Record pay rises outpaced by inflation

The CIPD’s latest Labour Market Outlook survey reveals employers anticipate pay awards of 3% in 2022 as talent shortages continue to bite.

Image of calendar with pay day and a smiley face marked on

Ruth Holmes

14 February 2022

The rise is the highest since the quarterly survey started in 2012/13, which canvasses 1,000 employers’ hiring, pay and redundancy intentions for the coming year.Conducted in January 2022, the CIPD’s survey shows that hiring intentions and workforce upskilling remain high across all industries.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 also remained steady this quarter (+37). It remains one of the highest figures on record and is driven largely by the private sector.

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Attracting a wider talent pool

Almost half of employers with retention difficulties (46%) have raised the pay of the incumbent workforce in the last six months and 40% plan to raise pay in the future. More companies are also advertising jobs as flexible from day one – a longstanding CIPD campaign. This aims to enhance the attractiveness of hard-to-fill vacancies and encourage employee retention.Two-fifths of employers (41%) reported increased employee turnover or retention difficulties over the last six months. Improved flexible working arrangements have been implemented by almost half of employers (48%), alongside a greater focus on employee wellbeing (45%), and increased investment in training and development (36%).

Looking beyond pay

Jonathan Boys, Labour Market Economist for the CIPD, comments: “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.

“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 steps 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.”

Employee rewards and benefits sweeten deal

The record annual pay rise comes as cost pressures on employees and employers mount.Rob Marshall, Head of Product and Proposition at WorkLife by OpenMoney, suggests firms need to continue to get creative with rewards and benefits if they are to help employees navigate the current cost of living crisis.The company, which aims to make employee benefits affordable and accessible for everyone, offers five priorities for companies looking to inflation-proof their pay and rewards offering, including:

Use salary sacrifice and interest-free employee loans
Consider what else could be provided tax free
Promote cash plan allowances
Offer retail and other discount schemes
Look beyond cash benefits

“Whether a company is putting additional benefits in place or simply reviewing and re-promoting existing ones, getting on the front foot with communicating what's available is key ensuring maximum value for all,” says Rob Marshall.“Poor financial health can easily impact other areas of an employee's wellbeing, so firms must strive to step in early and let workers know where they can get an extra helping hand."