‘Let the good times roll!’ Pret and a People-Focused UK Recovery?

‘Hey, tell everybody Mr Jordan's in town!

I got a dollar and a quarter Just rarin' to clown;

But don't let nobody play me cheap, I got fifty cents more that I'm gonna keep, so

Let the good times roll, let the good times roll

I don't care if you're young or old

Get together, let the good times roll’                  

                                   Louis Jordan and his Tympany Five (1946) ‘Let the good times roll!’

Good Times ahead?

Thursday’s 4.8% second quarter UK economic growth figure from the ONS, combined with the results published earlier in the week from the REC’s monthly jobs survey showing record levels of job vacancies, placements and starting salary increases, all might suggest that in conjunction with the continuing falls in Covid infection rates, the horrendous last 18 months are now well and truly behind us. The ‘good times’ at last, post-War Louis Jordan-style, are starting to ‘roll’; and roll for both employers and employees.

Profits and dividends are swiftly returning (with the latter up 52% to a total of £25 billion amongst UK listed companies in the 3 months to June); unemployment has peaked and fell to 4.8% in last month’s ONS release; and pay levels are apparently now increasing significantly according to their latest dataset (by a whopping 7.3% pa in average total earnings).

But dig underneath the surface of the national datasets and rather like my poor neighbour Sarah, who is isolating from the rest of her family in their loft after catching a nasty bout of the virus in our increasingly face-naked and ‘getting together again’ suburb of South West London, the signs are that Covid-19 will continue to dog our personal and professional futures for years to come.

And the key outstanding question for HR professionals is whether or not we are going to make this an HR-led, people-investment-driven rebound; or instead return to the people-cost-reduction-forced, anaemic and unequal, spluttering economic recovery which we witnessed for most of the past decade.

Pret and its Pay Management

The national economic uncertainty is highlighted if we look underneath the happy headlines in the REC data. Permanent placements actually declined from last month’s high, despite ‘Freedom Day’, while temporary and insecure placements, the basis for the supposed ‘jobs-miracle’ (more mirage) of the last decade, have continued to rise. Deeper down, at the organisation-level, this critical dilemma was well-illustrated this week by the travails at sandwich-maker Pret.

I used to visit Pret’s central Westminster branch near my office at least once every day; and I would regularly cite them as a poster-case-example of a positive employment brand and reward package in their low-paying and highly unequal hospitality sector, in those halcyon pre-Covid days of face-to-face presentations and client meetings.

Enjoying a coffee in my local-to-home store this week, after an enforced 70-week break, the plastic protective screens and test-and-trace posters have gone and the missing social-distancing-removed tables been restored. But with Deliveroo riders replacing besuited office workers in the relatively short queue in front of me, it was obvious that this is very much not a return to business-as-usual, in their finances, nor their people management.

The 30-year-old business has been hammered by Covid, having to lay off more than 3,000 of its 13,000 workforce since last April’s first lockdown and forced to take out £150 million in emergency bank loans. Its strategic pivot away from the deserted city centres where its shops are concentrated reportedly includes patenting a staff-free vending-machine service which could reduce its operating costs by 20%.

But at the start of this week the lead HR story was that, reportedly, Pret face threatened industrial action as a result of making the temporary lockdown-driven 50% reduction in their staff customer-service bonus permanent; and effectively cutting staff pay levels, by 6% for a team member on an 8-hour shift, by removing paid breaks. ‘Let nobody p(l)ay me cheap’ as Louis Jordan might have put it.

Then on Thursday, after the planned pay changes prompted an outcry on social media, CEO Pano Christou told staff in his private-equity-backed business that the mystery shopper bonus was being restored to the full £1 an hour, after taking staff “feedback into consideration”.  He said in an email to workers:

“The business is still in recovery but it’s important that we continue to invest in and support our teams however we can. I have spent a long time working in our shops so know how important the bonus is to everyone and it is something that sets Pret apart from the competition”.

Good on him for listening to his staff and recognising that, however dire the finances, cutting pay and reducing their performance bonuses is not the way to drive business recovery; and for recognising that investing in staff is even more important in tough times.

PWC, operating in a very different business and labour market, drew a similar conclusion from its record profits and per-partner payments of £868,000 each announced this week, Managing partner Kevin Ellis commented that its decision not to make 1,000 staff redundant and renege on recruitment offers to hundreds of young people when business slumped early in the pandemic had ‘paid off’, allowing it to ‘capitalise on “a deals-led recovery” from September onwards’.

An employee-driven labour market?

