High Inflation & 2023 Salary Increases

UK inflation still above 10%

Consumer Price Index has been going down gradually from 10.7% on November to 10.5% in December and 10.1% for January according to the latest figures published last week by the Office of National Statistics.

With unusually high inflation, many HR professionals are still working closely with their finance teams to decide the pay increase budgets for 2023. The 3R Strategy Global Salary Planning Report (published in October) with 500 participating organisations showed a median pay increase of 5% for the UK. The upper quartile was also 5% with most organisations reporting a 5% budget for pay increases.

This indicates that most organisations are not able to provide employees with inflationary pay increases. Some are trying to provide additional support to their employees. This include:

• One-off payments to support rising costs
• Financial wellbeing and education support
• Access to discount platforms
• Loans or advance pay to cover annual payments such as car insurance
• Sell back annual leave to increase take-home pay

We will be running a pulse survey in the next few weeks to provide more insight into how organisations are managing pay and supporting employees. To take part in the survey and get access to the free report, you can sign up here

You can also download your free copy of the 2022 Global Salary Planning Report covering data for over 55 countries.

4 tips for your Annual Pay Review Process

For many reward teams, the busiest time of the year is fast approaching – finalising pay review and bonus budgets. How do you balance the challenges of inflation, retention, affordability and the movement in the external market?

If you are planning for your annual pay review process, here are some steps to build an effective process:

1. Define your pay philosophy

Building a particular culture in an organisation means defining a set of values that clarify the behaviours you want to encourage. In the same way, defining reward principles and a pay philosophy will make it clear to employees how you manage pay.

Some employees will demand a 10-15% pay increase because inflation is at record levels. Looking ahead, when inflation is low employees may demand a similar increase because the external benchmark for their particular skills has gone up significantly. Should pay budgets be based on inflation, the external market, business results? What is your pay philosophy?

2. Build a business case for the budget

Once you’ve established the factors that that influence your pay budget, gather the relevant data. If you consider inflation as a factor, gather information on CPI and CPIH (including housing).

3. Data and scenario modelling

A lot of data modelling and financial analysis is required once overall pay review and bonus budgets have been set. This depends on answers to the following questions:

• Does each business area/manager get the same budget or is this differentiated based on positioning against the market, equal pay risks or performance distribution?
• Do all employees get the same pay increase/bonus or is it differentiated? If it is differentiated, you will need to model various scenarios based on your expected outcomes to provide consistent guidance to managers.

4. Communication and guidance for leaders

Start communicating early, putting together a plan and identifying key messages. It helps to provide line managers with a Q&A document to support any pay conversations they will be having with their team. As well as a letter template for line managers to hand out to their teams, you will also need to put together a communication strategy and timeline.

Consider the following questions for your communication strategy:

• What are your pay philosophy and reward principles?
• How is the overall budget determined for pay review/bonus?
• If performance is a factor, are leaders having regular conversations with their teams?
• Are you being transparent with employees? Lack of transparency leads to mistrust
• Do you want to use this as an opportunity to communicate your wider reward offering?

I hope this is helpful. If there are any particular topics you would like to cover in future newsletters, drop me a message.

Rameez