Hiring Outlook: Cautious optimism returns
Forward-looking hiring data suggests some stabilisation in employer confidence. The latest ManpowerGroup Employment Outlook Survey shows an uptick in hiring intentions – the first improvement since mid-2025. Growth, however, is uneven and sector-led:
- Construction and Real Estate (+24 per cent)
- Information (+26 per cent)
- Manufacturing (+15 per cent)
- Hospitality (-9 per cent)
Construction, manufacturing and digital sectors are driving demand, while hospitality and other consumer-exposed industries remain under pressure from wage costs and subdued spending. This uneven recovery reinforces the need for targeted, data-led reward decisions rather than uniform pay strategies.
Managing employee pay expectations
Even as inflation slows, its legacy continues to shape employee expectations. Workers remain acutely aware of the cumulative erosion of purchasing power over recent years. This sustains pressure on employers to deliver meaningful pay progression, even where current inflation is falling. Within this environment, pay compression is emerging as a growing structural risk. In some sectors, minimum wage increases have compounded the effect. Left unmanaged, compression can undermine perceptions of fairness, damage engagement and create retention risks among tenured or high-performing employees. It can even create equal pay risks.
Upholding fair pay and reward
Achieving pay parity requires structural solutions rather than one-off pay adjustments. This is where job evaluation and formal pay frameworks become essential. By objectively assessing role size and aligning jobs to grade structures, organisations can maintain robust pay relationships even in constrained pay environments. This ensures that inflation responses do not distort internal relativities. Pay scales and salary ranges provide governance, ensuring increases are allocated consistently and transparently.
In affordability-pressured conditions, such frameworks do more than manage cost; they protect trust. Employees are more likely to accept moderated pay outcomes when they understand the rationale and see fairness applied.
Effective employee communication
Employers are responding by tightening performance conditions, increasing bonus deferrals and placing greater emphasis on transformation, productivity and ESG outcomes within incentive design. Variable pay remains a crucial lever, offering flexibility that base salary increases cannot. But payouts are becoming less predictable and more closely aligned to business performance realities.
With fixed pay constrained, many organisations are placing greater emphasis on communicating the full value of employment. This broader framing of reward is increasingly important in offsetting the perceived impact of inflation on take-home pay.
A holistic approach to delivering employee value
In many organisations, indirect reward represents a significant proportion of employment value, yet it is often under-recognised by employees. Making it visible can strengthen retention without increasing salary spend – a critical advantage in inflation-sensitive cost environments. Career development is also emerging as a central retention currency.
Investment in skills, progression pathways and internal mobility offers a more sustainable response to pay pressure than competing solely on cash. As AI and digital transformation reshape job design, upskilling is becoming both a workforce necessity and an engagement driver.
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The Bank of England’s decision points to an economy stabilising, but not accelerating. Interest rates holding at 3.75 per cent maintain cost pressure even as inflation improves. Growth downgrades constrain reward funding, while rising unemployment mitigates, but does not eliminate, talent competition – particularly where inflation has reshaped skills pricing.
For employers, the response is increasingly strategic rather than reactive. Pay decisions are being informed by deeper market analysis. Reward investment is being targeted rather than spread. Structural pay governance is being strengthened to manage compression and equity risks, ensuring inflation responses are measured and sustainable.
Organisations that balance affordability with competitiveness, and financial reward with career value will navigate continued constrained pay and reward decisions effectively. Get in touch to discuss how we can help you optimise your HR budget by interpreting market data intelligently, managing pay structures proactively and communicating the full spectrum of reward effectively.