Investing in people, whatever your financial situation, seems especially important right now given the competitive labour market situation, which according to this week’s press reports has rapidly reversed from the rising unemployment and nine million furloughed state of 12 months ago. It is apparently running extremely  ‘hot’ according to Friday morning’s Financial Times, with skills shortages evident in sectors ranging from hospitality to transport and technology, and from fresh food to retail and social care.

M & S and Tesco for example are amongst the retailers now addressing the gaps on their shelves by offering ‘golden hellos’, of £2,000 and £1k respectively, to attract not bankers or lawyers but HGV drivers; while John Lewis and Aldi are focusing more on retention, with base pay increases of up to £5,000 pa/£2 ph for theirs. The Road Haulage Association estimates the national shortage of truckers is in excess of 100,000.

Yet although not hit as badly as Pret financially, the increased costs and disruption occasioned by Covid, as well as the acceleration it has driven in the trend to online channels, means that the performance of these large retailers still lags way behind pre-pandemic expectations. The UK’s supermarkets are still ‘struggling to make money’ according to Investor’s Chronicle’s latest analysis of the sector.

Nor is the outlook for the UK’s employed, self- and unemployed necessarily as positive as the national data might suggest, amidst common generalisations of a long-awaited return to an ‘employee-driven market’ characterised by widespread ‘global labour shortages’.

An in-depth analysis from the Resolution Foundation published last month assessed the UK’s labour market as ‘lukewarm rather than hot’ and countered assertions of ‘a new dawn of worker power’. They note that ‘the total hours worked in the economy remain around seven per cent below pre-crisis levels – a fall comparable to the height of the early 90s recession’; and believe that ‘official data hugely overstates the level of pay rises currently taking place’, which is being driven by ‘compositional effects as lower-paid (often female) workers drop out of the workforce’, along with more than 10% of those formerly self-employed. As IDR reported this week, the more typical, actual average pay award level across their database is flat, at a much more modest 2%.

The Foundation also reports that ‘the struggle to recruit’ in the hospitality sector being experienced by the likes of Pret is largely temporary, ‘due to the speed of its reopening from an almost complete standstill’. IES’s analyses of the monthly ONS data this year also observe that the sector recruits heavily from a young, and largely unvaccinated demographic, with the current ‘pingdemic’ affecting labour supply at least temporarily.

Giving people skills and ‘a chance’, versus longer hours/less pay

More widely, these analyses show that Louis Jordan’s ‘young and old’ have been hit particularly badly hit by Covid, with pre-vaccinated older people suffering the worst mortality rates early in the pandemic; and now the young adult population, (despite this week’s record ’A’ level and GCSE results), suffering the worst economically. The numbers of ‘economically inactive’, (dominated by women and young people), increased by 400,000 in the July employment figures. As a result of the pandemic, young people are more likely to have lost their jobs and to experience ‘long-term wage scarring’; and the economic slowdown means there are fewer opportunities for them to find meaningful work - 166,000 fewer young people were in work in June 2021 than in March 2020.

As well as urging the government to deliver on their Plan for Jobs and slow-to-get-going Kickstart Scheme for young people, and further supporting disadvantaged groups such as the long-term unemployed and unwell, IES notes the responsibilities of ‘employers to ensure that they are designing and recruiting into jobs in ways that will enable groups like students and older people to take them up’.

The CIPD launched its own, brilliant scheme to help on this front this week, One Million Chances. It aims to create a million opportunities for young people by encouraging their 160,000 members and UK employers ‘to help young people get their foot in the door’ through encouraging them to offer (government-subsidised) jobs, work experience, volunteering, apprenticeships, internships or mentoring: ‘We’re asking employers to give them a chance’. Their research found that 43% of all young people surveyed feel the pandemic has harmed their long-term career prospects.

But here we get to the crux of our human investment versus cost dilemma, as well the likely future ahead for the HR function, in terms of growing influence and strategic and employer performance impact, versus marginalisation and administration.

For what are the real reasons to explain why the UK is experiencing widespread labour shortages and such a dire employment situation for young people? Is it purely, or even largely down to Covid? And will golden hellos and offering everything from ‘bagpipes to barbecues’ as short-term fixes and incentives really address the shortages already stifling our nascent economic recovery?

… in transport

Returning to the UK’s shortage of over 100,000 truck drivers for example, the Road Haulage Association doesn’t think so. Their latest survey of drivers found that the most frequently cited and important reasons for the current shortages, ahead of Covid in 6th place (which has had a range of negative effects, such as the closure of driving test centres during lockdown), were:

-       the lack of any adequate and planned response by the government and employers to the Brexit vote five years ago, (forcing an estimated 25,000 of them back to their home countries);

-       inadequate pay rates for the demands of the job;

-       the longer-term decline in the real pay and worsening conditions in the sector, leading around 30,000 drivers to support a stay-at-home strike day later this month;

-       driver retirements, in an ageing workforce (average age 55 years) where increasing working hours and nights away from home appear to be putting off new recruits (and young people);

-       the IR35 tax regulations, implemented in April, which can making self-employment and agency less remunerative for drivers and more expensive for employers; and

-       drivers moving to another industry/more attractive occupation.

