As the rising cost of living, need for talent and 'Great Resignation' drive reward up the strategy agenda, are organisations going far enough? In a time of pay budgets under pressure, there is an opportunity to take a transformative view of reward to create a more enduring framework that reflects the needs of the future workforce.
The rapidly changing market is pushing organisations to revisit reward plans- specifically pay budgets for 2022. Our research from February 2022 revealed 62% of FTSE 350 respondents are planning pay budgets of between 2% and 4% (for the 2022 pay reviews) in the UK. There were similar figures for the USA and the rest of Europe. Asia Pacific and the Middle East/Africa were planning pay increases of 5% and above, reflecting talent supply challenges that peak in some cases at 10% or more in critical skills areas like Technology and Digital. These salary movements are well above historic percentages, but underneath the data, an even bigger transformation to reward is underway - one that will reflect employee experience trends such as flexibility, purpose and choice.
While the headline salary increase (centering on 4%) is the core pay budget, most organisations are finding additional funding for hotspots and critical areas. Half of our respondents also intend to do another off-cycle increase during the year.
The budgets will be deployed in new ways with higher increases targeted at those below market or where the retention need is high. This is important given the pressure on costs as it makes sense to target spend appropriately to deliver the best value. Organisations are monitoring attrition figures and business criticality to make informed decisions.
There are other short-term responses. 60% of respondents in our survey are considering reward innovations including new bonus plans, extra funding for wellbeing and benefits (such as technology subsidies and home set up allowances), greater flexibility and new long-term cash plans for critical staff. This additional cash isn’t risk-free though. It may put pressure on some of the governance and fairness structures in place such as pay bands and some clients are worried about the impact on the gender pay gap if targeted salary increases are awarded.
This is why a longer-term view is also important. Employees today want more from their employer- they want learning, career pathways, flexibility, choice and to work for organisations with purpose like those with an Environmental, Social and Governance (ESG) story. A connected response centred around the People Experience is key for putting reward firmly back on the strategic agenda. Organisations can take steps to achieve this by creating an innovative and tailored reward system to increase engagement, by overhauling benefits that aren’t working and by reviewing their value proposition to ensure it is fit for purpose in the current climate.