UK companies have pushed expected pay rise budgets to 4 percent to tackle the challenges of a tight labour market, rising costs of supplies and employees’ expectations around salaries.
But, as inflation is set to average 6.7 percent in 2022, employees are still likely to feel worse off, according to WTW’s latest Salary Budget Planning Report.
In response to rapidly rising inflation, two-thirds of companies (64%) have budgeted for higher employee pay rises than last year.
Also, two-fifths (41%) of organisations have increased their budgets since original projections were made earlier in the year.
Less than half of companies (45%) have opted to stick with the pay budgets they agreed at the start of the year.
Total compensation budgets, covering pay, benefits, discretionary bonuses, and payments, have increased even further, by 7.3 percent.
This suggests that companies are navigating cost increases to benefits, investing more in discretionary pay, or even making one-off payments and signing-on bonuses.
Inflation and salaries: how best to support employees?
Paul Richards, Reward Data Intelligence leader for Europe at WTW said: “Companies are using a combination of tactics to support employees in the wake of rapidly rising inflation. While salary increases are currently being outpaced by inflation rates, employers are looking to other avenues such as increased benefit offerings, higher bonuses and more one-off payments.
“2022 has seen growing financial pressures across the board, but inflation is forecasted to drop to 3.6 percent in 2023, whilst average pay rise budgets are projected to stay at 4 percent, which should help to close the gap on rising costs.”
The Great Resignation
As The Great Resignation continues to challenge organisations, employee attrition levels stand at 17 percent per year, with 12.3 percent of that figure accounting for voluntary turnover.
Attracting and retaining talent has become an increasingly difficult problem for companies, with triple the number of organisations experiencing challenges in this area compared to in 2020.
Difficulties in attracting talent have risen from 29 percent in 2020 to 92 percent this year, while issues around retention have risen from 17 percent to 90 percent in the same period.
In response to these issues, many companies have taken actions to attract talent, with 68 percent increasing workplace flexibility, 58 percent creating a broader emphasis on inclusion and diversity.
Many companies are also planning on raising starting salaries (34%), changing health and wellness benefits (34%) and reinvigorating the employee experience (48%).
Organisations are also taking measures to retain current talent through broadening focus on DE&I (55%), increasing remote working options (48%) and changing compensation programmes (38%).
Looking to the future, companies are planning on improving the employee experience (47%) and changing health and wellness benefits (37%) in order to retain more employees.
Amelia Brand is the Editor for HRreview. With a master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.