Moving to a more nuanced approach to pay setting remains crucial, as higher increases can significantly impact an organisation’s total salary spend. Clearly defining and articulating your organisation’s pay policy is important to help your employees understand that a multi-factored approach is used to differentiate pay to optimise total reward spend.
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Author: Sarah Jefferys

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As we approach pay review season, reward and HR professionals are preparing for a busy period. In seeing a recent slowing in the labour market, we want to share our view on how the economic climate and the regulatory environment might come into play.

Recognising there's still a high degree of market volatility what are the important trends to take note of when planning for 2025 salary reviews?

  • We're beginning to exit a period where pay reviews were heavily influenced by a post-Covid environment and cost-of-living crisis
  • There have been strong pay settlements in the not-for-profit sector—with median pay awards up as of July 2024, rising to 6.1%1 driven by our new government recently confirming above-inflation pay rises of 4.75% — 6% for a large proportion of the public sector workforce
  • Turning to the private sector, this is more muted, down to 4.5% over the course of the same period
  • Looking ahead to pay review budget projections for 2025, we're seeing predictions for the not-for-profit sector with a high of 5% - which is more muted for the private sector in the range of 3.5% - 4.5%. We expect that lower pay awards for next year are set to continue over the course of the next few years
  • The recent Autumn Budget has also put additional cost onto Employer's National Insurance which employers will be thinking about as they set their budgets for pay review
  • Increases in the National Living Wage (NLW) will continue to put financial pressure on employers, and will contribute to compression within pay structures, as well as influencing how pay review budgets are distributed across the workforce
  • Hot-spot critical talent roles continue to command a premium, particularly in the Technology and Risk areas
  • Out-of-cycle pay increases, excluding those awarded to reflect promotions, were popular post-pandemic as a response to significant inflation hikes. However, we're seeing a decline in use as companies look to demonstrate greater fiscal responsibility and adhere to tighter budget envelopes

The importance of communication

Moving to a more nuanced approach to pay setting remains crucial, as higher increases can significantly impact an organisation's total salary spend. Clearly defining and articulating your organisation's pay policy is important to help your employees understand that a multi-factored approach is used to differentiate pay to optimise total reward spend. This ensures you take account of individual performance, as well as addressing market challenges where you're having trouble attracting and retaining talent.

Here are three things to consider:

  1. As an organisation, challenge yourself to be more transparent on pay—given legislative trends within the EU, how can you deliver more transparency to help your employees understand how reward is determined and managed, so you can be more transparent about reward on an ongoing basis?
  2. It's important you have a robust way to compare roles using a job levelling methodology (determining jobs of equal value), pay levels for each job level and how people can move through pay structures, including explaining the difference between a progression (within a job level) and promotion (into a new job level).
  3. Assess your frontline manager ability — do you need to deliver management training to ensure the right messages are being delivered by your frontline managers?

Looking beyond pay

Balanced against this, organisations continue to be challenged with redefining their employee value proposition (EVP) to meet constantly evolving employee expectations of the 2024-25 workplace. Need more insight into EVPs? Check out this recent article.

Whilst the headline salary will always be an important factor in whether someone decides to join your organisation (or not), the broader employment experience continues to play an increasingly larger part in whether employees remain with an organisation. We talk about moving employees from'hygiene' to 'hooked'; within the organisation, and offering a varying range of reward and benefits will support this and ultimately reduce staff turnover.

Against a backdrop of economic recovery, jobseeker confidence on the rise and new positions coming to the forefront led by technology, there's an increased competition to attract the best talent — the CIPD Labour Market Outlook , highlights that 37% of organisations have hard-to-fill vacancies.

Findings from our Benefits Strategy and Benchmarking Survey 2024, tell us that 90% of respondents are continuing to experience pressure on pay. We believe employers need to look beyond base salary to attract and retain. For example, the survey continues to place a spotlight on flexible work practices that can attract, retain and engage top talent. Employers who want to deliver a better employee experience have an opportunity to leverage these benefits and policies as a competitive advantage.

Get your journey started with us today. Our team has detailed insights in this space — and we can support you with a comprehensive review of your overall reward offering and EVP, ensuring you are able to attract, engage and retain the key talent required for the success of your organisation.

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