The impact of recruitment and retention
The competitive labour market is highlighted by a significant rise in out of cycle pay increases. The cumulative effect of the median pay reviews reported on our pay database of 3.5 per cent combined with the median out of cycle pay increases of 1.75 per cent means that the overall pay budget over 2022 reached 5.25 per cent. This level is getting closer to the figures for average earnings projected by the Monetary Policy Committee which tracks how much earnings are moving by.
What was termed the ‘Great Resignation’ in the wake of the pandemic may in fact have been buoyed by the fact that many had been hesitant to move roles as the restrictions necessitated by Covid-19 meant that uncertainty reigned. Once lifted, as many took stock, changed careers, or took early retirement, some employers experienced very high turnover levels as there had also been a pent-up demand for people to leave who were ready to move on. A whole host of demographics stopped working who are now in high demand. Levels do seem to be plateauing after the record levels of vacancies seen in the summer of 2021, with provisional results showing only 52 per cent of employers anticipating retention difficulties in the next six months; but 69 per cent expect to experience recruitment difficulties.
Anecdotally, while Christmas generally sees slower recruitment and retention activity, uncertainty in the economy is having a stabilising effect on employee turnover as people hesitate to be the last one through the door during uncertain times. Equally, the skills shortage is driving 63 per cent of our pulse survey respondents to offer higher salaries, with two thirds offering up to 10 per cent more. Employers are having to be more innovative to recruit – using LinkedIn, analysing exit interviews to identify drivers for employee turnover, and communicating wider reward packages, including encouraging ‘recommend a friend’ schemes to harness employee networks.
A trend towards pay transparency
When considering the total reward package, it is important to acknowledge the significant increase that the projected five per cent pay award for 2023 represents. Stark comparisons with inflation mask the fact that inflation has remained so low for so long and the turbulent events of the Ukraine War, the energy crisis and rising cost of living will hopefully stabilise over 2023. Setting pay in these circumstances is challenging.
Being open and transparent about the process the organisation goes through in setting its approach to reward is one way to address any misconceptions around pay. Salary benchmarking to ensure it is competitive and evidence based should be crucial to pay calculations. Supplementing pay, which 23 per cent did in 2022 through non-consolidated one-off payments of a median of £750, and 17 per cent of respondents to our pulse survey are considering making these payments in 2023, should be done with the acknowledgement that this is a gesture of support for employees in recognition of the economic circumstances. Many have changed the language used to remove reference to any ‘cost of living’ payments to delink them with inflation and show that this is a temporary support package.
Employers are also emphasising the importance of drilling down into the overall figures of employee turnover to identify immediate risk areas, as specific business units and roles may be affected by pay differently. Many employers are saying it is too early to assess whether non-consolidated payments are required in 2023, waiting until June/July to evaluate their pay pressures. This will depend on whether people are still paying high prices in areas such as petrol and energy.