Managing pay increase expectations is a challenge

In this quasi post-Covid period, with many employers still grappling with the challenges of operating in a widely changing employment environment, barely a week has gone past without the appearance of yet another media article encouraging employees to seek new roles outside their current employer. The implied message is that this is the only way in which they can expect to get any reasonable increase in remuneration. The logic appears inarguable – after all, in a tight employment market, with reduced recruitment activity, it could be expected that employers seeking new employees will need to offer the most attractive packages they can, to attract potential candidates. That this should then push up the average remuneration level being offered is entirely logical. However, while this may assist employers recruiting staff, it also raises a challenge for others who need to manage the pay expectations of the majority of staff not seeking new roles.

To imply that a new role is the only route to pay increases is disingenuous, as recruitment activity represents only a small portion of that total employment market. Historically, staff turnover in NZ organisations has averaged around 15%. Even allowing for the appointment of people into new roles, vacant roles for which candidates are being sought would at best represent around 20% of the workforce. Any comment on increased remuneration packages being offered for these vacant roles only is clearly limited. It fails to take account of the much larger group of roles in which employees are currently working, and which are not subject to any current recruitment process.  A wider perspective is needed.

To illustrate this we can compare Median Total Remuneration for recent appointees (i.e. those employees who have been appointed to a new role in the past twelve months) and those employed in the same role for twelve months or more. Our September 2022 survey (of 29 000 employees across 460 organisations) reveals that just under 20 percent of the records represent recent appointees – a figure which is consistent with my comments on staff turnover above.

Comparison of Median Total Remuneration for both Top Executives and General Staff indicates that new appointees are typically brought into an organisation at a lower pay level than those they replace, or those already employed in similar roles. At the Median the differential for Top Executives is currently 16.7 percent, while for General Staff it is 10.9 percent.

Those margins arise from a combination of several factors:

  • Average increases for Top Executives and General Staff over the past twelve months (to September 2022) were 4.2 percent and 4.4 percent respectively, significantly higher than in September 2021.
  • Average Bonus payments have also increased over the same period, thereby lifting Median Total Remuneration for existing staff.

This does not mean of course, that new appointees do not achieve a pay increase when moving to a new role. Of course, many – if not most – do, and I have no argument with that inference. My objection is simply that this is not the only way to get an increase, as average increases for existing staff who do not change role are also higher than in the immediate past. For many employees the stability offered by a job they know and enjoy may well compensate for the lower increases on offer by remaining in the current role with the existing employer.

Awareness of this wider picture should assist employers in resisting the somewhat misleading – and perhaps unintentionally alarmist – claims being made based on recruitment data only.


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