Inflation: Wage Rise and One off/Cost of Living Bonus

Newspoint

Author

Damian Carnell
November 14, 2022

CORPGRO Newspoint

Inflation: Wage Rise and One off/Cost of Living Bonus

WHATS THE STORY?

Today the quarterly CIPD survey said planned 2023 average wage rise is c. 5% - well behind current inflation.

UK recruiters plan record pay rises but real wages lag inflation, survey shows

British employers are planning the biggest pay hikes in a decade to fill roles but real-term wages will still grow more slowly than inflation, a survey showed on Monday.

https://www.reuters.com/markets/europe/uk-recruiters-plan-record-pay-rises-real-wages-lag-inflation-cipd-2022-11-14/

Some 12% plan a one-off payment to all employees, with another 10% planning that for some staff only (nearly a quarter in all).

Last month, a CBI survey said about 1/3rd of companies aimed to inflation match pay rises, another third plan combining rises with other things (new review dates or one off payments), while the rest expect real wage erosion.

In 2022 some companies have implemented one off or cost of living bonus arrangements.

WHY DOES IT MATTER?

As UK inflation hits 10.1%, and the cost-of-living crisis unfolds, companies must judge how wages might move in response.

UK unemployment is nearing record lows (1974 or so) and vacancies are at a very high level. CIPD said today nearly 70% of companies plan to increase recruitment in 2023.

Wages really matter. Are one-off payments a good idea? Or just kicking the can down the road?

NEWSPOINT COMMENT:

MATCH or MIX?

Companies need to recognise inflation impact on their employees. Some can match inflation; others find that tricky.

The CORPGRO 2022 study of 25 one-off payments shows:

  • Flat payment (worth more to low earners)

  • participation broad based

  • eight in ten exclude top earners

  • top earner definition varies (a lot)

  • one-off payment (72%), others in stages or monthly

  • Payment £1,000 on average ( 4% if on £25,000)

  • Seen in 40%, of cases (only one in five being more)

The companies range from small to big, and include some famous names in fair dealing, Co-Op Bank and John Lewis for example.

A one-off bonus payment is welcome. More welcome is a wage rise which:

  • applies to future years

  • has pension etc.

This permanence makes some companies uneasy when the economy is uncertain.

Is this a temporary fix, to ease employee cashflow and buy time? Typically, the one-off payment is on top of a lowish pay rise. So, overall, employees are OKish; on a one-year view.

Inflation increases prices. When inflation falls to zero, prices stay still, they do not go down.

One-off payment is a minority practice but are set to become more common, alongside bring forward pay review dates and review frequency.

Profit share plans allow cost to match the profit which funds it. A “ramp-up” payment to lead into the profit share kick-in makes sense.

Difficult times lie ahead. Companies must use wage cost to remain competitive and sensitive to the wider scene - whichever tools are chosen.