IDR | 26 Sep 2018

Recruitment and retention issues raise pressures on pay

Employers consider that pressures on pay are increasing, with recruitment and retention issues the main factor behind this, according to the results of the annual pay planning survey from Incomes Data Research (IDR). Other key findings include a greater influence being exerted by inflation on pay decisions, and in respect of broader remuneration strategies, the rising impact of fairness. In addition, most organisations were uncertain about the effect that Brexit will have on their business. The survey, which examined employers’ reward intentions for the coming year, received responses from 122 mainly larger employers, mostly in the private sector, and together employing a total of 1.2 million workers.

Participants included Balfour Beatty, Boots, easyJet, Lloyds Bank, Mars, McDonald’s, the National Trust, Nationwide, Sainsbury’s, Severn Trent Water and Tesco. IDR asked employers whether pressures on pay had increased, decreased or stayed the same since last year. Most respondents (62%) reported that they had increased and over half (54%) said this was due to issues around recruitment and retention of staff. This is mainly being driven by recruitment and retention difficulties for specific roles (34% of respondents reported this as a factor behind increasing pressure on pay). Meanwhile a fifth of respondents said that recruitment and retention more broadly was the main reason for rising pressures on pay. 

Where are pressures on pay coming from? Inflation has become more important in determining the level of pay increases compared to last year when 66% of respondents said it was either important or very important. This year, 77% of respondents regarded it as important/very important. The survey asked respondents how they thought their 2019 pay awards would compare to inflation. When set alongside forecasts for inflation, the responses indicate that between three-fifths and two-thirds of pay awards in 2019 may come in at 2.6% or higher, with a significant minority of these at 3% or above. While affordability was the most important factor influencing broader reward strategy, the second most important factor was internal relativities or fairness, ahead of external relativities or market comparisons.

The greater prominence of fairness over market considerations could reflect the impact of the gender pay gap reporting requirements, and perhaps also the possibility of forthcoming legislation on reporting executive pay ratios. Both of these are likely to have made firms focus more sharply than before on internal relativities. Finally, most organisations are still uncertain about the impact the UK’s exit from the EU will have on their business. Perhaps due to the extremely slow progress of the negotiations, most say it has had no effect on their decisions around pay or their staffing plans for 2019. However, a handful of companies in the survey have already experienced some effects from the outcome of the vote.

Notes for editors: IDR conducted its Pay Planning and Reward Strategies for 2019 survey in July and August. The survey gathered information from 122 organisations across the UK about their reward intentions for 2019. For enquiries relating to this research, please contact Ken Mulkearn. The full report Pay Planning for 2019 report (pdf) is available to buy now at £200+VAT and can be ordered by emailing IDR (quoting reference ‘PP18’ as the message subject) at sales@incomesdataresearch.co.uk.