UK organisations are adopting a conservative approach to salary budgets as workforce stability returns, signalling key shifts in compensation strategies.
- In 2024, half of UK organisations have reported a decrease in their salary budgets compared to 2023.
- Companies have observed a reduction in challenges related to attracting and retaining talent, with figures improving from previous years.
- Despite a forecasted salary budget increase in 2025, organisations are grappling with rising annual payroll expenses.
- Many employers are adjusting compensation strategies, focusing on diversity, equity, and inclusion to enhance employee satisfaction.
UK organisations are increasingly conservative in their salary budgets due to stabilising employee bases. In 2024, 49% of organisations reported lower salary budgets compared to 2023, as revealed by the latest Salary Budget Planning Report by WTW.
This trend comes as employers report a significant phase of high resignation rates and turnover is now stabilised, enabling a more cautious budget approach. The challenge of attracting and retaining talent, which was reported by 39% of employers in 2024, has seen a reduction from 48% over the past two years.
Interestingly, salary budget increases are projected to rise 4% in 2025, remaining relatively high despite a continuous decline since 2023. Simultaneously, there is a notable rise in total annual payroll expenses, with 75% of companies indicating that these costs have increased from the previous year.
Factors driving these budget adjustments include inflationary pressures, cost management concerns, and weaker financial outcomes. Some organisations lowered budgets citing these issues, while others raised them due to similar pressures coupled with a competitive labour market.
With inflation decreasing significantly to 2.3% in 2024 and expected to remain steady in 2025, companies are reassessing their compensation programmes. About 45% of businesses have conducted or are planning comprehensive compensation reviews, with 42% increasing initial salary ranges and 41% focusing on specific employee groups.
Additionally, there is a stronger emphasis on diversity, equity, and inclusion, along with increased workplace flexibility and improved employee experience.
Paul Richards from WTW highlights the holistic approach towards rewards programmes by employers, who are aligning pay strategies with broader business objectives. “As the workplace stabilises and employers look more towards the future, companies are aligning pay priorities with their compensation philosophy and business strategy,” he stated.
Pay transparency and equity remain crucial for employers, with organisations striving to offer a clear connection between salary increments and business performance.
UK organisations are making strategic adjustments to salary budgets and compensation approaches to ensure long-term stability and employee satisfaction.
