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Between 5 July and 20 July 2023, we have captured anticipated 2024 pay awards from more than 200 respondents across a wide range of sectors through our Pulse Survey.

The results suggest that the upward pay award trajectory has peaked as inflation slows. The results also highlight how pay actions are being compounded by out of cycle pay awards.

2024 pay awards

Pay award forecasts for 2024 range between 3.8 and five per cent, with five per cent currently being the most common prediction. Overall, the results suggest that organisations are currently split in their approach between the 32 per cent who predict a similar pay award to this year (be it three, four or five per cent) in 2024; and the 54 per cent who predict a smaller pay award, for example between three and four per cent.

Our survey currently suggests differing pay approaches for 2024. Whilst some organisations may agree on a high pay award to account for sustained high levels of inflation and the ongoing impact of the cost of living, others cannot afford to maintain this year’s elevated awards.

Early sector trends show that Renewable Energy, Engineering/Construction, Residential Care, PBSA (Student Accommodation) and Associations and Institutes are set to offer five per cent awards, on average. Meanwhile, Housing Associations and Private Healthcare look most likely to offer a four per cent award.

The upward pressure on pay

The influence of inflationary figures can be measured by comparing historic inflation with pay figures from Paydata’s comprehensive pay database.

This analysis highlights how, as inflation has risen, so too have actual awards, when compared with predicted awards in the preceding year:

  • For example, predicted 2022 awards in autumn 2021 were two to three per cent but by the end of 2022, actual awards were between three and four per cent.
  • Likewise, predicted 2023 awards in July 2022 were three to four per cent but are currently largely five per cent.

However, unlike in 2021 and 2022, inflation has started to fall this year. The latest inflation figures released by the ONS last week show that the Consumer Price Index (CPI) has reduced from 8.7 per cent to 7.9 per cent and the Retail Price Index (RPI) from 11.3 per cent to 10.7 per cent.

Cumulative movements of inflation and pay awards

The comparison of inflation to pay awards up until this year indicated that cumulative pay awards from 2014 to 2021 outstripped inflation, only to be overtaken by inflation by the end of 2022. This is due to average pay awards (3%) being significantly below the average annual inflation (4.6%) in 2022.

Even though the pace is slower than the Monetary Policy Committee predicted, inflation has started to plateau. When it comes to next year’s predictions, we do not anticipate the same incremental pay award increases between now and the end of 2024.

The opportunity to target pay and differentiate

With higher pay awards comes greater opportunity for employers to differentiate their pay approach. This is where an employer may provide a standard increase to everyone of say around three to four per cent, while reserving an additional one to two per cent for higher performers or roles that have a higher market premium, as an employee retention tool. While the most popular anticipated method of distributing pay awards in 2024 is an across-the-board increase for 38 per cent of employers, 33 per cent expect to use a combination of across-the-board and individual increases.

Upward pay pressure on employers is further exacerbated by the rise of the National Living Wage and National Minimum Wage rates. In 2024, many employers are being mindful of the knock-on effect of these pay rises when it comes to their wider pay framework, and fairly awarding those with larger role remits and greater responsibilities.

Out of cycle pay awards

The picture around pay is further complicated when out of cycle pay awards are considered. These incremental increases exclude pay adjustments in the usual course of promotions throughout the year. In 2023 and 2024, respondent employers to the Pulse Survey expected these types of awards to account for an additional one per cent of their annual pay bill. This skews the picture on pay and whether some individuals access higher remuneration because of wider market pressures.

These increases have likely been driven by a highly competitive labour market where there is a shortage of skills, where people are paying increases out of the normal review cycle. They are an influence on pay to bear in mind when it comes to competing for top talent and what is shaping the labour market in terms of employee turnover.

Offering cost of living support

While 28 per cent of employers made non-consolidated payments to support employees through the cost of living crisis last year, only 11 per cent will offer a 2023 lump sum, while a further 11 per cent are  considering it.

The median amount is £600 per person, while the range is between £500 to £1000. This contrasts to 2022, when the average amount was £750. 48 per cent of organisations intend to provide a lump sum payment to all employees. However, 27 per cent will target the additional payments at employees below a specific salary level, to create greater impact with the additional support they are offering.

Factoring in the employee experience

Where higher 2024 pay awards are unaffordable, organisations are focusing on the wider employee experience and what they can offer in lieu of generous pay increases, such as enhanced benefits, in particular healthcare, whilst also ensuring the culture they offer is inclusive and supportive. People who feel valued in their role and who are given the chance to develop are more likely to stay, driving down employee turnover in 2024.

The three key priorities for organisations have been reported as:

  1. Communication – ensuring that organisations balance their communications plans around pay to highlight how HR decisions are evidence-based. While five per cent is still below inflation, sharing that this is still an investment that needs to be balanced with affordability is a key message that employees need to understand in order to try to avoid these decisions impacting retention levels.
  2. Defining the values and culture of an organisation – with the financial pressures facing employers, the upper end of pay awards is unattainable for many. Many are looking at the values and the working culture they offer their people, to ensure that the environment of their organisation is considered hand-in-hand with the pay approach to keep their people satisfied at work.
  3. Fostering a strong approach to ED&I – many are seeking to ensure that they are recruiting people that are reflective of their customer base and are making sure that they are inclusive in their workplaces, in order to attract and keep quality candidates and top talent.

Get in touch

With January and April the most popular months for pay reviews, many employers will soon be turning to pay review preparations for next year. Call or email us to talk through how we can help you with your benchmarking exercise to ensure you are offering competitive pay awards to your people.

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