Stagnating or Skyrocketing? What’s really happening with wages growth in Australia
After years of shrinking salaries, Australians began to wonder if the trend would continue when the country experienced the lowest official wages growth on record in late 2019.
Then COVID-19 struck and it gave rise to uncertainty, which saw wages growth drop sharply before it rebounded to pre-pandemic levels in late 2021.
Now the question remains: Are we heading back to where we were before the pandemic, with stagnating wages? Or should we expect further recovery in the short term?
Without staying on top of instrumental market data, organisations run the risk of overspending to secure talent or fail to attract in-demand skills, leaving them behind the competition.
What is happening with wages growth?
Many organisations take into account the rate of inflation when determining annual budgets.
Currently, inflation is running at 3.5 per cent but has fluctuated so severely in the past three years that applying a point-in-time figure to salary budget considerations may paint a misleading picture.
“The most extreme highs and lows were largely a side effect of pandemic policies, which included the provision of temporary free childcare and the fall in demand for fuel in 2020, both of which rebounded in 2021 as these expenses returned to normal,” explains Aon Rewards Solutions Director, Jodie Fraser.
Even after taking such factors into account, there appears to be a more persistent rise in costs due to global supply chain disruptions, rising costs of materials and increased demand.
“After unusual, one-off fluctuations are taken out of the equation, core inflation is approximately running closer to 2.6 per cent, still higher than most annual remuneration budgets for the past few years,” explains Fraser.
Although official measures of wages growth, inflation and unemployment are useful to some extent, they are only a broad indicator of what’s going on in Australia’s employment market.
As a result, it has become essential for decision-makers to access more detailed information, such as Aon’s Australian General Industry Remuneration Report (November 2021). Drawing data from more than 200,000 individual employees, the findings provide insight into 500+ positions.
The report also measures year-on-year changes in remuneration spend by job family, career level, and organisation size. With this data, HR and rewards professionals can be better prepared for impending challenges this year.
While there are plenty of stories about people resigning from their jobs to receive higher pay from a new employer, the median rate of pay for people who did not change jobs or employers only grew by 2.3 per cent in 2021.
Does it mean their anecdotes are overblown? The answer is yes, and no.
The proportion of people on Aon’s database who are newly hired and receiving a larger salary than before is small compared to the overall population, a majority of which have remained in the same job and are making do with a 2 per cent annual increase to their salary.
One aspect which may not be overblown is the sizeable pay increase for individuals who do change employers. While they are outliers to the main trend, it begs the question of how long that will remain the case.
To get a comprehensive understanding, Aon looked into compa-ratios (the measure of an individual’s salary as a percentage of market median) for people in its general industry database.
The research found job families such as corporate IT, strategy, project management, logistics and supply chain, and facilities all hired staff above market median.
Job families below market median - administration, customer service, marketing, sales and manufacturing - still accounted for 95 per cent of the median, meaning employers who offer new hires less than median market rate for key roles may struggle to secure talent.
Aon’s general industry database shows a median forecast budget of 2.6 per cent, which would match the current core inflation rate and would not equate to a real wage increase. Across the remuneration surveys, median forecasts of 2.0 - 4.0 per cent are apparent, depending on the sector.
“We also hear from some clients who are doubling their budgets after a closer look at the latest market data and insights and after assessing their current position with an eye firmly fixed on attracting retaining talent in 2022,” explains Fraser.
As a result, Aon anticipates remuneration will increase higher than pre-pandemic levels, perhaps edging closer to 3 per cent throughout 2022.
Be cautious not to treat the 2022 remuneration review cycle as business as usual by only allocating 2 per cent for employees who meet expectations and 2.5 per cent for high performers.
It’s not uncommon for organisations to allocate one budget for remuneration and another for dealing with challenges, such as securing in-demand talent or counter-offers to avoid unexpected resignations.
However, taking that approach can become costly. It is essential businesses develop a strategy that is informed by robust internal and external data. With that knowledge, employers can prioritise and build a business case for additional funding. According to Aon’s 2021 Global Risk Management Survey, Australian organisations identified ‘failure to attract and retain top talent’ as their fifth biggest risk, jumping up two positions from 2019.
As a result, there has never been a better time to deep-dive into remuneration and total rewards for employees.
To learn more about how Aon’s Rewards Solutions team can help you with remuneration training and total rewards for employees, get in touch with our experts on +61 2 9253 8257.
Alternatively, you can read more about our reports and research.