A mixed picture for pay in 2022

The competing challenges facing HR
A mixed picture for pay in 2022  - Pay and reward

In February, we published a blog that brought together pay predictions for 2021.

Now that we are rapidly moving towards pay review 2022, many of our clients are beginning to consider setting their pay budgets. If we thought that 2021 was uncertain, 2022 looks just as challenging.

Against a backdrop of raised cost of living, National Living Wage increases, the end of furlough and near full employment, how has this year panned out and what are the predictions for next?

Well, the CIPD had predicted an overall base pay increase of 1%, but their own research and that of XpertHR in September showed that pay awards had stabilised to pre-pandemic levels and were averaging 2%.

Moving on to 2022, we already know that:

  • The National Living Wage is increasing to £9.50 which is an increase of 6.6%
  • Inflation is currently 3.1% (year to September 2021) and the Bank of England expects it to peak at 5% next year
  • Unemployment is its lowest level for 12 months at 4.5% and the number of vacancies has hit an all time high of 1.1 million
  • The talent squeeze is highest in sectors most affected by the pandemic, but there is expected to be a wider impact on wages as employers look to retain and attract talent
  • The budget removed the freeze on public sector pay

So, what is likely to happen to wages in 2022?

Well, predictions are in the region of 2-3%:

  • Research from XpertHR shows that the private sector is anticipating higher pay awards than 2021, the median being 2.5% but with 10% of employers expecting 4% or higher
  • Willis Towers Watson (WTW) predict an average of 2.9% for 2022 but with higher awards for leisure and hospitality (3.2%) and hi-tech (3.1%). Lower awards are expected for sectors such as banking, automotive and chemical at 2.3%, 2.4% and 2.5% respectively
  • Incomes Data Research suggests a tight labour market will drive pay awards between 3% and 6%. The higher end could be reflective of the NLW increase for employers that have substantial employee numbers impacted

So, it’s a bit of a mixed picture, but what we can say is that a tight labour market coupled with higher inflation than we are used to is going to put pressure on pay budgets.

Some employers will be able to rise to the challenge, 54% of those surveyed by WTW stated that business outlook was ahead of expectations. Others are revaluating how they allocate pay budgets. According to WTW, many employers are focussing pay on retaining their top talent by differentiating pay between average performers and those at the top.

It’s going to be a tough year for HR to negotiate pay budgets to ensure that they are allocated where they are most needed, and most likely to have an impact.

 

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

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Image adapted from: 3 Rockin' Musicians, after Pablo Picasso

Courtesy of: Mike Licht