Salaries in Q1: A look at the latest market trends in pay benchmarking and reward

TwentySix from A to Z is our new series of free webinars. In our opening session in May, we discussed the latest market trends in pay to give our clients actionable insight on salaries, and how to address the recruitment and retention difficulties of the past 12 months. Now we’d like to publish some of those benchmarking insights here too.

Context and the market for pay

Inflation was higher than expected in Q1. According to the Office for National Statistics (ONS), CPI inflation had been above 10% since September 2022 until it dropped slightly to 8.7% in April 2023.

Equally, the Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate to 4.5% in March 2023, with interest rates expected to rise further.

But, despite everything that has gone on, we hadn’t seen any dramatic wholesale increases in advertised pay over the past year using Payography: our comprehensive database of national advertised salaries. Advertised pay (as opposed to the pay for staff already in role) is an excellent indicator of the labour market because it shows companies current tactics rather than historical practice.

What increases we have seen have been specific pay spikes in certain roles or functions; tactical responses to multiple crises (e.g., skills shortages and cost of living) rather than wholesale pay rises.

This is important because it means you can think strategically about where you need to increase pay, rather than spending wage budgets across the board. Keeping close to the market data, and adjusting accordingly, means you can stay on the front foot rather than reacting to a crisis. This actionable data and intelligence is vital for effective pay benchmarking and reward strategy.

Functions with the biggest increases since Jan 2022

Job functions with largest pay increases in 2022 graph

Areas suffering from post 2021/22 hangover

Sectors suffering from post 2021/22 hangover graph

Senior pay decreasing relative to junior pay

There has been a noticeable increase in pay at junior levels compared with other levels, so it’s vital that you check your recruitment and retention figures at junior grades and in the £20k-£30k bracket.
Senior pay decreasing relative to junior pay graph

This differential is perhaps somewhat explained by preemptive rises responding to the increase in the National Minimum Wage, up to £10.42 per hour from £9.50 per hour as of April 2023. This impacts wage costs and pushes up the salaries at the lower levels, which could have a large impact on SMEs, and, together with the Cost of Living, will need crucial attention.

An area where we are seeing this at play is with admin-level roles just outside London – in the Home Counties – where we are seeing them creeping noticeably closer to London salaries. Pay in London is going down relative to other regions, but is still typically higher for most roles at the moment.

One factor influencing this might be hybrid working. Previously, many at that level might have decided to take the lower pay of the local area and save themselves the cost and hassle of commuting. That changes if they are only required for one or two days a week (or not at all).

We receive a lot of queries around how to manage the balance and fairness of pay structures if employees are working in different locations (working at home from Manchester or commuting daily to the London Office, for example). 

The question that you have to ask yourself when setting pay for a role (or a pay structure for the whole organisation) has always been: what is the labour market for this role?

It is valuable, here, to go back to first principles here and to think strategically about the purpose of pay. Pay enables you to recruit and retain the right talent so that you can do the things you need to as a business. Pay is a support tool, not a thing in itself.