‘Employers increasing pay to retain staff, but not in line with inflation’

Employers anticipate making pay awards of 3% in 2022 as they look to combat increasing recruitment and retention difficulties, but that is well below inflation, according to the Chartered Institute of Personnel and Development [CIPD].

Its latest quarterly Labour Market Outlook, based on a survey of more than 1,000 employers in January 2022 about their hiring, pay and redundancy intentions for the first quarter of the year, found over two-thirds (70%) of employers said that they plan to recruit in the next three months to March 2022 and just one in ten (11%) plan to make redundancies. Redundancy intentions were significantly higher before the pandemic, at 16% in winter 2019/20.

However, while recruitment intentions remain strong, almost half (46%) of UK employers report having vacancies that are hard-to-fill. Two thirds of employers (64%) anticipate problems filling vacancies in the next six months, with a third (33%) expecting these problems to be ‘significant’.

In response to recruitment challenges, in the past six months almost half (48%) of employers with hard-to-fill vacancies have increased wages to attract new hires and 46% of employers have advertised more jobs as flexible.

In addition, two-fifths of employers (41%) reported increased employee turnover or difficulty with retaining people over the last six months. To address this, almost half (46%) of employers with retention difficulties have raised the pay of their existing workforce in the last six months and 40% plan to raise pay in the future. Overall, employers report that the median basic pay increase in their organisation (excluding bonuses) in the 12 months to December 2022 will be 3%, the highest figure recorded in the last 10 years of the CIPD’s reporting.

Other popular responses to retention difficulties in the past six months include improved flexible working arrangements, implemented by almost half of employers (48%), focusing more on employee wellbeing (45%) and increased investment in training and development (36%).

Over four-fifths (84%) of employers are planning a pay review in the 12 months to December 2022. Among these, around four in ten (40%) expect basic pay to increase, 7% expect a pay freeze, while just 1% expect a decrease.

Jonathan Boys, labour market economist for the CIPD, the professional body for HR and people development, said: “Even though businesses anticipate making record pay awards to their employees this year, most people are set to see their real wages fall against the backdrop of high inflation.

“What is encouraging is that more employers are looking beyond pay increases to help attract and retain staff by providing more flexible working opportunities and investing in more training and development, as well as taking steps to support employee health and wellbeing. Together these practices can broaden the range of candidates employers can attract and may also reduce the need to recruit more staff, which should reduce wage inflation pressure to a degree.”

He added that the Government also needs to address skills policy failings to support greater employer investment in workforce training. He stated: “In particular, there is a growing need to reform the Apprenticeship Levy into a more flexible training levy to help reverse the falling number of apprenticeships going to young people and enable employers to use the levy for other forms of more flexible and cost-effective training for existing employees.”

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