How to manage a salary expectation gap

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With stabilising business conditions and an easing of the skills shortage, employers’ intentions to increase salaries has dropped from last year’s high. Even so, a healthy 86 per cent of organisations are intending to offer a pay rise in the 24/25 financial year, according to our latest Salary Guide.

That’s good to know, as many employees are still expecting to do well this year when it comes to their salary review. Back in 2019, two thirds (67 per cent) of employees expected to receive a pay rise of less than three per cent. This year that has flipped to a point where 61 per cent expect a salary increase of more than three per cent.

Employee salary increase expectations and the salary raise employers intend to pay are at odds.

For the latest edition of our Salary Guide, we spoke to more than 15,000 survey respondents across Australia and New Zealand to gather their views on salary policy, hiring intentions and recruitment trends.

Dig deeper into the actual size of salary increases that employers intend to pay, and employees expect to receive, and you can see that those differences extend further.

There are 12 per cent of employees expecting to receive an increase greater than 10 per cent, but only four per cent of employers expect to give raises of that size. Another 18 per cent are looking to receive between six and 10 per cent, while only eight per cent of employers are thinking along similar lines. Half of employers expect to give raises of three per cent or less, with 39 per cent of employees expecting that to be the case.

A salary expectation gap continues to be the case for many organisations and their workforce.

How to manage a salary expectation gap sensitively

There’s no doubt that employers should expect and prepare for some challenging salary discussions.

To build engagement and reduce turnover, communicate transparently with employees about salary increases.

1. Explain your salary-setting rationale

Our findings show that 40 per cent of skilled professionals are dissatisfied with their current salary. This is primarily because they believe it inadequately reflects their individual performance over the past year (73 per cent). This is followed by them feeling it does not reflect their experience or expertise.

Given this, it’s important to have frank and transparent conversations with employees about your organisation’s salary policy. Build understanding with your employees by contextualising your grounds for the salaries you set and be transparent about how salary increases are determined.

Communicate with your employees your organisation’s performance, budget and the wider economic climate. Share how their role fits within this wider context. Your employees are more likely to accept your salary offer if they understand the rationale and context behind it.

2. Promote the full benefits on offer

The salary increase you offer employees can be more attractive if you frame it as one element (admittedly, major) of the overall compensation package. The additional benefits you offer is just as important to most employees as the financial salary. While money is, and always will be, important, improving the benefits on offer can be highly rewarding and motivating for staff.

As this year’s Salary Guide shows, a wide range of benefits are now on offer. According to our survey, the top benefits employees want are:

Learning or developing technical skills: 63 per cent
Being able to work more flexibly: 54 per cent
Learning or developing soft skills: 45 per cent
Learning or developing digital skills: 45 per cent
More challenging or exciting work: 42 per cent

Offering additional benefits is one way to help close the salary expectation gap so consider how your organisation can deliver on these benefits.

3. Provide opportunities for promotions

Providing employees with an opportunity to work towards a promotion presents them with a clear path to a higher salary. You can help to manage a salary expectation gap by showing them the long-term value of their position and performance.

By linking promotions to specific performance metrics, you can offer transparency around the results that would qualify them for promotion and a future salary increase. There are also retention benefits. A lack of career progression is a common factor motivating people to search for a new job.

You can improve career progression opportunities for your staff in a number of ways, such as by matching employees with appropriate mentors, entrusting them with new challenges and planning a detailed career path together.

Such actions can be powerful in negating detrimental impacts a minimal salary increase can have on employee engagement and turnover.

4. Offer skills development

Our Salary Guide shows that top talent values upskilling. Of the five top benefits mentioned above, three of them relate to learning and development.

Upskilling top talent can help manage a salary expectation gap. It also allows you to build new capabilities into your organisation.

To assist, we offer a free training portal, Hays Learning , to help you give your teams access to courses to develop their skills.

You could also consider using inhouse subject matter experts to build the skills of your workforce and give your employees opportunities to learn on the job.

5. Provide greater flexibility

If your employees are expecting more salary than you can offer them, you could also consider the merits of providing them with greater flexibility in how they get their jobs done.

For desk-based employees, hybrid working is now an expected norm. Of the employees we surveyed, a huge 92 per cent of employees say that a hybrid mode is their preferred way of working. Two days remote is the most common arrangement at 31 per cent, with the second highest figure being a completely flexible model based on employee and business needs each week (26 per cent).

Most employers seem to have accepted this as their way of working, with 74 per cent saying that don’t plan to change arrangement, although one-in-five (21 per cent) will require staff to return to the workplace more frequently this year.

Find a solution that benefits both parties

Although it looks like employers and employees might be at odds regarding salaries in the coming year, organisations still have plenty of scope to negotiate outcomes both parties are satisfied with.

So, before sitting down for salary conversations with your staff this year, consider what additional options you could offer to help align expectations.

Download the Hays Salary Guide

Our annual Hays Salary Guide FY24/25 features data from more than 15,000 employers and employees and provide access to typical salaries and insights relevant to your industry.

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How to manage a salary expectation gap – sensitively