5 Emerging Trends in Paydata’s UK Reward Management Survey

1. Employers struggle to balance meaningful pay and the Cost of Living

In spring 2022, more respondents indicated that their pay reviews were likely to be between three and four per cent, in contrast to our autumn 2021 survey which captured an average of two per cent. After years of pay levels tracking inflation, pay is now trying to keep pace with rising levels of inflation so that employers can offer employees meaningful pay awards; respondents are reporting four per cent median pay awards for 2022. Predictions for pay increases in 2023 vary so far, from two per cent up to highs of 11 per cent, with the average at the moment being around four per cent.

A new survey by PwC has revealed that four in five large businesses are planning to help staff with the cost of living. With ever-increasing volatility in the markets and rising bills also facing employers, balancing responsibility to their employees and affordability to support sustainable operations will be crucial.

The difficulty facing employers centres around how they can avoid setting a precedent with pay awards that are over double those offered in 2021. Across the board raises risk fuelling inflation, so a more targeted approach is what many employers are reporting when it comes to considering a supplementary pay award or a lump sum ‘cost of living’ payment, targeted at those who need this most.

2. Employers are considering a second pay award for 2022

We have asked employers whether they intend to offer a second pay review in 2022, with the approach being quite evenly split at the moment, as employers consider the most appropriate response open to them.  A combination of across the board and individually determined increases is the most popular way of approaching these pay reviews.

While respondent employers so far this year have offered a pay award increase of around four per cent on average, out of the few employers who are choosing to offer a second pay increase in 2022, 2.5 per cent is the average level. While some are reporting that they are using these secondary increases to help all employees bridge the gap between pay and wider market pressures, others are reporting that they are targeting these at either lower paid employees or towards key talent to drive down attrition issues.

Out of cycle pay increases continue to skew official pay figures. While official second pay reviews for the year are being driven by the cost of living crisis, out of cycle pay reviews have also been tracked by our surveys over the last few years. Traditionally reserved for promotions, to accommodate wage changes during the year, we have been tracking the use of out of cycle pay awards to reduce the impact of inflation on employees. We will be monitoring the official second pay reviews alongside the trend for out of cycle increases over the last few years.

3. Employers are helping employees to weather soaring living costs in creative ways

Bonus levels are set to remain steady. Preliminary findings show that 79 per cent operate a bonus scheme, 71 per cent think the number receiving a bonus will stay the same and 44 per cent expect the size to stay the same. 22 per cent think it is too early to tell whether the size will increase given the uncertainty in the market.

Therefore, the onus for many will be on benefits and how the perks they offer can reduce pressure on employees and lower employee turnover rates. When asked what employers are doing so far to help employees with the cost of living, they outlined offering financial advice and education; a staff emergency or hardship fund; interest-free loans; promoting discounts available to employees; and others outlined how they are offering one-to-ones with benefits consultants to ensure the plan is adequately tailored to their employees’ lifestyles.

Generally, there is an increased focus on the needs of the individual. Some employers have offered continued working from home in order to reduce travel costs. Elsewhere, an ongoing four-day working week trial, where staff receive a paid day off each week, reports that the experiment has resulted in no loss of productivity so far. Employers have widened their benefits packages to encompass more than the physical wellbeing of employees with private medical insurance and gym memberships – widening this out to accommodate hybrid working and leave policies that support a greater number of life events. We will investigate the full range of benefits on offer in our comprehensive survey report.

4. Business outlook returns to cautious levels

In spite of the pound falling to a record low against the dollar as the markets reacted to the UK’s biggest tax cuts in 50 years introduced by the mini budget, employers remain optimistically cautious about growth forecasts. Around one third expects business activity to stay the same.

46 per cent of respondent employers predict that their order book will increase, 43 per cent predicts that revenues will also increase and 35 per cent predict that business profitability will also increase over the next 12 months. Only four per cent predict a decrease in orders, eight per cent expect a decrease in revenue and 13 per cent expect a decline in profitability.

The government has said tax cuts are designed to stimulate the economy and they are committed to a long-term plan. Around one in six think it is too early to say what will happen to their order books, one in ten think it is too early to predict revenue levels; and one in four say it is too early to make predictions around profitability.

5. The labour market is buoyant post-pandemic

In the next six months, a greater number of respondents expect difficulties in retaining people. 87 per cent expect or have experienced retention challenges, compared to the 77 per cent in spring 2022. 87 per cent have experienced or expect recruitment problems, rising from 81 per cent in spring.

76 per cent of respondents have had to offer new recruits salaries that conflict with those paid to existing employees, with 59 per cent having to offer up to 10 per cent more and 39 per cent offering up to 20 per cent more. As always, this risks creating challenges with parity of pay internally in the organisation, raising questions around both affordability and fairness.

Around one quarter of respondents anticipate that there will be increased turnover across all employee levels, which has reduced from nearly half in spring 2022. This demonstrates the chilling effect on the labour market of reports of a recession in the UK, with the number of vacancies dropping to the lowest levels since the pandemic. Employers continue to overcome recruitment and retention challenges by making greater use of technology – for instance, LinkedIn as a recruitment tool. Many are also monitoring the results of their exit interviews.