Businesses upping pay in response to labour market conditions, survey finds

Research reveals companies are hiring further up salary bands and offering sign-on bonuses in response to difficult economic circumstances

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Businesses are upping pay, hiking salary budgets, increasing pay frequency and placing greater emphasis on non-financial compensation in response to inflationary pressures and a difficult labour market, a new study from Willis Towers Watson (WTW) has found.

The survey of 500 people highlighted that organisations were increasingly hiring people at the top end of salary bands (88 per cent) as well as offering sign-on bonuses (54 per cent).

The focus isn’t just on financial elements, though: more than four in five (83 per cent) companies were offering increased workplace flexibility, and almost three in five (57 per cent) were offering increased use of training.

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With well-documented issues with recruitment, Alasdair Wood, senior work and rewards director at WTW, said these foci were obviously part of a response to present difficulties, but employers needed to consider potential negative impacts, too.

“Companies are taking measures to fight to attract and keep talent in the workforce, but we need to be evaluating the longer-term outcomes of these actions,” he said. “Offers need to be realistic and consider potential internal equity concerns, particularly between new hires and longer serving employees.”

Wood’s concerns are borne out in survey statistics: two-thirds of companies thinking about making salary adjustments were only doing so for targeted groups, with a big focus on employees who are retention risks (71 per cent). 

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The survey also showed that businesses were focusing on reward changes for colleagues with rare or in-demand skills (68 per cent) or digital skills (54 per cent), and the lowest-paid or highest-performing workers (54 per cent).

Michael Rose, author, speaker and former vice-president of reward at the CIPD, added that employers needed to be wary of the impact this can have: “A targeted approach can lead to problems on pay differentials. Perception of internal pay inequity is a much more significant cause of disengagement than external comparisons.  

“The approach to and links between internal equity, external competitiveness and the organisation’s finances should be part of the reward strategy,” he added.

Duncan Brown, principal associate at the Institute of Employment Studies (IES) and visiting professor at the University of Greenwich, explained that employers needed to take a longer-term view of pay and understand how pay packets related to performance and economic growth.

He said: “In the short term, it's a good thing that companies and the government are responding and people are getting more money in their pockets. But the longer-term picture on pay looks much less positive…and we are near the bottom of the OECD league tables of productivity and pay growth. This is not unrelated.”

In addition, Richard Vickers, CEO of Search Recruitment Group, said that financial remuneration cannot be the only focus for employers if they wanted to retain and attract staff.

He added: “People want to feel valued by their employer. They care about the rounded package. Are you a good employer to work for? Will I be valued? Will you offer some flexibility? Do you offer career mentorship and progression?”

Charles Cotton, senior reward adviser at the CIPD, added some businesses were even looking at improving employee outcomes in specific areas of their lives.

“To help with the cost of living, employers are providing benefits that increase the spending power of the pay packet in such areas as housing and utilities, travel, and childcare [and] HR teams are doing more to let staff know that employer and state support is on offer,” he saud.

Yet Brown added that short-term fixes cannot just be the focus: “It's like food banks which are a brilliant short term fix for poverty. But why do we need them in a modern rich welfare state and why do we need to give employees emergency cash handouts?

“We don't do [usually] the regular reward things that correlate with high performance and high productivity except at the top, like skills, pay, and all employee annual profit sharing.

“[If we did] that would mean people both earned more and added more value for their employer, and were resilient enough to withstand the shocks,” he said.