Employers planning for hefty pay rises in 2023

Workers currently have an unusual amount of power to ask for more, like a pay rise. Photo / 123RF

New Zealand employers are expecting to need to give out hefty pay rises to attract and retain workers in 2023 bucking a call by Reserve Bank governor Adrian Orr for spending and wage rises to be pulled back to help rein in inflation.

Research by remuneration experts Strategic Pay show base salaries are expected to rise by 4.3 per cent in the next year - nearly double the 2.4 per cent forecast for the 2020/21 year.

Strategic Pay chief executive Cathy Hendry said the figure was based on what employers were putting into their budgets for the next 12 months.

“Obviously that came out before the Reserve Bank comments.”

But even with thinking about going into a more recessionary environment, Hendry said many employers just had to pay more to retain or attract new staff due to the labour shortage.

“I can’t see how employment is really going to drop.”

The forecasts show general staff and middle management are likely to get the biggest percentage rises with a forecast of 4.5 per cent compared to the 2.4 per cent forecast rise for 2022 while CEOs and senior execs were forecast to see an average rise of 3.6 per cent, up from 1.9 per cent in the prior year forecasts.

Hendry said the other factor was how quickly the market was moving with the talent shortage.

In its last review in the middle of the year employers were forecasting 3 per cent pay rises but most ended up having to reforecast again.

“They were having to find another 2 per cent just to try and meet the market.”

Hendry said at the moment it was still an employee-led market.

“What we are finding is people are being poached.” A quick poll of employers that attended a recent webinar it hosted found many were losing workers who were going to a similar role but for more money elsewhere, Hendry said.

The other factor that had been a surprise was the jump in pay rises for those in senior management.

“We were anticipating that movement down at the lower level ... what surprised us was that the senior level roles were also seeing some big increases too. Often those senior roles over the previous Covid period, they were having pay freezes and I guess they are saying show me the money now. Also we had that big upturn in economic conditions so organisations were in a stronger position to be able to give a bit more.”

Hendry said she had not seen such a big jump in pay in 12 years.

“The last time the increases were up at [this] level was pre-GFC.”

She said there were quite similar conditions to that time including high inflation, low unemployment but without the unstable financial market.

Wage rises remained elevated for three years before dropping dramatically post the global financial crisis.

“With the signalling of the Reserve Bank saying don’t give people pay increases, employers are saying sure but okay are we just going to lose our staff?

“If we look at what happened last time we saw this they stayed elevated for two to three years.”

What caused them to come back into line was a market shock - the recession in 2008/09.

“It’s probably looking the same, we have got a very overheated market.”

Despite the Government making changes to increase immigration to help fill skills shortages, it was still hard to find workers.

Hendry said her company did not meet the requirements for skill shortages and had to go through a long process to find a worker to fill a role in Wellington in which no one applied for, except for a really good candidate who was based in South Africa.

“We went through the process but there are a lot of hoops.” Employers had to advertise a role and then prove they could not fill it locally before being able to recruit from overseas.

“Then it was another two months before we got the visa and got the person.”

Private sector employers are forecasting the biggest rises with not-for-profit employers the smallest. For general staff private sector employers were expecting to have average rises of 4.7 per cent versus 3.9 per cent in the public sector and 3.5 per cent for non-profits.

Technical specialists and middle management were forecast to see the highest percentage rise in base salaries with the private sector forecasting an average of 4.9 per cent compared to 4 per cent for the public sector and 3.3 per cent for non-profits.

“What’s really evident in the movements is you can see when you compare private to public sector you can see the impact of that pay restraint at that $100k mark. That middle management level that is just kicking into a $100k job and that’s why you are seeing such muted movement in the public sector there.”

She said that would be a huge challenge for the public sector to attract workers, particularly for the new large entities being created like Te Whatu Ora and Te Kainga.

“With the rise in wanting to recognise the bi-culturalism in New Zealand you are seeing an increase in roles requiring cultural competency and co-governance - the private sector are also looking for those roles.”

Strategic Pay chief executive Cathy Hendry. Photo / Supplied

Hendry said another big factor it had seen was a big jump in what was being paid for graduate roles due to the rise in the minimum wage.

“We saw graduate increases of up to as much as 17 per cent this year.

“Graduates are coming out and saying well hang on I have got a degree and you are going to offer me a dollar more than the minimum wage - why don’t I just keep working at McDonald’s?”

She said for a long time companies had relied on graduates’ desire to work for a big brand but that was no longer enough. “Money talks.”

Hendry said those roles closest to the minimum wage are the ones that had seen the largest movements but at the CEO, senior exec level - there had also been some big movements in the double figures.

Businesses were lifting their prices to cope with the rising labour costs, she said, but they were looking at other ways to keep staff as it became harder to sustain the increases.

“We are seeing organisations now saying what else can we leverage because they are running out of money.” She said they were looking at flexible benefits - extra leave, flexible working.

She said some that had tighter finances would look to do more targeted increases - such as pay rises only for lower-income workers.

“It is certainly challenging times to budget those sort of increases when we are coming off 2-3 per cent increases.”

Staff incentives and flexibility

“We are seeing organisations focusing on EVP initiatives - employee value propositions - what will set us apart from others.”

Some were considering nine-day fortnights with 10 days’ pay. “You work longer nine days. Then you get that extra day.”

Extra leave, increasing employee assistance programmes, employee discounts, wellbeing programmes and initiatives, health insurance, discounted parking, wellbeing days, long service leave and health and fitness and working from home assistance - helping people set up offices at home.

Hendry said there were two different ways employers were approaching flexibility at work.

“You have got some who are like ‘Covid is gone, back to work’. Elon Musk is a classic example of that. For me actually you need to have a wake-up call here. It is not the same. Things have moved on dramatically. The classic 9 to 5 in the office - that is not a thing anymore and people thinking it is going to return have got their head in the sand.

“The organisations that are accepting it is just not like it used to be are doing better in that regard.”

Strategic Pay surveyed 1621 organisations with 263,420 employees