Workers after a pay rise in the coming year could be left wanting.
Economic uncertainty stemming from a tight labour market and soaring inflation is clouding the outlook for salary increases, according to a new survey of New Zealand organisations.
Global consulting firm Mercer’s annual Total Remuneration Survey found employers are budgeting for a median salary increase of 3 per cent in 2023 across a range of industries, unchanged from the previous year’s survey.
However, for many employees, this will be of little comfort in the face of the rising cost of living and increasing mortgage repayments.
Inflation is running at a 32-year high of 7.2 per cent.
“The cautious approach will come as a hard truth for many employees faced with cost of living increases,” said Andrew McKechnie, head of workforce solutions for Mercer New Zealand.
Just one in four organisations (26 per cent) say they plan to factor inflation into their 2023 salary budgets, according to Mercer.
Those in information technology (IT) can expect the biggest year-on-year salary increases.
The median salary increase for information systems architecture specialist professionals was over 13 per cent, while technical project management specialist professionals are receiving increases as high as 9 per cent.
Other sectors forecasting big salary growth this year are manufacturing (2.7 per cent to 3.5 per cent), energy (2.5 per cent to 3.2 per cent), and life sciences (2.9 per cent to 3.5 per cent).
McKechnie said attracting and retaining talent would be more challenging than ever this year.
The survey found nearly one-third (31 per cent) of New Zealand organisations reported increased employee turnover as an issue in 2022, up from 14 per cent in 2021.
Meanwhile, 51 per cent reported having difficulty hiring or retaining employees in certain roles, compared to 42 per cent in 2021.
But McKechnie urged organisations to take a holistic approach to employee benefits amid tight control over salary budgets.
He said non-financial rewards were taking centre stage.
“While competitive salaries may get employees in the door, organisations must think about what will incentivise them to stay, particularly in a high inflation environment with record-low unemployment rates.
“In this war for talent, it’s important to remember that remuneration packages are so much more than pay packets and there is still value in non-financial benefits.”
McKechnie said employees were increasingly looking for a more personalised work experience.
“One of the biggest trends we’re seeing is the gift of time. Off the back of the pandemic, it’s no surprise we’re seeing an increasing number of organisations offering hybrid and flexible working arrangements,” he said.
Shay Peters, CEO of recruitment company Robert Walters Australia and New Zealand, said both employers and employees needed to have open and honest conversations around pay and benefits.
In a similar survey, Robert Walters found almost 70 per cent of employers told researchers that they do not expect to offer salary increases above inflation over the coming year.
However, in stark contrast 79 per cent of candidates said they would walk away if their pay packets aren’t in line with the rising costs of living.
“More than ever, frank and transparent communication is key as both sides need to appreciate the pressure the other is facing if they are to reach a sensible balance.
“We’re finding that where organisations cannot increase salary offers, sign-on bonuses, additional training and boosted leave entitlements can encourage candidates to look beyond mere salary levels and towards an increased quality of life.
“Providing an environment in which people enjoy working will become even more vital when salary expectations cannot be met, with superior employee wellbeing a valuable advantage for organisations seeing their star staff offered wage rises elsewhere.
“Employees need to weigh up on job security and additional benefits before making any knee-jerk decisions.”
Despite a tight labour market, 24 per cent of organisations (up from 15 per cent last year) said they plan to increase the size of their workforce over the next 12 months, according to Mercer’s Total Remuneration Survey.
Meanwhile, three-quarters (73 per cent) intend to maintain their workforce size.
“For those planning to increase staff numbers, the question is: how are they going to achieve this with limited salary budgets in such a competitive talent market?” McKechnie said.
“The best employers take a data-driven approach to set salary budgets and pay increases, informed by both market conditions and business priorities.”
Mercer’s Total Remuneration Survey covered a broad range of industries from more than 330 employers.