Employers expect 5% pay rises amid rise in ‘counteroffers’ to keep staff

UK employers are expecting to continue raising pay for staff as they battle to retain people, even as the economy is expected to stutter, according to a new survey.

Businesses expect to offer pay rises of up to 5% over the coming year, the highest level since 2012 and sustained from the last two quarters, according to the poll of 2,000 human resources executives by the Chartered Institute of Personnel and Development (CIPD), a professional body.

More employers also expect to try to retain staff who have said they want to leave with counteroffers – trying to beat offers from elsewhere with pay increases or other perks. 40% of UK employers have made a counteroffer in the past 12 months, the CIPD said. 38% of employers who made offers matched the salary of the new job offer and 40% offered even higher sums.

The findings suggest the UK labour market remains tight, with unemployment still near record lows at 4% in May, although it did increase more than expected from 3.8% in April.

The Bank of England has been raising interest rates steadily to try to reduce inflation, which has remained stubbornly high. That is expected to cause a slowdown in the UK economy which would likely lead to higher employment. However, there has been little sign of major changes yet.

Jon Boys, senior labour market economist for the CIPD, said: The fact that counteroffers are so widespread suggests they do have a role in matching people and jobs. Employers need to approach them with caution though and have clear internal processes for when these situations arise. Counteroffers may help to retain key staff and avoid knowledge drains and the cost to hire new people, but this must be weighed up against other considerations. For instance, counteroffers could exacerbate pay gaps, cause equal pay challenges, or result in a drop in employee engagement. They may also only work for the short term.

While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.