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Our recent pulse survey, ran over the last two weeks of July 2021, captured pay trends and expectations for the year ahead from across 148 UK employers.

With restrictions lifting and furlough set to come to an end in September, the results of the pulse survey indicate that businesses are starting to be cautiously optimistic once again. Remuneration strategies at this point are commonly grounded in the question of affordability, as businesses focus on the immediate steps they can take to recover from the pandemic.

Expected pay budgets

Our pulse survey reinforced a trend we have seen in our UK Reward Management Survey, as the majority of respondents indicated that April will remain the most popular month for pay reviews that are scheduled for 2022. 67 per cent of respondent employers intend to carry out their pay review in April 2022.

A preference for April pay reviews may have shaped the pay awards last year that respondents had already granted before the first national lockdown, keeping the median pay review at two per cent for 2020 pay budgets. In the wake of a third lockdown, cautionary levels of pay that track inflation continue, with the median 2021 pay review budgets also being two per cent. However, the median pay review budget is expected to rise 0.5 per cent to 2.5 per cent in 2022, indicating greater optimism about business recovery in 2022.

The number of organisations operating pay freezes has fallen from 23 per cent in 2020 to 14 per cent this year and is expected to drop to just three per cent in 2022. It is worth noting that 18 per cent of respondents think it is too early to tell what their pay review budget will be, however it is clear optimism is high.

There have been huge financial challenges facing businesses as a result of the pandemic, but our latest Reward Management Survey indicated that employers were starting to see the first signs of optimism in the labour market. There will be organisations who want to make up for pay freezes in 2020. If employers did not go ahead with pay reviews last year, they will be concerned at the prospect of two consecutive years of pay freezes or incremental pay increases, so news of higher revenue predictions for the year ahead will be welcomed.

Targeting pay actions

Almost a quarter of employers plan to offer an across the board pay increase in 2022, slightly down on the one in three respondents to our UKRMS in spring 2021 who planned to use this approach. 36 per cent plan to implement a combination of across-the-board pay rises and individual increases, which has been popular for a number of years as a way of tailoring pay awards to certain individuals and groups. The emergence of organisations preferring to make a blanket increase may in part be driven by the pandemic, where there has been a sense that everyone is in this together. Only one in five respondents are looking to make individually determined increases.

Some customers have anecdotally reported senior management taking pay cuts, forgoing bonuses and providing access to greater financial advice to support those paid less in the organisation throughout the pandemic. There were reports that the National Living Wage had necessitated pay increases for certain roles in organisations where they were operating pay freezes, demonstrating the effectiveness of this measure and the budgeting required for certain roles that are subject to regulation.

business woman receiving bonus

Pay review drivers

The results of our pulse survey can be given greater context by the results from our UK Reward Management Survey. Over the last year, external relativities have been a key driver of pay review actions for more than half of organisations. Whilst this ensures that the employer is offering market competitive pay, this also enables employers to accommodate a higher cost of living and account for rising inflation.

In addition, half of employers have also targeted high performing people to reward and recognise talent and key skills. For two in five employers, internal relativities also play a part, ensuring parity of pay and recognising equal reward for equal work. These nuances can be factored into the form that respondents expect their 2022 pay reviews to take.

Recruitment tool

Just under a third of respondents to our spring UK Reward Management Survey expect to pay a premium to attract talent, down from 63 per cent in autumn 2019 when it was a commonly used recruitment incentive before the pandemic. This might increasingly be used in the next six months, in line with employer predictions about greater recruitment difficulties as the market becomes busier. 35 per cent expect recruitment difficulties over the next six months. This is reflected in the number of job vacancies and sectors reporting shortages of staff, particularly temporary delivery driver roles as people return to the jobs they had before the pandemic.

“As furlough is set to come to an end in nine weeks’ time on 30 September 2021, the labour market is bracing itself for more movement.”

As furlough is set to come to an end in nine weeks’ time on 30 September 2021, the labour market is bracing itself for more movement. More than half of respondents to our UK Reward Management Survey had managed to avoid making redundancies, with the Coronavirus Job Retention Scheme undoubtedly providing vital support for thousands of businesses during the pandemic. The level of vacancies now exceeds pre-pandemic levels; combined with restrictions easing, the UK’s labour market continues to show strong recovery.

Bonuses

Respondent employers reported a stable outlook when it comes to bonus payments. Three quarters of respondents to our UK Reward Management Survey operate a bonus scheme, consistent with previous years. Half of respondents said that they would keep the number of people receiving bonuses the same this year, whilst a third said that the size of bonuses will stay the same. With reports from the Pulse survey showing that pay review figures for both 2020 and 2021 have varied between one per cent at the lower quartile to 2.5 per cent at the upper quartile, bonuses are an important income source in times of constrained pay.

Out of cycle pay increases

We have tracked the use of out of cycle pay increases in the overall picture of pay reviews over the last few years. Even though these are traditionally awarded to reflect promotions or changes to job descriptions, we have noted that they are increasingly used to bridge the gap between constrained pay and market pressures.

This skews the accuracy of ‘official’ pay figures companies release, as three quarters of UK Reward Management survey respondents reported that they plan to use these types of pay awards in 2021. One third anticipate that these types of pay increases will account for up to one per cent of their annual pay bill, demonstrating the impact they have on budgeting certainty for employers. This additional method of making pay increases should be factored into reports of pay review budgets to ensure companies are remaining alert to what competitors are offering employees.

Contact us

Get in touch with us to examine your approach to pay awards. We can help with setting the right remuneration strategy and ensuring that your reward strategy design can attract and retain the right talent in a market set to see greater movement over the next few months.


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