According to our UK Reward Management Survey, the majority of employers have already carried out their pay review and made their pay award decisions for the year ahead. With news that inflation has fallen, and a general election is now on its way, we outline the factors currently driving pay decisions.
As April is the most popular month for pay review cycles, we explore the factors influencing the pay landscape in 2024.
Sustainable pay awards
Towards the end of 2023, many employers delayed their pay reviews in the hope that inflation would reduce as much as possible. Our autumn 2023 UK Reward Management Survey highlighted the effect of inflation on pay awards. With the cost-of-living crisis exacerbating rising costs facing employers and employees, many hoped that inflation would fall to meet government targets of five per cent by the end of 2023. While inflation has eased, employers continue to struggle balancing affordability with meeting employees’ pay expectations.
Pay budget decisions were moved in the hopes of reflecting a decrease in inflation, however awards of five per cent were most common in 2023. Some employers voiced concerns around how sustainable these pay figures were, raising fears that they could set a precedent that was then expected each year. When contrasted to the most common pay review being two per cent for 10 years before 2023, the leap presents ongoing affordability challenges in the long-term.
Factors shaping projected 2024 pay awards
The National Living Wage rise has had a significant impact when comparing the effect on employers. For those who are affected by the changes, they predict that the median pay review will remain at five per cent for 2024. For those who are not affected, the median is around four per cent. This suggests that the NLW contributes an additional one per cent to the pay bill of affected employers, especially for certain sectors where there are high numbers of roles at this level of pay.
Certain sectors are facing more pay pressures than others and employers tend to continue to fall into two schools of thought. There are those who are trying to compete for key skills, and are held to the high awards given in 2023 to access and retain the right talent, and those that cannot afford to award the same levels as 2023.
Competitive pay to retain top talent
Talent retention remains a key challenge for employers in 2024, which makes pay a greater concern for employers who want to meet employees’ expectations. At Paydata, we always advise that taking pay off of the table can unlock the effectiveness of the total reward package and enable employees to focus on the wider value that they derive from work. A focus on employer branding and what they offer to employees will be crucial to remain competitive alongside pay decisions that keep pace with similar roles and industries.
From flexible/hybrid working arrangements to the wellbeing initiatives on offer from the employer, total reward statements are one method of underlining the range of benefits on offer to employees to drive employee engagement. These outline both the financial and non-financial benefits on offer to employees.
The skills shortage means that many employers are having to scrutinise their total reward strategy and what truly differentiates them. Can they unite their people through positive purpose, a focus on them as individuals and by being as competitive as possible in pay and benefits? While the answer is likely yes, employers have to communicate how they do this to truly attract and retain top talent.
The role of salary benchmarking
Meeting expectations around wages requires employers to take an evidence-based approach. Salary benchmarking data can be a useful source of relevant pay information by role and by industry, to ensure that employers are factoring in the wider pay landscape of the market to their own total reward strategy.
This will be of even greater significance to employers affected by the EU Pay Transparency Directive. Parity of pay will become increasingly important to employees who want to know they are being paid equal amounts for the same type of work.
Offering higher salaries to new recruits that conflict with those paid to current employees will face greater scrutiny as a recruitment tool, placing further emphasis on driving down employee turnover with a total reward strategy that delivers true value to everyone across the organisation.
Out of cycle pay awards
We continue to track the impact of out of cycle pay awards on pay decisions. While organisations give an ‘official figure’ for their pay awards, we have reflected how out of cycle awards (ad hoc increases that specifically exclude increases in pay to accommodate promotions) can account for up to an additional one per cent of the pay bill. This undermines the integrity of the pay budgets set by remuneration committees and designed to uphold a fair system of pay.
These types of pay awards can be awarded when employers wish to bridge the gap between constrained pay awards and wider market pressures. They can also be awarded to retain top talent, as a retention tool. In our upcoming spring 2024 UK Reward Management Survey report, we will explore how employers are increasingly focusing on performance and productivity when making pay decisions, reflecting an emphasis on rewarding high performing employees. This will raise challenges around how these decisions will be reached in a consistent and objective way.
The pay review process
The emerging results of our spring 2024 UK Reward Management survey reveal that pay benchmarking and reviewing the whole process around making pay decisions will be crucial to attract and retain the right talent in organisations in the year ahead. Ensuring that pay parity operates across the structure of the organisation is crucial to taking pay off the table as an issue.
According to author Dan Pink, while money is not a motivator in itself, it can actively demotivate people if they feel affected by decisions that are unfair and ad hoc. By ensuring that an objective framework is being upheld and adhered to, employees can be assured that pay decisions are accurate and evidence-based, enabling them to focus on the wider value they derive from work.
Communication is key
While senior leadership sets the tone in communicating the drivers behind pay decisions and outlining the approach to pay and benefits for the year ahead, clear communication needs to be available from all leaders. From team leads to line managers, everyone must clearly understand the approach and the factors driving pay decisions across the organisation.
Where employers are being innovative in what they offer beyond pay – from values-led benefits including volunteering days, to greater opportunities for learning and development that enhance peoples’ experiences to career mapping, and visibility of how to progress – this needs to be clearly outlined to everyone. Opportunities at organisations excite and unite, so taking the time to explain this clearly and consistently can help to drive down employee turnover and increase buy-in behind the vision and future of the business.
Get in touch
Our spring 2024 UK Reward Management Survey will soon be closing. In return for 15 minutes of your time to complete the questions, we will send you a free copy of the report outlining the results, particularly around pay and bonus trends. Participate here.
While we understand that some of the information that we ask for may be confidential and commercially sensitive, we will never share this information with anyone else. The summary report of the results makes it impossible to identify answers, so have your say today.
