Opinion
You might be earning more, but is it really a ‘pay rise’?
Victoria Devine
Money columnistIf you feel like your wages are going backwards, the good news is: you’re not imagining it. The bad news? Wages are going backwards in real time, and you’re not imagining it.
The latest employment outlook from the Organisation for Economic Co-operation and Development earlier this week showed Australia is among 16 member nations where real wages have gone backwards since 2019, and have remained 4.8 per cent below their pre-pandemic levels.
Employees covered under EBAs are lucky enough to get a guaranteed annual wage increase. But don’t go calling it a “pay rise”.Credit: Dionne Gain
As we go backwards, other OECD nations such as Canada, the United States and Britain have gone forwards with wage growth. In fact, the 38 member nations average 3.5 per cent growth through the same period.
Given December 2023’s wage growth of 4.2 per cent was the highest it has been in Australia since December 2008, stagnant and declining wage growth is not a new problem and, depending on your industry, one that you may be all too familiar with.
As the March 2024 consumer price index sat at 3.6 per cent and the wage price index of the same period was 4.1 per cent, our purchasing power, on average, has been in the green by just 0.5 per cent. While being in the positive is a victory, it’s worth remembering this comes after horror years like 2022, where wages grew by 3.3 per cent but inflation sat at 7.8 per cent. To quote the kids on TikTok, the math isn’t mathing.
Unsurprisingly, given the new financial year is upon us and the cost-of-living crisis is showing no signs of abating any time soon, many Australians are now walking into their boss’ office and asking for a pay rise.
Why are bosses telling employees that their automatic, annualised wage increase counts as a pay rise?
It’s here that an interesting – or should we say alarming – workplace trend is emerging, where employers are using enterprise bargaining agreements (EBAs) as pay rise equivalents.
According to the Department of Employment and Workplace Relations, 34 per cent of all Australian employees are covered by state and federal EBAs. One particularly excellent feature of EBAs is that they contain what’s known as annualised average wage increases (AAWIs).
Though the exact increase amount can vary from one EBA to the next (this is often one of the most negotiated aspects of EBAs when they are renewed), AAWIs are essentially a regulated, guaranteed pay increase for each year covered by the agreement.
Of the 792 agreements approved in the March 2024 quarter, the total average AAWI was 4.4 per cent, with the public sector recording an average of 5.2 per cent and the private sector 3.9 per cent.
But of the 7578 agreements that were current to March 2024, the average AAWI across both sectors was substantially lower, at 3.1 per cent, with a private sector average of 3.2 per cent and a public sector average of 3 per cent.
In the first year of a renewed EBA, the wage increase might be 3.5 per cent, but then climb to 5 per cent for the second and third years. Whatever the exact numbers in your employer’s EBA, these increases are a percentage applied to the salaries of every employee on that EBA – from the most junior team members to the most senior.
It’s arguably one of the few great equalising tools we have in wage earnings, but this blanket application for all employees is also what sets AAWIs fundamentally apart from a pay rise.
A permanent pay rise, discretionary margin or one-off bonus is generally awarded in recognition of something changing within their role. Maybe you’ve smashed your targets, taken on extra responsibilities, gained further qualifications or exceeded expectations.
Whatever the reason, a pay rise tends to be a financial acknowledgment by an employer that the employee is of value to the company and their work is worthy of additional financial reward.
According to the Hays F24/25 Salary Guide, Australian employers have listed individual performance as the No.1 reason for awarding a pay rise, followed by an increase in responsibilities, expertise, an organisation’s performance and bringing salaries up to external comparatives.
A pay rise requires a conversation where an employee can put forward why they feel they’re eligible for a pay rise, and negotiate the terms of that recognition. For example, it may not take effect for three months, but it might be back-paid when it does.
Maybe it’s a substantial increase on what they’re already earning, say 15 per cent instead of 3.5. Or perhaps it’s non-traditional – instead of money, you receive a company car or the company will pay for some additional education or training and allow you to study during working hours.
Whatever the outcome, it’s an individually negotiated process. What’s more, pay rises are not a given, and it’s rare for an employee to receive a pay rise every year.
By contrast, an annualised average wage increase is part of the overall EBA negotiation process and is a blanket, agreed-upon figure delivered to everyone, irrespective of changes to workloads, responsibilities or career wins. The differences are clear.
So why are bosses telling employees that their AAWI counts as a pay rise? Unfortunately, there’s no one-size-fits-all answer because each industry and employer is different. But the most likely reasons are that they feel they can, and because they’re hoping employees will accept it and not push the issue further.
However, know this: the more information you have as an employee and the stronger your case for a pay rise, whatever that may look like, the harder it becomes for an employer to justify a salary recognition for everyone being a salary recognition for you as an individual.
Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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