Quarter of businesses unable to raise pay as inflation bites, research finds

Some experts suggest flexible working as the solution, while others ask why salary increases are not forthcoming when profits are high

Credit: Sorbetto/Getty Images

A quarter (25 per cent) of businesses say they cannot continue to raise pay because of instability, new research has revealed. 

The data analysis from Robert Half found that the majority (70 per cent) of employers recognised their employees were struggling to manage increasing costs and could seek higher wages elsewhere, but only a quarter (26 per cent) could commit to permanently raising pay. 

Additionally, a quarter (25 per cent) also believed poor pay and heavy workloads would affect their ability to retain valued employees. 

Two-thirds of businesses seeing more requests for pay rises, research finds

Employers urged to prioritise fair pay as real living wage increases

Four-day week could help alleviate cost of living crisis, think tank says

Vickie Graham, business development director at the Chartered Institute of Payroll Professionals (CIPP), said it was only natural for employees to look at their take-home pay when the economy bites, but that it was not always “feasible” for businesses to increase wages. "The CIPP recommends that employers look to other incentives to attract and retain talent,” said Graham, adding that flexible working was currently “among the most valued benefits offered, especially if it provides employees the ability to work around childcare arrangements and/or second jobs to help boost income”. 

The data also highlighted that a third (33 per cent) of firms were currently extending remote working opportunities to help reduce travel costs. This correlates with recent CIPD research, which found that almost a third (30 per cent) of businesses that had recruited in the last 12 months found flexible working was the most effective way to attract candidates. 

Get more HR and employment law news like this delivered straight to your inbox every day – sign up to People Management’s PM Daily newsletter

Nicola Kleinmann, HR and talent consultant at Your People Associates, said employers should embrace flexible working to combat any talent and retention worries. “Increased flexibility and allowing workers to be partly or fully remote is key to help them cut down on travel costs, which will also help to increase productivity and retain talent,” she said, adding that organisations with profit at the end of the year could share the wealth and give employees a “one off” bonus. 

Daniel Lucy, principal researcher and consultant at the Institute for Employment Studies (IES), said travel costs were a growing issue for many, but noted that people leaving for higher pay was often a “consequence of the decision to leave rather than the initial driver of intention to leave”.

“While pay is clearly important in the current context, employers should not let pay become the sole explanation,” he added.

Meanwhile, Duncan Brown, principal associate at the IES, said he would ask why businesses could not afford increases when profit levels were still “holding up” and pay levels had been held back by employers over the past decade. “Average executive pay levels in our large companies increased by 39 per cent in the past 12 months. Not much sign of a cost crunch there,” said Brown. 

“Our advice to employers is to pay as much as you can afford and at least the real living wage to all, making lump sum one-off payments, especially to lower-paid staff, if you can't afford to escalate base pay.” 

But HR consultant Kunjan Zaveri argued that organisations should be wary of raising salaries or giving bonuses as it would inflate the internal equity. “The next two years are going to be difficult for the economy so it’s imperative for businesses to preserve their cash,” he cautioned. 

“Employers should consider enhancing their existing benefits package, either through their EAP or [by engaging] financial advisory services to help employees gain valuable insight on managing their finances.” 

For those who cannot afford to raise their pay, Zoe Denny-Thomas, senior equity consultant and equity communications practice leader for EMEA at Aon, pointed out that businesses were increasingly utilising employee share plans to “encourage saving habits and long-term employee retention”. 

“Employers looking to help employees through this tricky time are thinking outside the box in terms of support,” said Denny-Thomas, adding that companies are also “refocusing  communications toward financial education and wellbeing and looking at the flexibility of programmes”.