Amid stabilising employee numbers, UK employers are moderating salary budgets for 2024.
- Nearly half of UK organisations report lower salary budgets for the upcoming cycle compared to 2023.
- Despite challenges in attracting talent, the overall salary increase for 2024 drops to 4.6%.
- A significant portion of companies are adjusting compensation strategies due to inflation and market demands.
- Labour market dynamics push employers to review compensation with an eye on long-term stability.
In a period marked by stabilising employee numbers, UK organisations are approaching their salary budgets with increased caution. According to recent findings by WTW, a leading global advisory firm, 49% of organisations indicated that their salary budgets for 2024 are lower compared to the previous year. This move reflects a broader trend toward financial prudence amid changing market conditions.
The struggle to attract and retain talent persists, albeit with a notable improvement. Previously reported by 48% of employers, this challenge now affects only 39% as labour dynamics shift. The pressure to balance competitive compensation with sustainable budgets remains high, which has led to an overall median pay rise of 4.6% for 2024, a decrease from 5.3% in 2023.
Even as salary budget increases have declined, they are projected to grow by 4% in 2025. Total payroll expenses, encompassing salaries and benefits, continue to rise in the UK, with 75% of organisations reporting higher expenses than the previous year. Inflation, which affects salary budgets variably, has decreased to 2.3% in 2024 and is expected to maintain this level in 2025, influencing financial strategies significantly.
For companies decreasing salary budgets, inflationary pressures and cost management concerns are primary reasons, alongside weaker financial outcomes. Conversely, organisations raising salary budgets this year attribute their decisions to the same inflationary pressures coupled with a tight labour market. Such divergent strategies highlight the complex interplay between external economic factors and internal policy decisions.
To address these challenges, nearly half of the companies are either revising or planning adjustments to their compensation programmes, with a substantial number undertaking comprehensive reviews of employee remuneration. Many are enhancing workplace flexibility and emphasising diversity, equity, and inclusion. This holistic approach is not only aimed at improving the employee experience but also at ensuring alignment between compensation practices and overarching business strategies.
Paul Richards, the Europe Rewards Data Intelligence Leader at WTW, highlights the strategic shift in compensation philosophies. He notes that employers are increasingly focused on aligning pay priorities with their broader business objectives. By concentrating on transparency and equity in compensation, they aim to provide clarity around salary increments, ensuring that they reflect both business performance and market conditions.
UK employers are adopting a balanced approach to salary budgets, reflecting the complexities of market demands and financial stewardship.
