How is Brexit shaping pay strategies?

The impact on pay

In the first of our two-part analysis of Brexit on HR, we examined the uncertainty around the recruitment landscape and employers’ access to talent. Here we discuss the impact of Brexit as one of the many factors shaping pay awards.

The average pay award reported by respondents to our UK Reward Management Survey has ranged between two and three per cent since the recession. We question how valid this headline figure is year on year, when factors such as gender pay, inflation and out of cycle pay increases are considered.

Out of cycle pay increases

One factor that could mask the true overall figure in pay rises over the course of the year is out of cycle pay awards. Out of cycle pay increases are commonly expected to account for up to one per cent of annual pay bills. Two thirds of respondents to our UK Reward Management Survey granted these types of increases in 2018, with half expecting to use these in 2019. Whilst primarily driven by employee promotion for 46 per cent of respondents, external drivers such as inflation (12 per cent) and external market pressures (50 per cent) were key factors.

Out of cycle pay increases carry additional costs to the businesses around administering and managing these requests as they arise, escalating the true cost to employers over the year. Avoiding these inefficiencies and factoring these in to the pay budget upfront can ensure the pay system remains robust and fair for all.

Commitment to diversity

Diversity is another key driver in the overall picture of pay. Legislation around the gender pay gap and the CEO Pay Regulations coming into effect for listed companies in 2019 may also have had an impact on the calibration of pay within organisations. 57 per cent are actively examining the drivers behind their figures. Employee Benefits featured analysis from our autumn UK Reward Management Survey, highlights how organisations are conducting additional analysis and 71 per cent report that conducting an equal pay study features ahttps://www.employeebenefits.co.uk/exclusive-half-analysis-gender-pay/t the top of their HR agendas for 2019.

Increases above inflation

As indicated by out of cycle pay increases, some employers are citing wider market pressures as a key driver behind these types of increases. Whilst many employers have tried to keep on par with inflation, the rollercoaster ride that the British Pound is currently experiencing is resulting in caution across the wider economy. Inflation remains steady and is currently just below the predicted pay awards of three per cent for 2019. Personnel Today reported that average wages could fall by 10% in a no-deal Brexit scenario, underlining the importance of the ongoing negotiations.

In addition to inflation, the growing awareness and pressure on organisations to be an accredited Living Wage Employer increases, with many in November signing up to the Living Wage Foundation Campaign. In April, legislation will come into effect to increase the national living wage by 4.9 per cent, from £7.83 to £8.21 an hour for employees aged 25 and over. Since 2015 the lowest paid full time employees have received an eight per cent increase since the introduction of the living wage, again undermining the headline pay award increase that does not reflect the scope of increases employers are managing each year.

Pay transparency is key

Amidst the uncertainty of what Brexit will mean for the economy, it has never been more important to communicate the value of reward to employees. As a key tool in employee engagement, the intricacies involved in calculating pay means that a headline figure needs to be examined more closely.

We are increasingly seeing employers turn to Total Reward Statements. A total reward statement demonstrates the breakdown of the reward package in terms of both the financial and non-financial elements. This in turn improves the opt-in rate as employees become more aware of the potential benefits and their full value offered to them. Whilst employees get a clear picture of the full range of potential awards available, employers show the investment they are providing in one clear snapshot to each employee.

How can we help?

We can help you demonstrate the value and commitment that you give to your employees’ beyond one headline figure for their annual pay increase, maximising employee engagement. Implementing these statements can help you to feel more prepared to retain and access the right quality and volume of talent to overcome the current uncertainty surrounding Brexit.

We want to hear your views

We are helping employers align their pay strategies with their vision for the future. Tell us about your recruitment and retention experiences and the frequency with which you turn to out of cycle pay increases.