Transport Secretary Grant Shapps in response repeated Pret’s mistake of regarding longer hours and lower pay as a solution, when he recently announced a temporary extension of lorry drivers’ working hours from nine to 10 hours a day, supposedly to help with the shortages. Not surprisingly, the move faced criticism from trade unions and hardly seems likely to address the long-term causes of these shortages, particularly worsening pay and conditions for drivers.

Employers unwilling to spend the sums required on training rookie drivers would probably top the HR leader lists of causation. Surprisingly few have followed the example of Leicestershire-based Translink Express Logistics which reported this week that rather than moaning about labour shortages and young people’s work ethic, it is planning to invest tens of thousands of pounds in free training courses to help get more drivers on the roads. Its scheme to offer fully-funded driver training worth up to £2,500 per person to new and existing employees is, it claims (remarkably), the first of its kind. It is also offering all new-pass HGV Class 2 drivers the opportunity to upgrade to HGV Class 1, for free, and is working with its insurers Towergate to allow it to take on younger and new-pass drivers (who historically have been much more expensive to insure).

The Group’s chief executive described the scheme, (unlike Mr Shapps’s knee-jerk response), as ‘exactly the sort of innovative, forward-thinking action needed to help us deal with this issue.’ John Lewis’s supply chain director Mark Robinson explained similarly that. “We’re responding to the national driver shortage by ensuring our (900) drivers are paid competitively and by investing in training for the future’.

… in hospitality and at Pret

For firms like Pret re-opening fully now in the sector, as well as a similar lack of EU workers available post-Brexit as for the trucking firms, there has been a nasty surprise for many in the number of their furloughed employees who have not returned to their jobs after finding alternative employment during their enforced break. The Resolution Foundation analysis found that those who previously worked in the hardest-hit sectors such as hospitality, following their break and the time to consider their future and the employment alternatives, are 30% more likely to have taken better alternative and/or better remunerated jobs elsewhere mid-crisis.

The Human Times reports that more widely: ‘Since the onset of the pandemic last year, employees have been leaving the workforce or switching jobs in droves. A Microsoft survey of more than 30,000 global workers indicated that 41% were considering quitting or changing occupations this year. in what some economists have dubbed ‘the ‘Great Resignation’ ‘.

The survey found that for some workers, the pandemic precipitated a shift in priorities, encouraging them to pursue a more interesting or rewarding job, or forced (mostly mothers) into being a stay-at-home parent. But for many, the decision to leave ‘came as a result of the way their employer treated them, either during the pandemic’, or reflecting a lack of reward and career progression over a longer time-frame.

Pret’s employment offer in fact emphasises the total rewards package rather than just the pay rate and bonus, and especially the Pret Academy with its ‘structured learning pathways that provide clear, practical training as well as a range of certified qualifications, open to every person at Pret’. Over 9,000 of their Team Members attended a training course at their UK academy in 2019 and in terms of longer-term progression, over 80% of their management population started out as team members.

Pret have also been planning for the limitations Brexit has imposed on their supply of experienced employees from continental European locations, continuing to offer Apprenticeships programmes from Level 2 to Level 6 for example. The Pret Foundation manages their Rising Stars and Shooting Stars programmes, ‘funding job opportunities and a fresh start to those who need it most which ‘So far, has opened the door to over 500 incredible people’.

Flexible shifts has been another option hospitality firms have traditionally offered to improve their recruitment appeal. But the pandemic has seen significant growth in home-working and the extensive debate now about the emergence of some type of ‘hybrid’ future for many office workers as well. At least this means that as Delphine Strauss, the FT’s economics correspondent put it earlier this month, even for high-paying employers at the top-end of the labour market trying to recruit and retain professional staff, ‘A pay rise no doubt helps. But as even Goldman Sachs has grasped, it is not just about the money.'

‘In this environment’, Strauss continues ‘sectors with chronic recruitment problems that predate the crisis will need to do far more to improve working conditions and career structures… (and) change the way they operate to make jobs compatible with personal life’.

Let’s hope so. But here is the big HR dilemma and opportunity for the future as we (hopefully) finally emerge from the pandemic of Covid-19.

What future for HR and genuinely people-focused HR Management?

