What’s the Story?

Press reports last week say that FTSE 100 companies paid employees c. 6% pay-rise for 2022, well below inflation of c.10%. A real wage pay-cut for many employed by the UK's biggest companies.

Some Telco and Food Retail companies were flagged by the FT survey as providing higher rises, broadly matching inflation.

Strikingly, 55% of the FTSE 100 provided a one-off payment in 2022 to some, or most, staff: the average payment being £1,000.

The report also flagged the contrast with 2022 CEO disclosed remuneration rising 23% in 2021, reflecting a bonus bounce from low targets set in the pandemic gloom of 2020.

Why Does it Matter?

The cost-of-living crisis of 2022 is flowing seamlessly into 2023. So, "real wage-cut" headlines will sell papers; but the position is more complex:

• Average can mislead. A 6% average pay rise budget if "tilted" towards the lesser paid might mask a 10% uptick at the bottom and 2% rise at the top.

• One off payment is also now mainstream. A £1,000 payment on a £25,000 salary is 4%. Add that to the average 6% pay rise gives an inflation matching 10%.

The picture is fast moving, and the tools of tilted pay rise allocation and one-off payments can be substitutes, or work in tandem. Furthermore, pay review dates and review frequency are often moving.

Both CBI and CIPD late 2022 survey figures said that one-off payments would be significant minority practice in 2023. This now looks like an underestimate. In 2022, it was already majority practice among the largest firms.

It follows that judging the "going rate" for companies is more complex than ever. Normal pay data is helpful, but it is wise to think beyond the regular figures.

Companies must balance internal fairness with external pay markets and balance the affordability of one-off cost against permanent pay-rise cost as well. No easy task.

Newspoint view

Reward thinking has encouraged companies to target limited pay rise spend on the top team, scarce talent and high performers/potential.

Incentive plan eligibility, and pay-out opportunity, also favour these groups. Differentials have risen markedly for many years as a result.

Investors have now challenged strongly, director fixed pay moving ahead more than the general workforce; both in base pay and pension. Now they call for base pay rises to be below those of the general workforce.

One off payment is new but will likely remain part of the pay market landscape maybe for years to come. In time this practice might erode, maybe in favour of tilted base pay rise; and profit-sharing plans to reflect the future fortunes of the company.

Whatever happens, companies need to stay attuned and respond to suit the business need. As Maynard Keynes once said "When the facts change, I change my mind. What do you do?"

Executive Compensation and Incentive Design

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Remuneration Advisory and Support

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Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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