performers. In fact, it can cost more than double an employee’s annual salary to replace them, making employee retention far less expensive than recruitment.
Research published in June 2022 by the Chartered Institute of Personnel and Development identified that more than 6.5 million people in the UK reported that they were planning to leave their jobs in the coming twelve months.
The main reason for this was to find employment offering better pay and benefits, as well as increased job satisfaction and a better work-life balance. We expect this trend to continue in 2023 given the cost of living continues.
We also expect to see in 2023 a shift in how employees view the pay, benefits and perks that they receive from their employment. We know that an area that motivates an employee to stay, is their total reward package, i.e. the monetary and non-monetary benefits they receive.
In the past, employees may have been motivated to stay because their employer provided pay, benefits, and perks in line with what they wanted.
Whereas now, in 2023, when we continue to face an increase in the cost of living, it is likely that what motivates an employee to stay may no longer be about what it is they would like, but instead, whether their employment gives them what they need.
No. 3 Capability
The SME survey also found that the second most important aspect of people management for 2023 was employee capability (44%). Here are some further concerning statistics in regard to skills:
- In The Open University, ‘Business Barometer 2022’ report, it states that 78% of UK organisations suffered a decline in output, profitability, or growth because of a lack of available skills.
- The Federation of Small Businesses have also reported that 80% of small businesses faced difficulties recruiting applicants with suitable skills.
- The Recruitment & Employment Confederation estimates that if labour shortages are not addressed it would cost the UK economy £39 billion and warn businesses that skills must be seen as an investment rather than a cost.
It is evident that the capability of your employees is crucial to the overall performance of the business and is significant when recruiting and should be central to an employee retention strategy. High-performing employees will know what is required of them and how they can continue to progress.
Understanding how employees approach a task and assessing their natural capabilities is useful for developing team members, and ensuring roles are the right fit for their skills and experience.
No. 4 Employee Engagement
With the recruitment challenges, skill shortages and increased costs, focussing on employee engagement will be essential in 2023. When employees feel engaged, they are likely to feel happier and fulfilled and evidence shows that this can lead to higher performance.
Not only that, but you are also likely to retain your staff which therefore keeps overall recruitment costs low.
In our SME survey, an organisation’s culture came third, as being the most important aspect of people management over the coming 12 months, with 39% of the vote. Company culture underpins people management and business performance. If employees feel comfortable at work and workplace practices, this contributes towards positive employee engagement, and the ability to retain staff.
In a further study, published in People Management (2 February 2023), it reports that 34% of UK employees do not consider their workplace to be a community with 65% admitting that they want to feel a strong sense of belonging at work.
No. 5 Flexible and hybrid working
How business is carried out is significantly different to five years ago. Following the pandemic, many businesses have learnt that there are many significant benefits to both the business and employees, by offering a workplace that recognises flexible and hybrid working.
The UK continues to recover from the pandemic, at the same time businesses are dealing with a challenging recruitment market, skill shortages and a cost-of-living crisis which is almost putting the UK into a recession.
Operating more flexibly allows businesses to respond better to external influences, tackle the growing mental health crisis, find the best talent from a wider recruitment pool and become more diverse and inclusive.
It also influences employee engagement which ultimately aids employee retention.
Even though many people have returned to the ‘normal’ place of work after the pandemic, many businesses continued to offer hybrid working because they recognise the benefits that come with it.
2023 is expected to be another challenging year and so the use of flexible and hybrid working as a strategic tool could put an employer at the top of the list when it comes to people’s job searches and whether people decide to stay or move on to alternative employment.
No. 6 Recruitment
Recruitment continues to be a challenge as we enter 2023. A shortage of candidates continues and the ability of small businesses to compete with larger organisations for top talent is getting harder when SMEs have significantly lower budgets in a cost-of-living crisis.
With rising costs, employees’ motivation for pay and reward is more likely to be based on need rather than wants, and the ability to attract and recruit will need to focus now more than ever on the overall total reward package.
In our SME Survey, recruiting staff was in the top 3 of major business challenges facing employers.
