By Jessica Tasman-Jones
This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards
UK companies are under pressure to raise salaries as staff shortages and the cost of living crisis worsen.
Base salaries could rise by between 5 and 7 per cent next year, according to PwC. Most companies (82 per cent) increased their salary budgets by 1.5 to 4.5 per cent this year, the consultancy found in its Great Rethink Survey, a poll of large UK companies.
Inflation was 9.9 per cent in August and is forecast to rise again. UK interest rates could be close to 6 per cent by May, according to some estimates.
“At a time when many employees face a cost of living crisis, many employers also face a ‘cost of doing business’ crisis, limiting the aid they can offer,” says Charles Cotton, senior reward adviser for the Chartered Institute of Personnel and Development, an association for human resource management professionals.
Few employers can afford to increase all staff pay in line with inflation, so many could focus on helping lower-paid employees, says Cotton.
“It was already tough enough trying to figure out how to hold on to people who were being tempted away for, in some cases, fairly significant pay increases, without also having to worry [that] everyone else is worried about the cost of living,” says Ian Milton, director for rewards at WTW, a professional services consultancy.
Some companies set aside a large portion of their salary budgets for employees whose roles lead to higher revenue but they ignore roles that keep the company ticking along, says Milton.
Others may leave roles vacant to try to prioritise salaries and payments for current employees who may be experiencing financial hardship, Milton says. That, however, risks adding to the pressure on staff.
Shareholders and regulators are also leaning on employers to support staff who feel financial strain.
The Financial Conduct Authority, a UK regulator, told remuneration committee chairs in August that it expects them to consider the cost of living crisis when planning workforce remuneration.
Federated Hermes, the fund manager, has pushed companies to adopt the living wage, although it acknowledges it may take time to do so.
The wage is based on the basic cost of living and has increased 10.1 per cent over the past year to £10.90 an hour across the UK and £11.95 in London, according to the Living Wage Foundation.
Many companies have awarded one-off bonuses to help staff with higher mortgages, fuel and food bills.
Five per cent of companies with more than 250 employees gave staff a cost of living payment in the three months to August, says the Office for National Statistics. That fell to 1 per cent for smaller businesses.
“The advantage … is that it doesn’t permanently increase pay, though it could create an expectation that the organisation will award another one if prices do not start to fall in 2023,” says Cotton.
Companies have reached different conclusions about the threshold for cost of living payments, says Milton.
Housebuilder Taylor Wimpey will pay out £1,000 to employees paid less than £70,000, while Aviva will pay £300 to £1,000 to employees who earn less than £35,000.
Boards should seek data from HR departments to inform salary budgets, says Cotton. “For example, do employees understand how their pay is determined and managed? Do they value their pay and conditions? What demand has there been for financial assistance? Who is asking for this assistance? What’s happening to absence? What’s happening to employee performance and why are people leaving the organisation?” he says.
“This data will help them to better understand what’s being proposed and why.”
This article is based on a piece written by Melissa J Anderson for Agenda.