2024 pay predictions: doing more with less

16th October 2023

Staff member Julia

Julia Hanna

We’ve heard a lot about shrinkflation in the last 12 months: prices remaining the same but products getting smaller.

The reverse is happening in reward. All indications are that pay review budgets will be smaller than last year, but we’ll have to do far more.

More to comply with the National Living Wage, while still rewarding the remainder of our employees.
More to attract and retain talent in a competitive market.
More to ease continuing financial burdens.
And more to meet expectations of employees.

Incomes Data Research (IDR) shows that over half of employers are expecting to make lower pay awards in 2024, than last year. This is borne out by some recent surveys:

•    PayScale: 4.1% 
•    Willis Towers Watson: 4.4% 
•    Paydata: 3.8%-5%

Let’s put these figures into context:

It’s crunch time for the National Living Wage (NLW). Since 2019, the target has been two-thirds of median earnings by 2024. To meet that, the Low Pay Commission 2024 range is between £10.90 and £11.43 (midpoint £11.16). The Chancellor has guaranteed a rate of at least £11 (that’s a 5.7% increase) but of course it could be higher. 

The Real Living Wage, announced on 24 October, has already been given a 10% injection to £12 (£13.15 in London).  This will need to be implemented before May 2024.

We can already see that it’s going to be difficult for the numbers to add up. 

Alongside this, although the employment market has signs of cooling (unemployment is 4.3%, job vacancies are down), we are still seeing salaries increasing as companies look to attract employees. There have been recent announcements from Amazon and Lidl. And of course, the public sector pay awards that have filtered through to this month’s 7.8% annual growth rate in regular pay.   

The cost-of-living crisis hasn’t gone away. Although increasing at a slower rate, prices are still rising beyond the 2.5% Bank of England target. Inflation is currently 6.7% (September 2023) down from a peak of 11.1% this time last year. This downward trend is expected to continue into 2024, but it will take a while before employees really feel the benefit.  

Things are easing, for the first time in two years, average wage growth rose above inflation (1.3%, ONS). Indeed, if the NLW reaches the range midpoint, it will represent a 6.9% increase, which is above the current inflation rate.

So, employees will have high expectations for pay review this year.

Against this, smaller budgets may well be a hard sell for HR. For me, there are four areas to focus on this year:

  1. Comply with your obligations:
    • Understand the impact of the NLW / RLW on your budget. This will differ according to your employee profile. 
  2. Target your remaining budget:
    • It’s important to make informed decisions based upon defendable data. Conduct pay benchmarking so that you know where to target your spend to respond to your talent market challenges.
  3. Be transparent in your principles and process:
    • Be clear on and communicate to managers and employees how your budget will be distributed. 
    • Ensure that your processes are equitable across all employee groups so that your principles are applied fairly.
  4. Find ways to make net pay go further:
    • Develop your wellbeing offer to ensure employees feel supported. 
    • Look for discounts or subsidies that can help ease financial worries: grocery vouchers, season ticket loans, meals, holiday buy-back, debt support.

So, with much to do and limited budgets, we’ll need to be clear on what we can achieve, target pay where we need to and get creative with non-financial rewards.

Image adapted from: Dart Board
Courtesy of: 7 Bits Of Truth

How we can help

If you’d like help articulating a clear pay and reward strategy, conducting pay benchmarking, or developing a benefits offering, please do get in touch for an initial conversation.

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