Pay rises are set to hit new records in 2022 in the face of tough recruitment conditions, yet will still struggle to keep pace with inflation.
The CIPD’s latest quarterly Labour Market Outlook also found evidence that employers are increasingly advertising roles as flexible and are upskilling existing employees to help overcome labour shortages.
Employers anticipate making pay awards of a median of 3%, the highest since 2012-13 when the survey began using its current methods.
The CIPD surveyed more than 1,000 employers in January 2022 about their hiring, pay and redundancy intentions for the first quarter of the year.
More than two-thirds (70%) of employers said they planned to recruit in the following three months and just one in 10 (11%) planned to make redundancies. Redundancy intentions were significantly higher before the pandemic, at 16% in winter 2019-20.
Almost half (46%) of UK employers reported having vacancies that were hard-to-fill. Two thirds of employers (64%) anticipate problems filling vacancies in the next six months, with a third (33%) expecting these problems to be “significant”.
In the past six months almost half (48%) of employers with hard-to-fill vacancies had increased wages to attract new hires and 46% of employers have advertised more jobs as flexible, found the survey.
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Efforts to improve workforce retention were on the rise. Two-fifths of employers (41%) reported increased employee turnover or difficulty with retaining people over the last six months.
To address this, 46% of employers with retention difficulties have raised the pay of the incumbent workforce in the past six months and 40% planned to raise pay in the future.
Overall, employers report that the median basic pay increase in their organisation (excluding bonuses) in the 12 months to December 2022 will be 3%, the highest figure recorded in the past 10 years of the CIPD’s reporting.
Other popular responses to retention difficulties in the past six months include improved flexible working arrangements, implemented by 48% of employers, focusing more on employee wellbeing (45%) and increased investment in training and development (36%).
Jonathan Boys, labour market economist for the CIPD, said inflation would take the shine off the “good news” on pay.
“Even though businesses anticipate making record pay awards to their employees this year, most people are set to see their real wages fall against the backdrop of high inflation.
“What is encouraging is that more employers are looking beyond pay increases to help attract and retain staff by providing more flexible working opportunities and investing in more training and development, as well as taking steps to support employee health and wellbeing. Together these practices can broaden the range of candidates employers can attract and may also reduce the need to recruit more staff, which should reduce wage inflation pressure to a degree.”
Boys urged the UK government to also address skills policy failings to support greater employer investment in workforce training. He highlighted the urgent need to reform the apprenticeship levy into a more flexible training levy “to help reverse the falling number of apprenticeships going to young people and enable employers to use the levy for other forms of more flexible and cost-effective training for existing employees”.
The CIPD also found that the net employment balance – which measures the difference between employers expecting to increase staff levels in the next three months and those expecting to decrease staff levels – had remained steady this quarter (+37). It said this was still one of the highest figures on record and was being driven largely by the private sector.
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Over four-fifths (84%) of employers were planning a pay review in the 12 months to December 2022, the research also found. Among these, around four in 10 (40%) expected basic pay to increase, 7% expected a pay freeze, while just 1% expected a decrease.
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