Business leaders looking to increase salaries to aid retention

Jobs Outlook

January 18, 2022

Salaries for professionals could increase by as much as 25 percent in the first quarter of this year, as companies fight to hold onto their best staff.

According to the findings from the Robert Walters 2022 UK Salary Guide, professional services firms are planning to increase their budget for pay raises by 10-15 percent. It is the biggest increase seen since 2008 and almost three times the rate of inflation. 

At least five percent of the increase in payroll budgets will be reserved for existing employees, though the biggest pay rises will be reserved for new starters.

These raises are expected to be for workers across all seniority levels – from entry-level workers and temporary staff right through to management level and executives.

Pay Rises for Retention

Two thirds of employees have stated that they are willing to leave their current roles if they are not rewarded fairly, 75% have said that they are confident about new job opportunities in the sectors this year. With that in mind, almost half of companies have already said that they are planning to increase salaries for their current employees to keep up with the increasingly higher starting salaries for new employees.

Wage Compression Hits

In the past year wages for new starters grew by as much as 8%, and for those professionals who moved into ‘hero industries’ such as technology or health care saw pay hikes anywhere from 15 – 20 percent. 

Chris Poole, Managing Director at Robert Walters UK said there has been a pattern: “Wage increases above market value for in-demand hires was a recurring theme of the past year. As a result, we saw new starter salaries outstrip those of existing employees.”

However, he warns this could alienate existing workers: “The consequences of this will result in ‘wage compression’ – where existing employees feel their additional experience at the company (over new starters) is no longer valued or has not grown in value over the past two years. “Looking at the year ahead we will see more companies raise the pay of their existing employees to sit in line with new starter salaries.”

Soft Perks Growing Stale 

According to the 2022 UK Salary Guide, company benefits and compensation come in as the most desirable at 65% when searching for a new role in 2022, followed closely by bonus schemes at 53% and job security at 40%. Surprisingly flexi and remote working were much lower on the list at 29% and 22% respectively, as employees now just ‘assume’ that this is now normal and would be a given when hiring. Gym discounts, company cars and other schemes are said to be important factors to 37% of workers when considering staying in or taking on a new role.

Inflation plays a role

Over a third of businesses (39 percent) said they’re increasing pay to keep up with rising inflation, but recruiter Robert Walters warns that companies may find themselves in a ‘wage-price’ spiral in the coming year – whereby higher prices and rising pay feed into each other and accelerate even more. Mr Poole said that as companies decided their 2022 salary budgets before there was a clear picture of how wages should be for new hires as well as how inflation would impact the labour market. 

He said: “There is little point in companies offering a pay rise as a morale booster if the impact of that increase isn’t really felt in the real world – and so we are increasingly seeing more companies consider the cost-of-living when determining the average pay rise an individual gets. But added: “Businesses will have to decide how much to raise their salaries to keep their employees, whilst also deciding how much to pass on those costs to their clients and consumers.”

Source: HR Review