21.11.2022

UK pay rises forecast to hit 5% in 2023 in light of inflationary pressures

The overall average salary increase in the UK is forecast to rise to 5% in 2023, as the majority of organisations (86%) react to inflationary pressures on employee pay. That’s according to WTW’s latest Salary Budget Planning Report.

While current pay budgets have risen to 4.2%, more than two-thirds of companies (68%) have spent more than they originally planned on pay adjustments for the last 12 months.

As economic challenges loom large in the UK, a fifth of organisations (20%) who are changing salary increase budgets have said they will fund increased spending by optimising their Rewards packages, offering compensation and benefits programs that employees value most. While 17% have said they will raise funds by increasing prices, and 14%% of companies have said they will resort to company restructures and reducing staff headcounts.

In addition to pay pressures, two thirds of organisations (65%) also say they are experiencing problems with attracting and retaining talent; a figure that’s more than tripled since 2020. In fact, the tight labour market has been an influencing factor for more than half of companies’ (57%) decision to increase salary budgets.

Paul Richards, Reward Data Intelligence leader for Europe at WTW says: “As inflation continues to rise and the threat of an economic downturn looms, companies are using a range of measures to support their staff during this time. Pay rise increases are forecasted to hit 5% next year, which is a significant jump compared with the 3.2% increase in January of this year.

“But despite inflationary pressures, organisations have grappled with attraction and retention issues for some time, which has also been a driver not only for pay rises, but adjustments to benefits, culture and employee experience.”

To tackle the competitive labour market, nearly half of organisations (46%) have hired candidates higher in the relevant salary range, while a further 65% have or are considering adjusting salary ranges more aggressively, by increasing ranges by 3% to 7%. More than a third of organisations either have or are considering adjusting salaries more frequently; 90% of organisations making or considering salary increase adjustments are doing two adjustments per year.

In addition, seven out of 10 organisations (66%) have provided more workplace flexibility, while 56% have already put broader emphasis on diversity, equity and inclusion. Two fifths of companies are planning or considering improving the employee experience, in order to address inflationary pressures and drive retention. Of these actions, 58% of companies say they are in place with no end date until 2023 or later, while 30% haven’t put any actions in place but are planning to do so.

Posted by: FMJ 0 comment(s)