Pay Reviews: Trends and Priorities
Against a backdrop of the cost-of-living crisis, rising business costs, and competition to attract and retain the best talent, pay reviews have taken on greater significance, in 2023. As economic conditions evolve, so do workforce expectations. Businesses are facing both challenges and opportunities in redefining their compensation strategies.
A Change of Focus
Speaking to our clients and associates, priorities for employers have changed since last year. In 2022, when the cost-of-living crisis was dominating the headlines, businesses were approaching their pay reviews with a focus on how they could help employees – particularly those with lower incomes – overcome inflationary pressure. As a result, companies we’ve spoken to are reporting a feeling of gratitude and loyalty from employees, a residual goodwill that has extended into 2023.
Pay reviews have been most heavily influenced by two factors: a consideration of inflation and the desire to reward employees that are viewed as most valuable to retain. With businesses feeling the squeeze themselves and a continuation of a high level of competition for talent, there is an ongoing tension between the two.
Talent Competition and Reward Packages
In the current competitive recruitment market, UK businesses are re-evaluating their pay structures to stay competitive and attract top talent. With a growing demand for skilled professionals in what can feel like a shrinking talent pool, companies are recognising the need to offer competitive reward packages that extend beyond salary to include benefits like flexible work arrangements, professional development opportunities, and well-being initiatives.
Inflation and Cost-of-Living
With rising costs affecting everything from daily expenses to business operations, balancing pay while maintaining profitability remains a delicate task. XpertHR reported that annual pay growth stalled at 4% in May, leaving most workers with a rise in earnings worth less than half the 9% increase in prices.
Focus on Diversity, Equity, and Inclusion (DE&I)
Diversity, equity, and inclusion have transcended mere buzzword status and are now becoming integral components of organisational culture. In pay reviews, companies are not only aspiring to pay fairly across gender, race, and ethnicity, they are also implementing transparent processes that promote equality. This focus is not only a moral imperative but also contributes to developing a more engaged, motivated, and creative workforce.
Remote and Hybrid Work Impact
The hybrid work model has reshaped the way employees view compensation. Location-based pay differentials, once a rarity, are now a consideration for companies with remote or hybrid workforces. While remote work offers flexibility, employees are re-evaluating their compensation in the context of their geographic locations, prompting companies to rethink their pay strategies to ensure fair treatment across the board.
Although flexible working has become an important draw for many prospective employees, there is, for some organisations, a growing tension between prioritising attraction and retention over longer term strategic ambitions to see everyone returning to work ‘in the office’.
Employee Well-being and Total Rewards
The pandemic underscored the importance of employee well-being, prompting companies to expand their view of compensation beyond monetary rewards. Well-being programmes, mental health support, and a healthy work-life balance are now integral to pay packages.
Organisations are recognising that a holistic approach to reward contributes to a more engaged, loyal, and productive workforce; a poignant example being considerate organisations providing breakfast for employees due to awareness of parents feeding children first and skipping meals themselves.
However, we must note that some companies are bucking the total-rewards trend and continue to maintain a monetary focus. This includes assisting employees, with salaries under £70k, by providing interest-free loans, holiday buy-back, and cost-of-living payments. While organisations are getting creative with their total-reward packages, money remains a motivating factor, especially for employees on lower incomes. The bottom line is, they need to make ends meet.
Navigating Future Uncertainties
As the operating environment continues to evolve, uncertainties remain. Businesses need to be both agile and cautious in their approach, considering both short-term realities and long-term strategies. The ability to adapt to changing economic conditions, workforce expectations, and industry trends will be key in maintaining a competitive advantage.
As we’ve seen, pay reviews in the UK, in 2023, are being shaped by a convergence of competition for talent, inflationary concerns, diversity priorities, hybrid work dynamics, and employee well-being. The successful organisations are those taking a strategic and holistic approach, considering all these trends as well as the evolving needs of their workforce. These are the organisations who will be best placed to attract, retain, and motivate top talent, while ensuring organisational growth and success.
26 September 2023