Employers plan for lower value pay awards as inflationary pressures ease

Our pay planning survey shows that the recent pressures on employers to offer staff significant pay rises are easing. Over half of the respondents expect to pay awards of lesser value than those offered in 2023. Employers have suggested that they plan to make this change in 2024 due to an expected drop in inflation, combined with some easing of recruitment and retention pressures, though not in all areas. This year's survey focused on the reward changes that HR principals are planning to implement in 2024, and the most influential factors affecting these decisions.

Pay prospects for 2024

The results from our survey suggest the possibility of a shift towards generally lower pay awards in 2024 in comparison to this year. Many respondents are planning lower awards as they are expecting less upward pressure on pay, due to a likely fall in the rate of inflation in 2024. Over half (53%) are expecting to make lower awards next year (compared to just 10% in last year’s survey). On the other hand, just 8% of employers are expecting to make higher awards next year, compared to the 56% that had planned higher increases for 2023 in 2022.

We asked employers to indicate the importance of 12 key factors in deciding coming 2024 pay rises. Similarly to last year’s survey, affordability and inflation remain the most significant influences on pay outcomes. Almost all organisations (98%) ranked affordability as ‘important’ or ‘very important’ in pay decisions. Inflation and the cost of living is the second biggest influence, considered ‘important’ or ‘very important’ in 85% of cases, with little change between the 2022 and 2023 surveys. Three-quarters of organisations said that recruitment and retention was ‘important’ or ‘very important’ for their upcoming pay round, which is lower than last year’s survey when 85% considered this to be a very influential factor.

Employers were also asked to comment on what they expect will be their biggest reward issue in 2024. The most common responses included an inability to keep up with competitors offering more attractive reward packages, and even a potential rise in the cost of living (or perhaps the possibility that inflation, though lower, could remain high in comparison to the previous period) which could lead to a requirement for higher pay rises than assumed. Many commented that their organisations would not be able to afford the increases many employees may be looking for, to aid them with a continuing cost-of-living crisis. 

Expected relationship to inflation

As inflation falls, it still remains a key driver of pay decisions, even if lower inflation means its influence is reduced. Over three-quarters of organisations (78%) said they reference inflation when making decisions. Respondents were also asked where they expect pay awards in 2024 to sit in comparison to inflation. Over half (55%) of respondents are expecting pay awards to be below CPI or CPIH. This is similar to 2022 when 56% of HR and reward leads expected pay awards for 2023 to be at this level. The proportion of respondents expecting the pay award to be level with CPI or CPIH has declined slightly from 24% last year to 21% this year. The proportion of employers expecting to pay awards level with RPI increased from 7% to 13%. Those expecting awards to be above CPI but below RPI is down from 9% in 2022 to 7% in 2023. Just 4% expect pay rises to be above RPI (the same as reported in last year’s survey).

Pay awards in 2023

With the majority of responding organisations having completed their 2023 pay round, or made firm decisions, participants were asked whether their 2023 pay award was higher than any increase last year. The results show that the level of pay rise in 2023 was higher than in 2022 at almost half (49%) of respondents, a significant decline on last year when 87% had paid rises higher than in 2021.

Just over a fifth of organisations (22%) offered employees one-off payments in 2023, a significant increase compared to 2022, when 17% had made such payments. The use of one-off payments was prompted by the high cost of living in the great majority (66%) of cases.

Organisations were also asked to advise which factors were most important in determining the level of 2023 pay awards. Affordability was ranked highest with 99% of organisations regarding this as ‘very important’ or ‘important’, closely followed by inflation and the cost of living at 93%.

Recruitment remains ‘fairly difficult’ for most

The proportion of organisations finding recruitment ‘very difficult’ has declined in comparison to 2022, but the proportion of those finding it ‘fairly’ difficult has increased. Employers citing recruitment as ‘very difficult’ declined from 24% last year to just 6% in 2023, and the proportion of respondents finding recruitment ‘not a problem’ has almost doubled from 9% to 16%. However, while the number of firms affected by severe recruitment issues has declined, the proportion of organisations finding recruitment ‘fairly difficult’ increased significantly from 67% in 2022 to 78% in 2023.

Retention difficulties improve slightly

In comparison to recruitment, retention has eased a little more with the proportions finding retention ‘fairly’ and ‘very difficult’ seeing significant declines in comparison with last year’s survey. While retention is overall a little easier than recruitment, at the same time we registered a significant increase in the proportions regarding their retention problems as long-term.

The proportion of employers describing retaining staff in their organisation as ‘very’ difficult has declined significantly from 7% to 4%, and the number of organisations finding retention ‘not a problem’ has increased from 22% to 38%. The proportion of employers finding retention ‘fairly’ difficult has also seen a large decline from 71% to 58%. While these results indicate an improvement in employers’ ability to keep valuable staff, over three-fifths (62%) of respondents are still struggling with fairly or very difficult retention difficulties, indicating that the issue is still prevalent across the majority of organisations.

About the survey

IDR’s survey on prospects for pay and conditions in 2024 was conducted in the summer of 2023. The survey received responses from 120 organisations, predominantly large private sector firms, together employing almost 1.6 million employees. The survey asked employers to advise on their experience of pay-setting in 2023, their plans for 2024, and also asked employers to indicate what strategies they are implementing for the year ahead to improve recruitment and retention. 

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