An annual pay rise is a crucial part of employer-employee relationship in the UK. It’s not just about aligning compensation with the cost of living and market conditions, but also recognising and rewarding teams for their ongoing work and commitment.
And employers and employees alike are wondering: what will the average pay rise be in 2024? Whether you’re an employer looking for the latest statistics to help remain competitive, or you’re an employee wondering what you can expect on top of your salary this year—here’s what you need to know.
What can UK employees anticipate in terms of salary increases for 2024?
Recent projections indicate that UK employees can expect an average salary increase of 4.4%. This marks a decrease from the preceding year’s average growth, which reached its peak at 5.1% in 2023.
The decline in salary budgets implies an adjustment in the economic landscape, as employers adapt their financial strategies in response to diverse factors influencing the job market and overall economic conditions.
“While we are seeing lower salary increases forecasted for next year, they’re still well above the ones we’ve seen for the last 10 years. This shows that companies are striving to stay competitive in a dynamic work climate. Those companies that have a clear compensation strategy as well as a good understanding of the factors affecting it will be more successful attracting and retaining employees while keeping pace with an evolving environment in which yesterday’s certainties no longer apply.” Paul Richards, WTW, a leading global advisory, broking and solutions company.
Why are annual pay rises important to UK employees?
- Cost of living: The cost of living tends to rise over time due to inflation. An annual pay rise helps employees keep pace with these increasing living expenses, ensuring that their purchasing power remains relatively stable.
- Motivation and morale: Knowing that their efforts are recognised and rewarded can boost employee morale and motivation. A regular pay increase is seen as a positive acknowledgment of an employee’s contributions to the company.
- Retention and job satisfaction: Competitive salaries and regular pay rises contribute to employee satisfaction, making them more likely to stay with your company. This can be crucial for talent retention, as employees are less likely to seek opportunities elsewhere if they feel fairly compensated.
- Financial planning: Employees often rely on a stable and predictable income to plan their finances. An annual pay rise allows for better financial planning, helping individuals meet their long-term goals and obligations.
- Fair compensation: A regular pay review ensures that employees are compensated fairly compared to industry standards and market rates. This is essential for attracting and retaining skilled and experienced professionals.
- Employee engagement: Recognising and rewarding employees through pay rises fosters a sense of engagement. Engaged employees are generally more committed to their work and contribute positively to the overall success of the organisation.
- Legal and ethical considerations: In some cases, employers may have legal or ethical obligations to provide regular pay increases. Employment contracts or industry regulations may stipulate the frequency and criteria for salary adjustments.
What factors are contributing to shifts in salary budgets?
Based on the findings from “The Salary Budget Planning Report,” a survey conducted by WTW’s Reward Data Intelligence practice – which involved questioning around 3,142 organisations in the UK – the primary factors influencing changes in salary budgets are:
- Inflationary pressure: Indicated by almost 71% of surveyed UK employers, this suggests a substantial influence on budgetary decisions.
- Tighter labour market: For 54% of employers, this is a concern, underscoring the impact of market conditions on salary adjustments.
- Employee expectation: Acknowledged by 27% of survey participants, this suggests that workforce expectations play a role in shaping salary budgets.
- Anticipated recession or weaker financial results: A consideration for 23% of employers, implying a prudent approach in response to economic uncertainties.
- Concerns related to cost management: Taken into account by 20% of survey participants, underscoring the significance of expense management in salary budget planning.
“It takes more than compensation to attract and keep great talent, and the past few years have pressed companies to be more resourceful. As workforces become more diverse, demanding and dynamic, the key is understanding their specific needs and preferences while providing the desired employee experience and careers within the company.” Said Richards.
Top 10 best practices that you can adopt to ready your business for annual pay increases
- Conduct market research: Consistently conduct research and stay abreast of industry and market salary trends to guarantee the competitiveness of your pay rates.
- Establish clear pay policies: Define your organisation’s pay policies clearly, promoting transparency and fairness in the annual pay rise determination process.
- Performance reviews and goal setting: Connect pay raises to performance evaluations, fostering a culture centred around results and establishing a link between individual contributions and salary adjustments.
- Employee feedback surveys: Collect input from employees regarding their expectations and perceptions of compensation, offering valuable insights for refining strategies related to pay increases.
- Benchmarking against competitors: Benchmark your salary structures against industry competitors to pinpoint areas for enhancement, ensuring your organisation remains appealing to top talent.
- Regular compensation audits: Regularly assess your compensation practices to detect potential disparities or inconsistencies and take proactive measures to address them.
- Transparent communication: Effectively communicate the criteria and procedures for annual pay increases to employees, nurturing a sense of trust and understanding within your workforce.
- Budgeting and financial planning: Incorporate pay rise budgets into your comprehensive financial planning, guaranteeing that the organisation can support salary increases without jeopardising financial stability.
- Non-monetary recognition programs: Enhance overall job satisfaction by complementing annual pay increases with non-monetary recognition programs, such as employee-of-the-month awards or flexible work arrangements.
- Regular performance feedback: Run regular performance feedback sessions throughout the year to foster continuous communication and ensure employees are informed about their progress towards earning a pay increase.
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