Employers plan for lower value pay awards as recruitment and retention pressures ease

Our pay planning survey shows that pay pressures on employers are easing, with almost two-thirds of respondents intending to offer lower pay awards in 2025 than those offered in 2024. Employers’ plans for next year are being made against a backdrop of easing recruitment and retention pressures, and lower inflation, although recruitment issues are still in evidence and the cost of living remains a factor. This year’s survey focused on the pay and reward changes that employers are planning to implement in 2025, and the factors influencing those decisions.

Pay prospects for 2025

Our survey suggests that employers are mostly preparing to shift towards lower value pay awards in 2025. Almost two-thirds of employers (63%) are planning to pay smaller increases in 2025 than they did in 2024. This is a significant change on last year’s survey, when just over half (53%) of HR principals had planned lower awards in 2024. The latest survey also shows that just over a third of respondents (34%) are planning similar value awards to those in 2024, down from 39% in last year’s survey. Just 3% are expecting to make higher awards in 2025 than in 2024, down from 8% who pledged to make higher increases in 2024 than in 2023.

Employers indicated which of 12 key factors were the most influential when deciding the level of pay awards for 2025. Similarly to last year’s survey, affordability is the most important factor, considered as ‘important’ or ‘very important’ by 97% of respondents (slightly down from 98% last year).

Inflation and the cost of living were the second most important factor considered as ‘very important’ or ‘important’ in 85% of cases, with no change between the latest and previous surveys. Meanwhile, recruitment and retention has fallen in prominence somewhat as a factor in determining pay rises. This was considered as ‘very important’ or ‘important’ in 63% of cases, down from 75% last year.

Employers were also asked to comment on what factors they expect will have the greatest influence on their 2025 pay outcomes. Underlining the continued importance of the cost of living, the greatest proportion regard this as the biggest reward issue in the coming year (54%). Much smaller proportions cited other issues, such as recruitment or retention (11% each).

We also asked employers what measures they are planning to implement to help employees with the cost of living in 2025. Just under a fifth of employers (18%) are planning to implement new measures to assist employees with this, down from 28% last year. Among the organisations planning on implementing cost of living measures, over half of these are planning to do so via targeted pay awards for lower-paid employees, up from below half in this category last year.

Inflation and pay rises

The number of employers that reference inflation in some way is up from last year. Employers reference inflation in 83% of cases when deciding the level of pay awards, up from 78% in last year’s survey. Some 57% said they reference inflation informally, 26% formally reference it and the remaining 17% said they do not reference inflation data in pay decisions in any way. CPI is the most common inflation measure used (referenced in 81% of cases). Just over half use RPI (53%) while a similar proportion, 52%, reference CPIH. Among those organisations that make some reference to inflation, 37% use all three measures either formally or informally.

Recruitment and retention difficulties ease a little

The survey shows that recruitment and retention issues look to have eased somewhat, but most respondents are still experiencing some difficulties. HR principals were asked to categorise the current recruitment and retention situation in their organisation as either ‘very difficult’, ‘fairly difficult’, or ‘not a problem’. The proportion finding recruitment ‘fairly difficult’ has dropped from 78% last year to 53% this year. On the other hand, the proportion of employers reporting that recruitment is ‘not a problem’ has increased substantially from 16% in 2023 to 38% in 2024. But a subset of employers still find recruitment ‘very difficult’ and this has risen. The proportion of respondents finding recruitment ‘very difficult’ increased from 6% in 2023 to 9% in 2024.

Among employers who found recruitment ‘fairly’ or ‘very’ difficult, almost three-fifths (59%) agreed that a contributing factor was an inability to find applicants with suitable experience, while 45% reported that there was considerable competition from other firms for experienced candidates. Most respondents categorised their recruitment issues as ‘medium-term’, the same proportion as last year’s survey, while 21% categorised their issues as long-term, slightly down from 22% last year.

Among organisations with ‘fairly’ or ‘very difficult’ recruitment issues, increasing advertisement of open roles was the most used recruitment tactic, with 64% updating promotional material, and 63% making changes to their websites to improve visibility around vacancies. Improving basic pay was also common among organisations struggling to recruit, used in 48% of these cases, while non-pay benefits were improved at 47% of these organisations.To improve their chances of recruiting suitable candidates, slightly more organisations are offering signing-on bonuses, showing at 16%, up from 15% last year. Most of these organisations (80%) only offer these for hard-to-recruit roles.

Retention issues have also been easing, to a greater extent than recruitment. Over half (54%) of respondents reported that retention was ‘not a problem’ within their organisation, a considerable rise from last year’s survey where 38% reported this. The proportion of employers finding retention ‘fairly difficult’ dropped from 58% in 2023 to 45% in 2024. And the proportion of employers reporting that retention is ‘very difficult’ dropped from 4% to 1%, with just one private services firm reporting considerable retention issues. Among the organisations finding retention either ‘fairly’ or ‘very difficult’, the most common reason cited (in 38% of cases) was that competitors were offering higher salaries, making it harder to retain talent. In terms of the type of roles that employers found hard to retain, traditional groups like engineers were prominent. But employers also reported that hourly-paid retail staff and mid-level office staff were also among the hardest groups to retain. As fewer employers are struggling to retain staff, fewer are putting in place measures to improve retention. Just under a quarter of organisations (23%) have improved pay packages in response to retention problems, compared to 53% last year. The proportion of organisations offering new benefit packages has halved from 42% last year to 21% this year. 

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