Pay awards are expected to remain strong into 2024, at 4.5%, although many employers are delaying their pay budget decisions until later this year.
A survey of UK employers by reward management consultancy Paydata found that employers are expected to scale back their pay awards slightly in 2024 as inflation falls.
The median planned settlement for 2024 is predicted to be 4.5%, down by half a percentage point from the 2023 average of 5%.
However, Paydata’s managing director Tim Kellett said some employers have still not made any decisions about pay, in the hope that inflation will reduce further.
2024 pay predictions
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The consumer prices index (CPI) rose by 6.7% in the 12 months to September 2023, the same rate as August. CPIH, which includes owner-occupiers’ housing costs rose by 6.3%, while the retail prices index (RPI) – the rate of inflation that most trade unions base their negotiations on – was 8.8%.
“A few companies have said that they’re trying to hold off on their pay budget decisions until as late as possible in the autumn, because the later they can push it the more that pressure from inflation will reduce. We might eventually get to 5% [inflation] by the end of the year,” Kellett told Personnel Today.
Although 4.5% is the predicted median settlement, awards of 5% are expected to be the most common, Kellett said. However, some employers have suggested that it could be unaffordable to implement wage increases at this level two years in a row, particularly as 2% had been the average pay rise seen in the 10 years before 2023.
“Employers fall into two camps: the ones that are 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… but the second camp are those that just can’t afford to award staff 5% two years in a row because it’s not sustainable for them,” said Kellett.
He said that employers should clearly communicate the factors driving their pay decisions. Providing insight into an organisation’s financial position could help explain to employees why higher pay settlements might not be possible.
Kellett said that organisations could also consider highlighting the other non-financial benefits they offer employees.
“There has been more movement around the total rewards package. There’s a lot employers can offer without increasing their pay bill,” he said.
“The other trend is putting in more pay structures and salary scales. That has the advantage from the employees’ perspective that there’s a plan around their pay and [shows that] pay is fairly set. They have visibility of what they need to do to progress up the scale.
“Sometimes people think that putting a pay structure in place means that everyone will need to get a pay rise, but you don’t have to do it like that. What it can do is help identify those who are at the top of the scale; employers don’t have to give everyone a pay rise.”
Paydata’s survey, which included responses from 430 organisations who provided 2023 pay data and 250 employers who shared their 2024 pay plans, also found that:
- No employer is currently planning a pay freeze next year, while 0.2% had a pay freeze this year
- Pay decisions are mostly driven by external relativities (what other employers are paying), and internal relativities (the need to ensure pay equity)
- 13% expect to award a non-consolidated lump sum payment to help staff with the cost of living, and a further 4% are still considering this
- Among those that awarded a cost-of-living payment, the median lump sum per person was £650 as at September 2023. A third of organisations that have made this payment have paid staff £1,000 or more.
Kellett said some employers changed their minds about their 2023 pay intentions following Paydata’s autumn 2022’s survey, and said it would be interesting to see whether 4.5% remains the median planned settlement when it surveys employers again in January.
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