In today’s volatile, uncertain and complex world, making predictions for the coming month is difficult enough, let alone making them for 2023. The cost-of-living crisis has had, and continues to have, a significant and widespread impact on the world of work. Next year, it is likely the UK will be in recession, though the downturn’s duration and depth is uncertain. In terms of pay, if the rate of inflation begins to fall then some employers might feel less pressure to increase pay significantly. If the rate of inflation continues to rise, then some employers may be unable to increase pay.
Despite these bleak projections, the labour market is still tight and the limited supply of talent and skills could mean that overall pay inflation will not drop that quickly in the coming months. Because of economic uncertainty, we could see employers focusing on variable pay to recruit and motivate employees because it does not increase fixed costs the way that fixed pay does.
In terms of benefits, employers will be more likely to explore low-cost financial benefits, especially those that boost the wellbeing and overall work life balance of their workforce. In fact, the Chartered Institute of Personnel and Development (CIPD)’s Resourcing and talent planning report, published on 27 September 2022, suggests that on its own, using pay to attract talent simply is not enough to tackle the on-going skills shortage. As such, we can expect to see a greater emphasis on communicating the existing benefits to staff, such as flexible working arrangements, healthcare subsidy schemes and career development, so that staff better understand their value.
Also, we can expect to see more employers following the trend towards greater transparency, to demonstrate to employees that remuneration decisions are fair, as well as sharing more reward information in their dealings with external stakeholders, such as investors, customers or trade unions. We may also see greater transparency around pay structures and progression opportunities available to employees. By sharing reward analysis by demographics like ethnicity or age, and providing more information about pay and benefits in job adverts, employees may attract and retain more talent.
If the recession is deep but inflation falls fast, then employers might be tempted to try and keep as many of their staff as they can and look to make cost savings elsewhere, such as by temporarily cutting pay and rolling back reward and benefits, especially those little valued by employees. However, reward reductions need to be done both legally and fairly, with the most vulnerable employees considered.
Employers should be careful not to repeat the mistake made by other organisations in previous times of economic downturn. Those that laid off lots of workers and slashed benefits to survive, then struggled to attract the staff they needed as the economy recovered. There are various low risk rewards available to employers that will help them attract and retain existing talent. With the economy set to remain unstable, it is important that employers know about these rewards, such as offering flexible-working arrangements, share incentives, staff discounts in various shops and wellbeing initiatives, to name a few.
Charles Cotton is senior reward adviser for the Chartered Institute of Personnel and Development (CIPD)