UK employers turn to bonuses to avoid inflation pay deals

Bonuses as a share of UK income hits highest level since 2013 as employers find ways to pay workers higher cost of living without committing Inflation-busting wage deals.

Bank of England Governor Andrew Bailey warned last week that Pay pressure intensifies is one of the main reasons for the central bank’s concern high inflation will stick to it. “The number one, two, three things they want to talk about . . . are the labor market tightness. The challenges they face in terms of recruiting and what that means for compensation,” he said, referring to feedback from business leaders.

According to the Bank of England, base wage growth is already growing at around 4% a year: well above pre-pandemic levels, albeit well below inflation.It warned that it could pick up further in the coming months as many companies are considering granting mid-year top-ups to pay settlements or one-time bonuses Help them retain employees.

The latest official figures show that employers are increasingly using discretionary incentives to compete for scarce workers, At the same time trying to limit the overall rise in their payroll.

Bonuses paid about 7% of average weekly earnings in the three months through February, the highest percentage since 2013. That’s partly due to a rebound in bankers’ bonuses after a slump in 2021, but compensation experts say the trend also extends to industries where big bonuses are less common.

British Airways last month adopted a practice last year when employers recruited HGV drivers, nurses and warehouse workers, as the airline provided new cabin crew £1,000 welcome bonus as it tries to address staff shortages forced It canceled thousands of flights.

Duncan Brown, an independent consultant on rewards management, said the use of signing bonuses and retention money in these industries and others such as hospitality was “unprecedented”. He added that in professional services, bonuses are increasingly guaranteed rather than performance-related, while big tech companies are also relying more on cash bonuses as falling stock prices reduce the value of stock options.

“Compensation incentives are definitely only part of the equation right now,” said Sheila Atwood, executive editor of human resources research firm XpertHR. She sees many companies offering new hires higher salaries than current employees, while rewarding time-limited employees. “Market Supplement” is offered to employees with critical skills in addition to a base salary increase to all employees.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), said many companies were giving employees more flexibility to work from home to address the cost of living. It reduces commuting costs, so “hybrids are more attractive in this environment,” he added.

However, compensation experts say employers are increasingly accepting they need to bring base wage incentives closer to inflation, given growing evidence of low-income earners Missing meals or falling into debt to pay for necessities The cost of living has climbed.

“Most organizations have come to the realization that the typical 3 percent annual raise won’t be reduced this year,” said Tom Hellier, a compensation consultant at human resources consultancy Willis Towers Watson.

“If anything, the focus is on moving from variable pay to fixed pay,” Brown added.

The percentage of long-term and temporary workers reporting higher starting salaries in April remained near record levels, REC’s monthly survey of recruiters released on Thursday showed.

Carberry said this indicated wage pressures across the economy were “broad-based”. He added that given the scale of the squeeze on household incomes, the pre-popular norm of 2% to 3% annual salary deals “feels unsustainable” for most companies.

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