A recent report by Mercer forecasts that wage growth will boom in some sectors in 2023, but others could see salary increases begin to stagnate.
Earlier this month, The Australian Bureau of Statistics (ABS) released its latest Wage Price Index, which reveals trends in the price of labour over the last two decades.
After a drastic dip during the pandemic, the ABS reported a one per cent rise in the hourly price of labour in the September quarter of this year – the highest quarterly growth in hourly wages since the March quarter of 2012 – and a 3.1 per cent annual increase in the year ending September 2022.
A breakdown of the ABS’s findings on the changing cost of labour since 2012 can be found below.
The private sector saw the highest levels of wage growth in the year ending September 2022 – the private sector’s Work Price Index (WPI) came in at 3.2 per cent, compared to 2.3 per cent in the public sector.
What will happen to wage growth in 2023?
With cost-of-living pressures continuing to soar and inflation at its highest rate in over 30 years, many workers are likely to be expecting a pay rise in the coming year. However, the latest Total Remuneration Survey from Mercer forecasts that some sectors have a better salary outlook for 2023 than others.
Mercer’s report, based on data from a broad range of industries from more than 1000 Australian employers, shows that businesses are budgeting for a three per cent median salary increase next year – unchanged from the average increase for 2022.
Meanwhile, just 22 per cent of organisations are planning to factor inflation into their 2023 salary budgets; however, the report stipulates that 49 per cent of organisations have not yet revealed the details of their strategic planning for next year, so this figure is subject to change.
According to the report, industries with the largest forecasted salary increases include technology and life sciences, while sectors such as financial services, professional services and retail are expected to maintain the same rate of wage growth in 2023 as they did this year.
Below is a summary of Mercer’s findings on the sectors likely to see the most wage growth next year.
Chi Tran, Partner and Head of Market Insights and Data for Mercer Pacific’s workforce consulting practice, spoke with HRM to unpack some of the key findings from the survey.
Why are some industries exceeding average wage growth?
Of the industries analysed in Mercer’s report, the highest forecasted levels of wage growth jointly belonged to three industries: technology, life sciences and mining/materials, each expected to see a 3.5 per cent salary increase in 2023.
Tran attributes the anticipated growth in tech salaries to increasingly competitive offers from employers outside the tech industry.
“Every other industry is tapping into their talent force, wanting their people,” she says. “They see all the press about hackers, and everyone wants to up their security. So [tech companies] have to position themselves higher than the rest to hold on to their people.”
Tran points out that while sectors such as retail and consumer goods were hit hard by the pandemic, industries such as life sciences were able to remain fairly stable – and as a result, their salary outlooks are stronger next year.
“These were the industries that were driving the vaccinations and research. So to me, [the forecasted wage growth] is no surprise,” says Tran. “And they’re still front-and-centre because we’ve still got variations of COVID around. So that’s a key industry that’s been going from strength to strength.”
She also points to huge sustainability and infrastructure projects planned for next year as other key drivers of wage growth in the mining and materials industry.
How can organisations remain competitive?
According to Tran, part of the reason some industries are on the fence about whether to factor inflation into their 2023 salary budgets could be their expectation that inflation will settle down in the new year.
As she points out, “When inflation goes down, salaries don’t go down. People ask for a salary increase when inflation is up, but no one’s saying, ‘Please reduce my salary’ when it’s back down.”
“[Tech companies] have to position themselves higher than the rest to be able to hold on to their people.” – Chi Tran, Partner and Head of Market Insights and Data for Mercer Pacific’s workforce consulting practice.
However, this doesn’t mean organisations should leave their workforces at the mercy of rising cost-of-living pressures while inflation is at its current level, she says.
“We’re definitely seeing short-term incentives as a vehicle to close that gap.
“More companies are doing one-off payments, such as signing bonuses or retention bonuses, or even just saying [things like], ‘My employees have had a really hard year, the business has done well, so I want to give everyone $2000 as a thank-you.’”
This is what’s known as a ‘total rewards strategy’: a framework that offers employees a variety of benefits that help support their financial, physical and mental health.
“One of our recent surveys asked [the reasons] why people were leaving jobs. Obviously, number one was to get better pay, but funnily enough, number two on that poll was, ‘I’m going to another company because they’re offering better benefits,” says Tran.
Based on her team’s research, Tran offers some practical advice for HR professionals to ensure their reward and remuneration strategy is set up to avoid talent poaching.
“Make sure your benefits are touching on all your employees, including different employee demographics within your organisation. It’s not one-size-fits-all because everyone is at different stages of their life and different benefits will be better for them,” she says.
“It’s also about making sure you’ve got your employee value proposition right, and you know the purpose, vision and why someone wants to join your organisation. Listen to your people, tap into their [needs], then design your strategy around them.
“If [employers] have all those lenses on, then they are doing the best they can do to keep their employees.”
Learn how to manage the talent lifecycle – from identifying top-notch hires to offering appropriate remuneration – with this short course from AHRI.