Feeling the pinch: pay in 2023
18th October 2022
Julia Hanna
Be creative with total reward
This coming year’s reward round is going to be difficult for everyone.
The trading environment is challenging, the talent market is tight, the cost of living is the highest in 30 years and everyone is feeling the pinch.
The 2% salary world we inhabited for so long has all but disappeared.
Whether your pay philosophy has a formal link between pay and prices or not, employees will have an expectation that pay review will go some way to easing financial burdens.
This is reinforced by press reports of double-digit pay demands or awards. These are mostly in the public sector and are often accompanied by wrangling over the review of working practices in some way.
Many employers want to respond to employee concerns, but, faced with spiralling costs (just to keep the lights on), meeting employee expectations will be tough.
So, what do we know about pay for 2023?
- First, a quick look back. For 2022, actual pay budgets exceeded projections. The recent Willis Towers Watson (WTW) Salary Budget Planning Report showed that this year, on average, companies’ actual budgets were 4%, 0.8 percentage points higher than planned. This is an increase of 1.2% in 2021 and mainly appears to be a reaction to the tight labour market.
- Projections for 2023 are in the region of 4% (WTW) which is consistent with Payscale’s c3.8% from their Salary Budget Survey published in August. Whether as the year progresses actual budgets exceed projections again, we don’t know.
- The Real Living Wage is increasing to £10.90 (£11.95 in London) A 10.1% increase.
- The latest prediction from the Chartered Institute of Payroll Professionals is that the National Living Wage will increase to £10.32. An 8.6% rise.
With inflation biting, employers are also looking to respond in other ways:
- Paying a one-off cost of living award in the region of £1,000 to £2,000 to all or some employees (usually differentiated by grade or salary level)
- Some of our clients have implemented the Real Living Wage now rather than waiting for the May 2023 effective date
- Providing discounts to goods and services such as grocery vouchers or negotiated preferential rates with gyms etc.
- Providing free or subsidised meals or snacks (e.g. John Lewis)
- Offering hybrid working so employees can balance travel and heating costs
- Offering loans such as for season tickets (enabling monthly repayments) or financial assistance packages
- Providing financial wellness support either through budget planning training or debt support
- Allowing employees to sell-back unused holidays (with welfare caveats)
So, with high expectations but potentially limited budgets, be clear about your pay philosophy and continue to deliver against that. And get creative with a total reward approach to see how else you can support employees through difficult times.
Image adapted from A pinch of salt by Tim Green.
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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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