My research on strategic HRM for IES just prior to the pandemic found that widespread labour shortages and more extensive employment and diversity legislation was increasing the boardroom influence and  power of many HR leaders. But we also highlighted the suspicion as to whether the HR functions' strategic work in organisations today:

‘is really about growing the long-term value of an employers' most important asset, its people, in an increasing uncertain and skills-short labour market? Or is it more to do with continuing to drive costs down and shareholder returns up; and meeting the bare minimum standards required by employment legislation?’

Although we have seen both approaches illustrated by employers in the pandemic, and the dilemma of which route to take illustrated very directly at Pret, I do believe that the experiences of Covid-19 and the spotlight it has placed on ‘the saints and the sinners’ of the corporate world has reinforced the impact of the former approach, which we found in our research more commonly referred to as 'people management, or people development strategies'.

We found that it is a genuinely people-named-and-focused approach, characterised by: in-depth, medium-to-long-term labour supply and workforce planning, sustained training and development investment; combined with a genuinely employee empowering and wellbeing-focused, ‘living-our-values’ set of HR policies and practices, so as to produce significant and obvious gains in employee loyalty, engagement and now performance.

My old colleague and friend Mike Emmott is therefore highly optimistic in his new article for the Involvement and Participation Associations on the future for human and employee relations and the learning we will take forward into practice from the horrors of Covid-19.

Not only are the ‘rapidly emerging labour shortages across many sectors’ meaning that ‘employers now have every incentive to treat their employees right’ - as evidenced for example, by Uber’s decision earlier this Summer to grant employment rights to their workers. But also, ‘the pandemic has brought forcefully to employers’ attention their responsibilities for looking after the health and safety of employees, not least in relation to mental health’.

More widely, he writes that the pandemic has ‘brought to the fore the issue of corporate responsibility… that employers can ill-afford to take risks with their reputation. This is reflected for example, in the recent challenges by investors to companies’ policies on executive pay’.

So Mike concludes that:

‘fewer employers will now feel it sensible to neglect their responsibilities for managing their people.. The pandemic has helped to drive a wider recognition by society generally of the importance of human resources.’ 

Your choices ahead...

I am somewhat more guardedly hopeful, rather than as optimistic as Mike Emmott, on the future of employee relations and people management post-Covid. The latest research report by the IPA reported next to Mike’s article, is for the Financial Reporting Council, on the impact of the 2018 corporate governance reforms that were designed to promote employee representation and ‘voice’ at board level.

Mike believes that the pandemic has highlighted that ‘the concept of employee voice is the right starting point for individual employers to consider what works best for them, whether it’s informal consultation processes, training line managers or works councils’. 

The IPA’s research, however, finds that although during the pandemic ‘calls for a shift away from shareholder primacy and towards more responsible, long-term and stakeholder-oriented business models have now become mainstream’, in actual employer responses and practice:

‘It is disappointing, in this context, that so many FTSE 350 annual reports still appear to downplay the importance of workforce engagement, in many cases relegating it to boilerplate language in a formulaic table of stakeholders. Our research has revealed real progress and pockets of good practice, but also continued resistance and scepticism’.

The High Pay Centre’s latest assessment of the impact of Covid on the landscape of excessive executive pay and inequality is equally downbeat. Only a minority of large UK companies reduced their executives’ pay levels in response to the Crisis in 2020; and in almost all of those cases it has since been restored.

We banged our dustbin lids this time last year in support of all of our wonderful, underpaid keyworkers. But aside from the recently announced 3% deal in the NHS, the majority of our social care workers remain on the legal minimum wage, with many on zero hours contracts; and in total almost four million employees, or 12% of the employed population today, are in insecure work and earn less than a real living wage, according to the Living Wage Foundation’s latest study published at the end of July.

‘Give them a chance’?

But all of us in HR and leadership roles have agency and choices to make here. The pandemic has undoubtedly disrupted the previous, semi-automatic responses of many employers to cut employment costs and maximise flexibility wherever possible, to ‘play me cheap’ in Louis Jordan’s lyrics, even in the pre-Covid relatively good times, never mind now during the current deep economic uncertainty.

So what are your choices going to be in the weeks and months ahead, as you face decisions and dilemmas perhaps similar to Pret?

Will you invest in your staff and their skills, or cut their costs and contract in from outside? Will you plan long-term for your organisation and its peoples’ futures and careers, or continue to focus on short-term employment flexibility/insecurity? Will you recognise your business’s responsibility to wider society and all of your stakeholders, and especially the disadvantaged and unemployed in it, or continue to pursue a narrow shareholder-focused agenda?

Will you in the CIPD words ‘give them a chance’, and perhaps even a future and a career?

‘Let the good times roll!’