Cost of living crisis: UK employers assisted employees financially in 2022, but is there more to come?
- Temporary financial assistance only has temporary impact; and costs are unlikely to deflate over the coming 12-months
- Permanent step change in costs fueling higher pay demands from employees
- Skills and talent retention remain significant business risks in current economic climate
London, 7 February 2023
Data from a recent pulse survey by Mercer, the global consultancy that helps organizations meet the health, wealth and career needs of a changing workforce, shows that a large proportion of UK employers stepped up in addressing the cost of living crisis with their employees in 2022. The survey also reveals that more than three quarters of employers recognise they are likely to see increased salary demands from all employees in 2023.
Mercer’s research showed that 73% of UK employers assisted employees with their diminished purchasing power due to the inflation and other factors influencing the cost of living. The assistance ranged across lump-sum cash payments, temporary allowances, spot bonuses, retention bonuses and greater use of variable compensation. Mercer’s compensation and benefits expert, David Wreford cautions that temporary or one-off financial interventions are not a strategy for skills and talent retention.
“Interim financial assistance during the cost of living crisis only has a temporary impact. While the rate of inflation may decrease over the coming year, costs are unlikely to deflate,” he said. “There has been a permanent step change in our costs and this will continue to fuel employee demands for higher pay. Coupled with this, organisations are also facing the impact of slower economic growth this year, and employers that are unable or unwilling to meet these pay expectations may see elevated levels of employee dissatisfaction or worse, staff attrition.
“UK employers also need to ensure they can retain and attract the right employees going into an economic recovery so we do anticipate that the cadence of pay reviews may change over the next year.”
Mercer’s survey shows that just over half (51.14%) of UK employers indicated they are making provisions to change the frequency of salary or wage reviews. Just over one fifth of companies responding (20.46%) indicated they will review the frequency for employees with the highest retention risk and 15.91% of employers indicated they will increase the frequency of reviews for those employees regarded as having rare or ‘hot’ skills.
“In our experience, organisations are increasingly moving to more regular pay reviews and the cost of living crisis is accelerating this trend,” said Mr Wreford. “In the last few years we have seen an increase in the use of interim reviews, to quarterly reviews, to the idea that the review process is ‘always on’. This is driven by skill demands, an increase in skill premiums - and the accelerated rate at which they change - and the need to constantly stay competitive.
“We anticipate some organisations to re-review market pay after the current pay round and may make further adjustments, but I wouldn’t be surprised if we see a general move towards more regular pay reviewing with a particular focus on more frequent reviews for key staff groups, especially those with particular knowledge, experience and skills.”
Mercer’s research indicates 70.79% of UK companies anticipate significantly increased salary demands across all roles or skills, slightly lower than the global figure of 85.64% of employers.
“Organisations are stuck between a rock and a hard place because we are heading into a flatter economy, yet there is also remains a skills shortage,” said Mr Wreford. “We expect pay budgets this year to be around six or seven per cent which is double what they have historically been for the past decade.”
Mercer’s data also shows that 83.95 per cent of UK companies are, or are considering, placing greater emphasis on non-financial elements of compensation in 2023 with 88.46 per cent placing, or planning, greater emphasis on communicating total rewards to employees.
“Perhaps one of the most significant areas organisations can address is around transparency and communication of pay reviews,” added Mr Wreford. “Companies that practice empathy, transparency, clarity and honesty, even when the message isn’t palatable, will be the ones able to retain and attract the talent they need to succeed.”
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.
About Marsh McLennan
Marsh McLennan (NYSE: MMC) is the world’s leading professional services firm in the areas of risk, strategy and people. The Company’s 85,000 colleagues advise clients in 130 countries. With annual revenue of over $20 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and wellbeing for a changing workforce. Oliver Wyman serves as a critical strategic, economic and brand advisor to private sector and governmental clients. For more information, visit marshmclennan.com, or follow us on LinkedIn and Twitter.