Jessica BirdHalf (49%) of UK organisations reported that their salary budgets for the 2024 cycle were lower than the previous year, according to the Salary Budget Planning Report by Willis Towers Watson (WTW).
The overall median pay rise for 2024 fell to 4.6%, compared 5.3% in 2023, as employers reported that a period of high resignation and turnover has passed.
While two-fifths (39%) of employers reported having trouble attracting and retaining talent in 2024, this figure dropped from 48% over the past two years.
Overall salary budget increases were expected to rise by 4% in 2025, which despite consistently declining since 2023, remain fairly high.
Total annual payroll expenses – including salaries, bonuses, variable pay and benefit costs – continued to rise substantially, as 75% of companies reported that their total payroll expense was higher than last year.
Those organisations that lowered salary budgets cited inflationary pressures, concerns related to cost management and weaker financial results as the leading causes.
Those who raised salary budgets cited inflationary pressures and a tight labour market.
Inflation has dropped significantly in 2024 to 2.3% and is expected to remain at a similar level in 2025.
In light of these issues, 45% of companies that made changes or were planning changes to compensation programs or workplace flexibility reported having undertaken a full compensation review of all employees, while 42% raised starting salary ranges and 41% reviewed compensation for specific groups.
Additionally, organisations were taking actions to address current market conditions and employee needs – placing broader emphasis on diversity, equity and inclusion, more workplace flexibility and improving the employee experience.
Paul Richards, Europe rewards data intelligence leader at WTW, said: “As the workplace stabilises and employers look more towards the future, companies are aligning pay priorities with their compensation philosophy and business strategy.
“In light of inflationary pressures, cost management concerns, and continued tight labour market in some areas, employers are taking more of a holistic approach to their rewards programmes, factoring in bonuses, long-term incentives and health and wellness benefits.
“However, a more targeted review of specific employee groups could allow for greater support for those roles/skills in demand or those in lower salary ranges.
“Pay transparency and equity is top of mind for employers and giving a big-picture view of what employees are offered can ensure the salary increase process is clear and emphasize the connection between pay increases and business performance.”
