According to the latest Salary Budget Planning Survey by WTW, UK employers are budgeting an average increase of 4.4% in 2024, which though down from the actual average increase of 5.1% in 2023 and closer to average 2022 pay rises of 4.3% is still well above the 2.8% salary increase budget in 2021 and years prior.

Inflationary pressure is the main driver influencing changes in salary budgets, cited by nearly three-quarters (71%) of UK employers surveyed, followed closely by concerns over a tighter labour market (54%). 

Other factors prompting changes to salary budgets include employee expectation (27%), anticipated recession or weaker financial results (23%) and concerns related to cost management (20%).

According to the survey, attracting and retaining employees is still causing difficulties for almost half (46%) of employers (similar to last year, 47%) but fewer (32%) expect the same difficulties next year.

In response to these ongoing pressures, organisations are taking action to attract and retain talent. Over a third (37%) have raised starting salaries and the same proportion have embarked on a full compensation review for all employees.

Additional measures that have been taken include higher base salaries for all employees (36%), hiring people in relevant salary ranges (35%), targeted base salary increases (34%) and enhanced use of retention bonuses (27%).

Non-monetary actions to attract and retain talent are in motion, as well. More than half (58%) of respondents have introduced more workplace flexibility. Nearly as many (57%) have broadened their emphasis on DEI. While 41% of respondents have taken action to improve their employees’ experience.

Other changes taken include changing health and wellness benefits (35%) modifying compensation programmes (29%) and increasing training opportunities (26%). 44% reported funding the increase in total compensation spend through total rewards optimization (up from 22% in 2022).

Paul Richards, UK reward data intelligence leader, WTW, said: “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.”

“It takes more than compensation to attract and keep great talent, and the past few years have pressed companies to be more resourceful.”