Pay and rewards: our ‘hopes and fears’ and your key priorities for 2024 to avoid more ‘stagnation (HR) nation’
2 Jan 2024
Down, up or flat?
3%, 4%, 5%? Just budgeting and determining your 2024 pay award is giving many employers a major headache at the moment. Almost two-thirds of them are anticipating a lower award than 2023’s median highs of 6% - 7%, according to IDR’s latest annual pay planning survey.
As IES Director Tony Wilson suggests in his excellent review of the ONS’s December monthly employment statistics, the flat-lining stats could be ‘the start of a soft landing (and economic recovery)’, for you optimists out there; ‘or more stagnation’ for those of us with a more pessimistic nature. Tony points out that pay in real terms is only 1% above what it was in January and appears to be ‘levelling off’ at pretty much the same rate as it was 25 years ago.
So, what are the features of the UK pay and rewards landscape that are likely to be the most pertinent in your plans for 2024? 12 months ago, IES surveyed over 500 HR leaders for our Commission on the Future of Employment Support on their priorities for 2023. The reward, recruitment and retention agenda dominated their responses.
Surveys today suggest a similar priority work list for HR and reward in 2024, perhaps with a further shift in emphasis towards the skills-development and retention areas. But now there is a growing frustration at this continuing stagnation, sense of decline and lack of growth in the economy. I would highlight three areas where HR should focus in 2024.
Three priority areas: more profit-sharing, skills pay and real wellbeing
1: Bonuses: individual or collective, the few or the many?
We have covered the issue and importance of fair employment and reward practices at our IES annual conference and in a follow-up HR Network paper. Clearly, not all Boards agree with us. Recent reports indicate that Ryanair boss Michael O’Leary is apparently on track to earn €100m bonus, after the low-cost airline’s shares hit a record high. The payout would be one of the biggest in corporate European history and is far from unique.
That’s equivalent to 175 times the lifetime earnings of the average British worker. Or it could move 100,000 of the UK’s four million low-paid employees up from the government’s incorrectly named statutory National Living Wage, up to the level of the Living Wage Foundation’s Real Living Wage rate.
As I have written on all-employee profit sharing and share plans, far more modest payments to far more employees seems to have a much more motivating, performance-enhancing impact than these huge awards to a handful of already-well-salaried top executives. The research review of these schemes points not only to the long history of these plans, but also to their strong record in being associated with business success, far stronger than for executive incentive plans.
2: Skills: external market or internal development and progression?
Many UK employers may still be moaning at the extra costs imposed on them by the Chancellor’s welcome announcement in his Autumn Statement of an inflation-matching 10% increase in the National Living Wage (due next April). They rightly moan even more about the detrimental impact of the UK’s widespread skills shortages.
The Director of the British Chambers of Commerce, summarising the results of their latest member survey, described the inability to recruit staff as the biggest restriction and contributor to this ‘anti-growth economy’ for three-quarters of her members. The UK’s low productivity, she said, was down to the ‘lack of people and lack of investment: these two things go hand in glove’.
Our own IES case study research on Progression in Employment across five European countries demonstrated the significant benefits for all these stakeholders in progressing the skills, careers and pay of low-paid workers, in terms of: lower vacancy levels and turnover/recruitment costs; higher quality work outputs; and a stronger employer brand and recruitment and retention success.
But providing the training alone isn’t enough, you have to link pay to skills development as well. Skills-based pay will and should become a key area for HR professionals in 2024, and I am currently editing a special issue of the journal Compensation and Benefits Review which is aiming to gather new research on how pay and skills are being linked and what the effects of this are.
3: Wellbeing: more programmes or more impact?
The good news is that the Covid pandemic finally reinforced to employers that investing in employee wellbeing: physical, mental and financial, is critical to business and economic success. Some of this investment has been well-directed. Our work on an EAP ROI calculator for the EAP Association indicated a return of over £7 for every £1 invested in an EAP.
The bad news is that some of this investment has not been well-spent. Our own research regularly highlights, for example on the evidence base for Mental Health First Aid, that popular initiatives can have little or no impact on the generally rising levels of mental ill-health. What’s needed is a clear, goal-directed and evidence-based people and wellbeing strategy, to guide and sustain these investments.
We should also consider evidence-based learning and practice. As my colleague Sally Wilson explains, IES’s evidence base in this area shows for example, that mental health awareness training has immediate impacts on line manager confidence to support their staff wellbeing. Our research for Mind has helped build an evidence base for trauma awareness training for first-response workers.
Dark streets or light ahead?
3%, 4% or 5%? I would go for 5%, at least.
Considering the future ‘path to prosperity’ in a post-Covid, de-globalising world, Rana Foroohar notes, ‘employment, wages and other key metrics are refusing to follow historic trends in many places… the pandemic and global response to it has made it very difficult to predict where the economy will be based on old models’.
If we really do want to see a new era of growth rather than a return to 2010s stagnation, we need new models. The same is true for people management, in a UK economy now dominated by service and knowledge-based industries run by human capital.
Despite the uncertainties and difficulties that are bound to be evident in 2024, we at IES know that increasingly influential HR professionals have agency here. They can, through choosing to act and invest in the most productive ways on these three issues of profit sharing, skills-based development and pay, and wellbeing, help to change the ‘no growth, investment in people as cost’ mindset of the last decade.
If you would like to discuss any issues around pay and reward strategies our consultants are here to help, contact: askIES@employment-studies.co.uk
Any views expressed are those of the author and not necessarily those of the Institute as a whole.