Salaries still on the rise

by 30 Sep 2008

DESPITE A slowing economy, employers have not yet hit the panic button, with a recent report finding that national salary movements have increased to 5 per cent over the past 12 months, and are expected to continue rising at this pace over the coming year.

While employers are tightening their belts in response to pressure on operating costs, salary movements for the same person in the same role, year on year, have broken the 4 per cent barrier after trending upwards for the past four years. This is up from the 4.7 per cent increases of just 12 months ago.

While employers are cognisant of the need to contain costs, they are also very aware that continued investment in talent management is needed because the demand for skills remains strong, supply pressures continue as a result of an ageing workforce and strong employment demand continues across many industries, according to David Abusah, broad-based performance and rewards leader in the human capital business for Mercer, which released the report.

“Salary movements are forecast to rise again by 5 per cent over the next 12 months; a sign that, despite a slowing economy and lower business confidence, tight labour conditions still exist. However, remuneration is only one part of the puzzle when competing for talent and the need to maintain a competitive and differentiated employment offer remains high,” Abusah said.

“The major differences between this slowdown and those of the past is that employers are now dealing with a more complex workforce than ever before. The workforce is ageing, is more mobile, has diverse generational preferences, and requires greater flexibility.”

In addition, he said, star performers still have numerous career opportunities even in a slowing market so employers cannot afford to be complacent and must balance any cost-cutting initiatives with targeted talent management investment.

The Mercer survey of more than 250 companies found that building leadership capability, as well as acquiring and retaining key talent, remain the top three human capital priorities for employers over the next 12 months.

Employers are planning to invest more in the career development and training of their people over the next year (65 per cent and 54 per cent respectively), in recognition of the labour market challenges that still exist.

“In the past Australian companies have underinvested in building the capability of their people. Now we’re at a point where we are not in a position to simply keep buying talent, hence we’re seeing a greater focus on companies building the capability of their people,” Abusah said.

The question of whether wages will fall is largely dependent on whether unemployment rates rise over the next two years, as well as company performance levels.

“If unemployment continued to rise, we could see some easing on salary pressures and salaries dropping back to around 4.5 per cent in 2009/10. However, this trend will be driven by those industries most affected by the downturn, such as manufacturing, financial services and retail,” he said.

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