With the 2022 bonus season in full swing, the pressure on businesses to wow their rockstar performers with “the number” has never been greater. When it comes to performance driven pay, the finance and banking sector has of course always led the charge. 2022 is predicted to be a bumper bonus year, as global investment banks battle to win a fierce war for talent: City bars are reported to be running out of fizz as bonus pools increase by upwards of 20%.
Other sectors including retail are closely following the pay bump trend. In March John Lewis announced that it was reinstating its staff bonus, after narrowing its losses to £26m last year. It announced a 3% bonus to workers, equivalent to 1.5 weeks’ pay, alongside a general increase to staff pay by 2%. The legal sector is no different. Many recruiters report placing graduate lawyers on starting salaries of over £100,000 in the City, even rising as high as £150,000. With 48% of legal professionals expecting a pay rise in 2022, UK law firms are under increasing pressure to match the high salaries already offered by US firms seeking to expand into the British market and increase their budget for pay rises by as much as 15% – more than twice the rate of inflation.
Of course, the fear is that this trend is simply unsustainable, which has led many to question the factors that are driving the bonus frenzy and pay hikes.
Firstly, the HR press remains dominated by the record high number of vacancies currently being experienced nationwide. The Office for National Statistics (ONS) recorded a high of 1,247,000 vacancies in the three months to December 2021, with unemployment rates at a notable low of 4.1%. Together, these pose a tricky landscape for employers to navigate: fewer people looking for each available job means employers are having to pull out all the stops to secure new talent and stop them from being snapped up by competing businesses. In some cases, this may take the form of offering flexible or hybrid working as a differentiator.
The post-pandemic world
Beyond vacancies, the post-Covid employment landscape has also changed shape demographically. The latest figures from the ONS suggested that there are 280,000 fewer over-50s either in work or looking for work than in January 2020. The ability to retire early indicates significant financial wealth, so it’s no huge leap to suggest that, in the financial services sector, these were high-earning, highly qualified individuals who have now hung up the power suit. This opens up employers to increase the wages of more junior employees who will be stepping up into the breach.
The B-word continues to rear its head in many aspects of employment news and salaries are no exception. Brexit has been linked to the increase in vacancies across all sectors, especially in areas such as hospitality and logistics, with salaries in the former increasing by up to 12% in some areas in an attempt to woo workers to the field. The decline in interest for jobs traditionally populated by a workforce predominantly made up of EU nationals has undeniably triggered these raises, although these are traditionally low-paid jobs – far from the bubbly heights of the champagne finance sector.
The cost of living
The domestic headlines over recent months have become ever more daunting, with the cost of living rising at alarming levels. Global uncertainty over energy supplies is more concerning than ever, with energy bills and fuel prices rising day by day and week on week. In their announcement of the restoration of the annual staff bonus, John Lewis executives cited the cost of living squeeze as a primary consideration in increasing salaries and bonuses, and undoubtedly this will be a concern shared universally. A recent survey by Wagestream found that almost 7 out of 10 UK employees are concerned with money whilst at work. Increases to salary seem a natural and obvious solution to allaying such concerns, but not every business can afford to throw cash at the problem.
But salary isn’t everything
Following the pandemic, flexible working has leapt up the priority list for employees. With the power balance of the job market firmly shifting towards employees, flexible or hybrid working patterns are now a necessity for employers to implement where they can and are expected by the next generation of talent. Primarily, these discussions and concessions will take place around working location, but hours and the length of the working week are now also falling under increased scrutiny.
Money doesn’t always talk – a four-day working week, unlimited holiday allowance, or location and working hours flexibility are more likely to be celebrated as true riches by a discerning talent pipeline…
This article was first published in the Global Banking & Finance Review and can be read online here.