A recruitment strategy should form part of your strategic people plan for 2023 and needs to be skills-based and incorporating imaginative solutions that are cost-effective.
It is also going to be important to consider what your organisation’s ‘Employee Value Proposition’ is (EVP). An EVP is the unique set of benefits that an employee receives in return for the skills, capabilities, and experiences they bring to the organisation.
The ability to accurately define your own organisation’s EVP can enable you to effectively attract the best talent but also help you to retain the best.
Recruitment is just one important aspect of EVP. An effective recruitment process that clearly aligns with the organisation’s vision and values will help the company to stand out from its competitors. Communicating your organisation’s EVP throughout the recruitment process means you seek out the best candidates and talent.
No. 7 Pay and Reward
Our SME Survey found that the third biggest financial challenge for SMEs was salary increases (49%). We also know from the same report that the most important aspect of people management is employee retention (50%).
Pay and employee retention are correlated, and as we have already explored, it is likely that we see a shift in how employees view their pay, benefits and perks in 2023. In light of the current cost of living crisis, it is to be suspected that what motivates an employee to stay with their employer is whether their employer gives them what they need financially.
We ran polls in a recent webinar and found:
- 31% have a Reward and Recognition strategy, which was either standalone, or incorporated within their People Plan
- 48% believed that having a Reward and Recognition strategy could positively impact employee retention, followed by 32% on employee engagement, and then 19% on the ability to recruit
- 27% plan to give a pay rise to their employees this year
- The level of pay rise anticipated by respondents were:
– 18% would offer between 1 – 2%
– 58% would offer between 3 and 5%
– 9% would offer between 6 and 7%
– 6% would offer between 8 and 10%
– 3% would offer around inflation levels i.e., around 11%
- 77% would offer a one-off discretionary bonus this year as an alternative to offering a pay rise.
Reward and recognition is vital not just in attracting candidates but it also supports high levels of engagement and therefore aiding staff retention.
No. 8 People Data
People data and analytics is an area of HR that doesn’t often get attention but given the challenges facing business, it is a good opportunity to consider what it is and why it could be valuable to your business in 2023 for responding to the current economic and employment climate.
Having available accurate and timely data leads to effective decision-making that can make the difference between success and failure when delivering on the business strategy. It enables you to make targeted decisions that specifically address issues facing the business and our employees.
For instance, if you capture data on reasons why employees leave your business, this data can then be used to identify trends and problematic areas that need investment in order to improve and therefore prevent staff from leaving in similar circumstances.
No. 9 Technology
Following on from how people data can be beneficial and influential for a business, it follows that businesses should have the right technology in place.
Technology can support the entire employment lifecycle, beginning with recruitment, through to onboarding, employee development, employee relations and leaving employment. Examples include:
- Applicant tracking system
- HR Information System
- E-learning platform
- Exit interview platform
- Employee Engagement Survey
- Performance Management System
More information is becoming available on the effective use of artificial intelligence in human resource management. Artificial intelligence is the use of software to mimic and generate human behaviours, whereas our usual software relies on humans to programme rules and formulas to automate the software for our needs.
No. 10 Social Conscious Policies
In recent years, we are finding more focus and attention is being placed on corporate social responsibility, and in particular environmental policies. We are finding that more and more people are choosing workplaces that support good causes both in the local community and wider country, especially with regards to the environment.
Having a Social Corporate Responsibility policy is a prominent message to job applicants and employees that the business is not only about profits, but also wants to play its part in supporting charities, local schools, volunteer activities, and the environment.
With recruitment and employee retention being problematic areas, focussing on ways in which your business can respond socially both locally and nationally will support recruitment and enabling staff retention.
We recently hosted an interactive webinar on this subject where we discussed all of the key areas to managing people in greater detail.
If you would like to watch this webinar on demand, or access the webinar slides, you can do so here.
We are here to help
If you are struggling with the cost of living crisis, retaining your employees, implementing an employee rewards programme, or would like to discuss our HR, Payroll, or Health and Safety services, please contact us and speak to a member of the team.