As we approach the end of the year, many organisations are in the midst of planning and setting their pay budgets for 2024. Various factors, including inflation rates, market trends, affordability and organisational strategy influence this annual process.
However, this year brings an opportunity for HR professionals to deliver some good news to employees.
The Challenge of Recent Years
Over the past few years, organisations have faced significant challenges in managing pay rises. High inflation rates put pressure on employees’ cost of living, creating expectations for matching salary increases. However, many organisations could not meet these expectations due to affordability constraints.
Our Global Salary Planning reports revealed that in 2022 and 2023, most organisations set pay budgets below the inflation rate.
Communicating these decisions to employees was often difficult, as HR teams had to explain why pay rises couldn’t match inflation despite the impact on workers’ purchasing power.
A Positive Shift
As we look ahead to 2025, we’re seeing a notable shift in the pay landscape. The UK inflation rate has significantly decreased to 1.7% (September 2024), marking a substantial drop from previous years.
Our latest Global Salary Planning survey indicates that the median pay budget for 2024 is set at 4%. This means that for the first time since the COVID-19 pandemic, most employees are likely to see a real-terms increase in their wage above inflation.
The Opportunity for HR
This positive shift presents a valuable opportunity for HR professionals to:
- Deliver good news to employees
- Reinforce the organisation’s pay principles and strategy
- Educate staff on how pay decisions are made
When communicating these pay rises, it’s crucial to highlight that the increase outpaces inflation, resulting in a genuine boost to employees’ purchasing power. This message can significantly enhance morale and engagement.
Explaining the Bigger Picture
While it’s tempting to focus solely on the positive aspect of above-inflation pay rises, this is also an excellent opportunity to provide context and educate employees about how pay budgets are determined. By doing so, you can build trust and understanding that will serve you well in both good times and challenging periods.
Consider explaining that pay budgets are influenced by multiple factors, including:
- Inflation and cost of living
- External market trends
- Organisational performance and affordability
- Strategic priorities (e.g., retention in key roles)
- Internal pay equity considerations
Emphasise that your organisation aims to balance these factors to make fair and sustainable decisions. This year’s above-inflation increase demonstrates your commitment to employee well-being when economic conditions allow.
Crafting Your Communication
When sharing this positive news, consider the following approaches:
- Be transparent about the inflation rate and how your pay rise compares
- Explain the factors that allowed for an above-inflation increase this year
- Remind employees of your overall approach to pay, reinforcing that decisions are made holistically, not just based on inflation
- Use this as an opportunity to highlight other elements of your total reward package
- Encourage managers to have open conversations with their teams about pay and reward
Looking Ahead
While this year’s news is positive, it’s important to set realistic expectations for the future. Remind employees that pay decisions will continue to be made based on a variety of factors, and that above-inflation increases may not always be possible.
By providing this context, you can help employees understand and appreciate the current increase while preparing them for potential fluctuations in the future.
Conclusion
This is a welcome change for many organisations. It provides HR professionals with a rare opportunity to deliver positive news about pay while also educating employees on the complexities of reward decisions.
By communicating transparently about pay raises, you can boost employee engagement, build trust, and reinforce your organisation’s commitment to fair and thoughtful reward practices.
Remember, effective communication about pay is crucial in both challenging times and positive ones. If you need support in crafting your messaging or developing a reward communication strategy, 3R Strategy is here to help.
Our team of experts can guide you in creating clear, engaging, and impactful communications that resonate with your workforce and align with your organisational values.