Record pay rises on the cards to address tough recruitment conditions

Employers anticipate offering record pay rises of 3 percent in 2022 as they look to combat increasing recruitment and retention difficulties. This is the headline finding from the CIPD’s latest quarterly Labour Market Outlook, which highlights the scale of the growing challenge facing organisations in finding and keeping staff, and how they are responding. This quarter’s pay award figure is the highest since the survey was conducted using its current methods in the winter 2012/13 report. The Labour Market Outlook surveyed more than 1,000 employers in January 2022 about their hiring, pay and redundancy intentions for the first quarter of the year.

Over two-thirds (70 percent) of employers said that they plan to recruit in the next three months to March 2022 and just one in ten (11 percent) plan to make redundancies. Redundancy intentions were significantly higher before the pandemic, at 16 percent in winter 2019/20.

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

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

There is also a clear focus on workforce retention. Two-fifths of employers (41 percent) reported increased employee turnover or difficulty with retaining people over the last six months. To address this, almost half (46 percent) of employers with retention difficulties have raised the pay of the incumbent workforce in the last six months and 40 percent 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 percent, the highest figure recorded in the last ten 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 percent), focusing more on employee wellbeing (45 percent) and increased investment in training and development (36 percent).

“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”, said Jonathan Boys, labour market economist for the CIPD. “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 staps 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.

“However, the UK Government must also address skills policy failings to support greater employer investment in workforce training. 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.”

Other key findings from the report include:

• The net employment balance – which measures the difference between employers expecting to increase staff levels in the next three months and those expecting to decrease staff levels – has remained steady this quarter (+37). This remains one of the highest figures on record and is being driven largely by the private sector.
• Over four-fifths (84 percent) of employers are planning a pay review in the 12 months to December 2022. Among these, around four in ten (40 percent) expect basic pay to increase, 7 percent expect a pay freeze, while just 1 percent expect a decrease.