Inflation and economic uncertainties driven by global conflicts galore in Europe. Employers find themselves needing to adjust their salary budgets and in some cases the way they compensate their employees. With the curtain drawing down on 2022, a year characterized by heavy employee attrition and engagement, we are heading to 2023, not on a delightful note. Recession concerns are lurking around, and employers have to, with renewed focus and new lessons, have to shower the spotlight on employee morale and well-being.
This blog post offers country-specific direction for employers to plan their salary budgets. We found that in most European countries, employers are increasing their salary budgets by 3% to 5% for 2023. Besides direct remuneration, employers are planning to offer non-financial benefits such as remote work, increasing non-taxable allowances, etc., to give a boost to the gross salary employees take home. Some employers are also planning to offer wealth management guidance by hiring in-house wealth management advisors for employees to pull through economic uncertainties with ease.
Salary Trends in the British Isles
Despite their proximity, the two regions face varying problems pertaining to the labor market, which influence pay packages. For instance, Ireland’s tech labor market is seeking pay increases due to a hot labor market, while the UK is hit by economic headwinds courtesy, global conflicts and Brexit. Read on to learn more about their labor markets.
According to WTW, more than 61% of employers in Ireland are planning higher pay rises for 2023. In response to concerns around inflation and uncertain employment conditions, 80% of employers have increased pay budgets by 3.8% for 2023. WTW also notes that a tight labor market may also have influenced the trend.
The Independent also reiterated the sentiment and reported that Irish companies are likely to focus their financial incentives and pay rises on employees deemed “high retention risk” and employees with critical or hot skills.
Besides increased salaries, employers are also focusing on offering benefits, discretionary bonuses, and payments to meet employee expectations while offsetting employee costs.
Companies in the UK have increased pay budgets by 4% for 2023 to help employees counter soaring prices. With inflation in the UK hovering at 11%, employers also have planned to increase the frequency of salary adjustments; 1 in 10 employers already have a review strategy in place.
According to WTW’s Salary Benchmarking Report, besides direct increases to paychecks, 68% of companies have also increased workplace flexibility, and 44% offer sign-on bonuses and equity/LTIs as incentives to attract talent. Companies also plan to raise starting salaries (34%), change health and wellness benefits (34%), and improve employee satisfaction (48%).
Organizations are also taking measures to retain current talent through increasing remote working options (48%) and changing compensation structures (38%). In the future, companies are planning on improving employee experience (47%) and changing health and wellness benefits (37%) to retain more employees.
Trends in Europe Mediterranean
Businesses in France are increasing salary budgets by 3.3% in 2023 and focus on non-financial elements of compensation to meet employee expectations. Interestingly, unlike many European labor markets, France faces significantly lower inflation levels. However, tight labor market conditions are driving competitive salaries in the country.
Employers also reveal that their compensation budgets would focus on employees with rare and critical skills. Six out of ten employers also plan to review salaries for the lowest-paid group.
Even in 2022, companies should note that labor unions were calling for a 3.5% increase in salaries and a 2.5% increase in 2023, and a 2% increase in 2024. In response to these demands, employers in Spain are planning to increase salary budgets by 3.6%.
It would benefit employers to partner with compliance watchdogs to monitor whether these sentiments meet their employees’ salary expectations.
Portugal expects a 5.1% salary increase for private-sector workers in 2023. This results from discussion and negotiation among Portugal’s government, business associations, and the country’s second-largest labor union to offset annual inflation.
The government also supports this decision by offering research and development companies tax benefits.
Like France, Italy also expects a minor salary increase from the previous year. The projected salary rise for 2023 is 3.4% which is only 0.4 percent higher than the 2022 actual salary increase of 3%.
High Income Economies per capita Gross National Income
When planning salary budgets for employees in Luxembourg, employers must take into account two factors:
- An increase in the social minimum wage
- Wage indexation
Wage indexation is the process of adjusting salaries based on consumer price increases or decreases. Employers can refer to the National Institute for Statistics and Economic Studies to adjust employee wages. When the index increases by more than 2.5%, employers must increase wages proportionally.
WTW reports that employers are planning to increase wages by 3%. The financial consulting company also reports that 1 in 3 companies plan to increase the frequency of salary reviews. At the same time, almost all respondents to the survey admit to planning salary reviews every six months.
Respondents to the survey also feel factors such as workforce shortage, tight labor market, inflation fears, and employee expectations are the main trends influencing compensation budgets in the grand duchy.
Despite a challenging labor market and staff expectations surrounding inflation, Dutch employers plan to increase pay rise budgets by 3.8% in 2023, according to WTW. In 2022, this number hovered around 3.5%.
Pay budgets were higher for three reasons: 62% of employers cited a tighter labor market, 55% cited inflation fears, and 40% cited employee expectations. Employers should also note that labor unions are lobbying for a 14.3% pay raise for next year to soften the impact of inflation in the country.
Generally, salaries range between 10,300 DKK and 181,00 DKK. The median pay hovers around 39,800 DKK.
Employers have resorted to increasing the frequency of salary reviews to counter inflation. With 4 out of 10 employers increasing salary budgets, 34% have increased the frequency of salary reviews, while 97% plan to review twice a year.
For Germany, the projected salary increase for 2023 is 3.8%. In 2022, the actual salary increase was 3.5%.
To handle tight labor market conditions, Dutch employers plan to increase the salary budget by 3.8% for 2023. The projected salary increase is a few points more than the previous year. The average salary increase was 3.5% in 2022.
Employees’ expectations during this Inflation and labor shortage have pushed Belgium employers to increase the salary budget for 2023. The expected salary increase is 7.5% for the coming year, which is higher than the pay rise in 2022, i.e., 5.2%.
Not just salary, employers are looking for other ways like offering good benefits, remote work options, and bonuses to retain employees.
Salary Trends in Russia
Russia is projecting the highest salary increase in 2023 among all the European countries, which is 7.3%. Though, if we compare it with the previous year’s salary increase rate, it is just 0.5% more. The salary increase rate in 2022 was 6.8%.
We also looked at changes in salaries after the Ukraine-Russia conflict. Paylab has reported that there has been a fall in salaries, with skilled workers suffering the most. Independent media platform, Open Democracy, reported between March and May of 2022, roughly 1000 companies ceased some of their operations in Russia, leaving 250,000 to 600,000 employees vulnerable to unemployment. Normally, when unemployment increases, it should be easier for employers to recruit people for lesser salaries. Even central banks maintain certain levels of unemployment to fight inflation.
But what’s interesting is that this hasn’t dampened salary increases in Russia. This may be due to several factors:
- Labor shortage triggered by recruitment for military services
- Decrease in working age population for blue-collar jobs
- More Russians are seeking work in neighboring countries
- Inflationary pressures
Thus, employers in Russia must take cognizance of a wide variety of factors when planning salaries in the country.