Wage increases are not a good gauge of productivity, insists UP CEO Julian Azzopardi

UP CEO Julian Azzopardi has highlighted that wage increases are not an effective means of gauging or increasing productivity at the workplace, particularly since the lasting effect is often very short-lived.

This came as he reacted to the Wage Inflation Survey published by the Malta Employers’ Association (MEA) last month, whereby the association reported that labour market shortages, increase in general living costs, COLA payments, unreasonable expectations from candidates, and company profitability, are all reasons for wage inflation. The survey also revealed that half of the 248 companies that responded did not report an increase in productivity over the past two years that is in line with wage increases, with only seven per cent stating that the rise in productivity was more than the average increase in wages.

“Whenever wages and productivity are put in the same sentence it is bound to generate interest, discord, antagonism, and even resentment at times,” Mr Azzopardi said.

“There is no doubt that this is a hot potato and given the context within which the survey was conducted is also topical, but could also be time-bound,” he remarked.

He proceeded to explain that as humans, we often react according to the state that we find ourselves in, and therefore if we are influenced by externalities such as inflation, economic stagnation, and climate change, among others, then “our responses are going to be influenced by this”.

“I am not saying that these responses are ‘heat of the moment’ responses, but we do not know all the underlying influencing factors for these results. I do not know what questions were asked as only a sample were reproduced in the presentation and its news coverage,” Mr Azzopardi continued.

He added that he understands that many view higher wages leading to lower productivity as a “bad deal”, yet he further explained that wage increases as a whole are a “very bad way to measure or benchmark or even instigate increased productivity”.

He referred to studies which indicate that the lasting effect of a wage increase is as “short-lived as six months”, after which the initial burst in commitment “will start to wane” and be overtaken by other elements of the workplace such as power cuts, food, AC temperature. “Everything has a shelf-life and wage increases are no different unfortunately,” he added.

The MEA’s survey further adds that aside from better remuneration packages, employees are also switching jobs because of more flexible working conditions and to further their careers.

Mr Azzopardi thus explained that organisations “cannot keep on taking increases, whether wage or cost of production or sales, without a return that makes business sense”.

Despite there being calls for a “holistic national vision” aimed at reinvigorating the economy, Mr Azzopardi said that this is “beyond the immediate control of the business respondents”. He proceeded to list various ways businesses can “mitigate, anticipate, and avoid churn” and the impact of wage increases.

Firstly, he suggested that an organisation’s purpose has to be revisited and reassessed to ensure that the reason employees work for a company is “sticky enough” as it aligns with their personal and professional ambitions.

Mr Azzopardi also noted that it is important to check the organisation’s culture, as “people shape culture, and culture shapes people”. “If you as a leader are in a foul mood then this will influence your people significantly”, he explained, particularly in terms of how they “connect or disconnect with the environment”.

It is also integral to promote a “sound human relationships role” in the organisation, as traditional views on human resources (HR) are “no longer applicable”. Organisations thus have to strive to promote human relations that “build bonds and uncover inefficiencies”, as HR is nowadays more about “building trust” rather than policies.

He added that employee wellness has to be a priority for business leaders, an area that can be catered to through engagement. However, Mr Azzopardi remarked that this “needs to be done with purpose, by design, and with intent” and thus cannot be a “mere check-list exercise”.

He further noted that business leaders have to provide the opportunity for employees to learn and develop within the organisation.

Lastly, Mr Azzopardi stated that business leaders need to implement a sense of accountability, “one of the hardest things” to do, as it is all about “calling people out when they stumble”. However, successful implementation of this can result in providing “status, clarity, autonomy” and also “build a deeper connection and lead to a sense of equity and equality”.

Mr Azzopardi is a leadership development and organisational culture specialist, and has served as CEO of UP for the past four years. He is also Vistage Malta’s Small Business Group Chair and a Member of Vistage Worldwide.