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Inflation fears and tough labour market set to drive South African pay up by over 6% next year

05 August 2022 Willis Towers Watson

South African employers are planning to increase their budgets for pay rises by an average of 6.2% in 2023 as they struggle with a challenging labour market and staff expectations around inflation, according to research by WTW, a leading global advisory, broking, and solutions company.

WTW’s latest Salary Budget Planning Report found that employers are under pressure to do more on pay. A third (32%) said their pay budget is now higher than they projected. And 33% said they have started or will increase how often they review salaries.

The survey of 334 South African organisations revealed three key reasons behind the bigger pay budgets: 62% reported concerns about inflation, 58% cited concerns over a tighter labour market, and 40% said their employees had expectations and concerns they needed to meet.

Melanie Trollip, Director of Work and Rewards, WTW South Africa, said: “Employers are having to pay more than they anticipated to cover inflation and stay attractive to existing and potential staff.

“The challenging economic climate and the rise of new ways of working are forcing organisations to keep a close eye on pay budgets. Those that don’t will find themselves uncompetitive – they will lose their staff and struggle to replace them.

“In such a dynamic environment, it’s imperative that organizations have a clear reward strategy and an understanding of what the labour market and their staff expect.”

As the ‘Great Resignation’ continues, attracting and retaining talent have become a big headache for employers. The proportion of South African firms reporting difficulties in attracting key talent has risen from 24% in 2020 to 90% this year, while those with issues retaining existing staff have soared from 16% to 87% over the same time.

IT or digital and engineering skills are especially sought after. 76% of firms said they have problems filling IT and digital roles, and 70% had issues keeping their existing IT staff. For engineering roles, 57% struggled to recruit, and 51% had problems retaining staff.

To improve their attractiveness to new staff, 70% of employers have increased workplace flexibility; 62% said they have put more emphasis on diversity and inclusion; and 40% now offer financial incentives like starting bonuses.

Likewise, organisations are trying to retain more of their talent through broadening their focus on diversity and inclusion (62%); increasing remote working options (53%); and changing pay structures like base salary and bonuses (36%).

Melanie Trollip added: “The tough labour market, especially around certain key skills, means that organizations need to be much more creative to address attraction and retention challenges. It isn’t all about pay. Employers need to understand the dynamics of their diverse workforces, and to deliver a better employee experience for all.”

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