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The sustained pressures on pay budgets following years of constrained pay growth has resulted in the highest pay awards we have captured in the previous 10 years of running our UK Reward Management Survey.

The autumn edition of Paydata’s bi-annual report captures trends that have shaped 2023 and will continue to face HR and Reward Professionals in 2024. The pay, bonus and reward trends captured from HR and Reward Professional across 242 employers are representative of HR practices affecting just over half a million employees, across a range of sectors.

Here we outline the top five trends of 2023 and how they will shape 2024.

1. Pay budgets are under continued scrutiny

The most common pay award for 2023 is more evenly split between those granting up to five per cent (43 per cent) and those granting over five per cent (30 per cent). While the median pay review in 2023 is five per cent, increasing from 3.5 per cent in 2022, employers anticipate that their median pay award will reduce slightly to 4.5 per cent in 2024. This suggests that 2023 is the year pay awards may have peaked.

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Looking ahead to 2024, generally employers are either worried about the pressures of inflation and the competition for key skills, and think they will need to make the same level of pay award again, or are flagging that they just cannot afford to award staff five per cent, two years in a row. Only two per cent of respondents are reporting operating a pay freeze.

The wider market pressures are the predominant factor when deciding pay budgets for the majority of employers. While 73 per cent say that external relativities will drive their pay actions, 52 per cent say that pay actions will be driven by internal relativities and 43 per cent are targeting high performing people with pay increases.

2. Out of cycle pay awards continue to skew pay budgets

Our survey’s results also captured that around one in five used out of cycle pay increases that account for up to one per cent of their annual pay bill in 2023. We have been tracking out of cycle pay awards and how they operate, as they are traditionally reserved for recognising promotions and adjusting pay accordingly.

However, the survey reveals that these additional awards are being driven by market pressures, with inflation continuing to impact employees, and internally aligning pay to create fair pay systems, to ensure that employees feel fairly paid for the role they do. Over time, these ad hoc increases risk significantly adding to official pay figures and undermines pay budget certainty for HR when they are planning for the year ahead.

3. The value of benefits is reinforced during times of constrained pay

Benefits offer true value to employees when they provide the level of support they require and a greater focus is placed on them during times of constrained pay. Employers are increasingly analysing whether their policies are sufficient to meet a plethora of individual needs and underlining the wider investment they make in their employees beyond base pay.

Around one third of employers offer flexible benefits schemes, and one in five are considering it, enabling employees to tailor their benefits to their own circumstances. The top three benefits on offer are pensions, Employee Assistance Programmes and occupational sick pay, all aimed at supporting the financial position of the employee. We are seeing companies increasingly use their benefits offering to demonstrate their credentials when it comes to Environmental, Social and Governance issues. Only 17 per cent offer a fuel allowance, as many consider how they can offer electric vehicles through salary sacrifice schemes. 39 per cent offer the traditional season ticket loans to encourage use of public transport. In terms of their ‘social’ responsibility, 33 per cent have created a dedicated volunteering allowance and 31 per cent also offer the option to ‘give as you earn’.

Accommodating the employee’s individual preferences has been seen through the review of leave policies. Employers increasingly recognise and provide unpaid and paid leave for lifetime milestones, such as fertility treatments and the menopause. There is greater recognition of how this can affect individuals, when they require greater support and access to leave. Many employers are increasingly acknowledging these impactful life events, tailoring the available support to the individual.

4. Cautious business optimism into the New Year

As 2023 comes to a close, there is sustained business optimism with revenues expected to increase for 46 per cent of respondents. This is consistent with falling inflation, which may prompt interest rate cuts.

However, optimism is somewhat curbed because of the continuing cost of living pressures meaning that employees and employers alike face higher costs, in addition to the rising National Minimum Wage in April 2024. We hope the report supports employers’ evidence-based approach to defining an effective reward strategy for 2024.

Clear communication strategies are a key priority of respondents who highlight the importance of communicating that they are doing their best to balance affordability with meaningful reward. Being open and honest engages employees and achieves buy-in to the approach of the employer. Providing insight into an organisation’s financial position could help explain to employees why higher pay settlements might not be possible or highlight the competitive pay on offer in the market.

5. Recruitment and retention challenges are exacerbated by the skills shortage

There have been steady absence and labour turnover figures for the year, following a peak in the labour market in 2022, where we saw retention problems peak during autumn 2022 at around 77 per cent. Around half of respondent employers report both difficulty in retaining people in the last six months and expected challenges in retaining people into 2024.

There is a similar pattern with recruitment levels, which are slightly lower than those captured in 2022. In the last six months, 62 per cent of respondents reported challenges with recruiting people. This has reduced from 86 per cent in autumn 2022. Around half of employers anticipate upcoming recruitment challenges in the next six months.

Offering greater opportunities for professional development is also important to attracting and retaining employees. 63 per cent offer to pay professional association membership fees and 32 per cent also offer funding through further education, in recognition of the importance of upskilling employees and encouraging them to embrace lifelong learning. This is also one tactic to overcome skills shortages facing employers, enabling employees to upskill.

Get in touch

Looking ahead to 2024, employers are increasingly being asked to deliver more in spite of sustained challenges. While there are hopes falling inflation will have a sustained positive economic outcome that eases the cost of living crisis and reduces higher costs facing employers, please do get in touch if you have any questions about how we can help you to optimise your approach to your total reward strategy in the year ahead.


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