UK companies have pushed expected pay rise budgets to 4% to tackle the challenges of a tight labour market, rising costs of supplies and employees’ expectations. But as inflation is set to average 6.7% in 2022, employees are still likely to feel worse off. That’s 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, while 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%, suggesting that companies are navigating cost increases to benefits, investing more in discretionary pay, or even making one-off payments and signing-on bonuses.
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% in 2023, whilst average pay rise budgets are projected to stay at 4%, which should help to close the gap on rising costs.”
As the ‘Great Resignation’ continues to challenge organisations, employee attrition levels stand at 17% per year, with 12.3% 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% in 2020 to 92% this year, while issues around retention have risen from 17% to 90% in the same period.
Information Technology and Engineering skills are most sought after by companies, as more than half (56%) are looking to recruit engineers and 44% are looking to recruit IT staff in the next 12 months. Yet these professions are some of the most difficult to attract and retain, as more than half of companies find difficulties in attracting Engineers and 79% of organisations struggle to attract digital talent. While 47% of companies have had problems retaining engineers, and 79% have laboured to retain IT talent.
In response to these issues, many companies have taken actions to attract talent, with 68% increasing workplace flexibility, 58% creating a broader emphasis on inclusion and diversity and 44% offering incentives such as sign on bonuses and equity/LTIs. While many companies are 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.
Companies are also focusing on the frequency of salary increase adjustments, with more than one in ten (13%) having already taken action. While almost a quarter (23%) of organisations are planning on increasing how often they offer salary increases to staff in the future.
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