How to manage a salary expectation gap – sensitively

Colleagues discussing salary expectation gaps
One key finding from our recently released Hays Salary Guide FY22/23, is that the salary increase employees are expecting in their next review, and the salary raise employers are expecting to pay, are at odds.
For the latest edition of our salary guide, we spoke to more than 9,000 survey respondents across Australia and New Zealand to gather their views on salary policy, hiring intentions and recruitment trends.
The data we gathered demonstrated that while more skilled professionals will receive a pay rise in their next review (88% of employers will increase salaries, compared with 67% last year), overall salary increases are set to sit below the expectations of employees.
Over a third of employers (37%) intend to increase salaries by 3% or more, with 10% considering a raise of more than 6%.
This news could be disappointing to a number of employees, as 84% believe a salary increase of 6% or more would better reflect their individual performance and the demand for their skills. 

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, our advice is to communicate delicately with employees about salary increases. It’s critical to carefully manage salary expectations as part of your retention and engagement strategy.
Here we present our advice on how to approach the salary expectation gap.

1. Explain your salary-setting rationale

Our findings show that only 31% of skilled professionals are satisfied with their current salary. This is primarily because they believe it inadequately reflects their individual performance and the demand for their skills over the past year.
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.
Remember to communicate to your employees about your organisation’s performance, budget and the wider economic climate and 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) within an overall remuneration package. We suggest you emphasise the overall features of your remuneration package as part of a full-range conversation with employees about their salaries and benefits.
As this year’s Hays Salary Guide shows, a wide range of benefits are now on offer across Australian workplaces. According to our survey, the top benefits employees want include:
  • Training (either internal or external) (57%)
  • Over 20 days annual leave (55%)
  • Ongoing learning & development (53%)
  • Mental and physical health and wellbeing programs (38%)
  • Formal career paths (also 38%)
  • Budget for home office setup or supplies (33%)
  • Company car, car allowance or onsite parking (33%)
  • Share incentives (29%)
  • Financial support for professional study (29%)
  • Payment of professional membership fees (28%)
  • Paid leave for professional study (22%)
  • Payment of usage charges for employee-owned devices used at work, salary sacrifice (20%)
Think of how your organisation can deliver on these benefits ahead of salary discussions with your employees. Offering additional benefits is one way to help close the salary expectation gap.

3. Provide opportunities for promotions

With minimal salary increases forecast for employees in their next review, it’s a good time to think about the promotional opportunities your organisation makes available to its employees.
15% of skilled professionals will actively look for a new job this financial year, and an additional 52% are open to job opportunities. 91% of organisations report that they are currently experiencing a skills shortage and 61% intending to increase permanent staff levels this financial year.
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 your employees with appropriate mentors, entrusting your employees with new challenges and plotting a detailed career path together.
Such actions can be powerful ways to negate the detrimental impact a minimal salary increase can have on employee engagement and turnover.

4. Offer skills development

Our salary guide shows that learning and developing new technical skills is the top priority for 60% of skilled professionals in the year ahead.
Upskilling top talent can therefore help manage the salary expectation gap. It also allows you to introduce more capability into your organisation to help it succeed.
To assist, we offer a free training portal, Hays Thrive, 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 quality skills on the job.

5. Provide greater flexibility

If your employees are expecting more salary than you can offer them after their next review, you could also consider the merits of providing them with greater flexibility in how they get their jobs done.  
Our research shows flexibility is the number one benefit skilled professionals are seeking at work today. 74% of employees want hybrid working practices, including flexible work hours, work location and work practices.
With remote work and hybrid models of work becoming the norm, it’s no surprise that employees have a new appreciation for the benefits that flexible work can offer to their lives. Employers who revert back to the rigid work structures might find themselves in greater conflict with employees in the future.
So, are you able to offer employees additional flexibility? This does not only involve working from home. Compressed work weeks, staggered start and finish times, job sharing and part-time work arrangements are examples of other common flexible working arrangements.

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 FY22/23 features data from more than 9,000 employers and employees. Download your copy to access typical salaries and insights relevant to your industry.

About this author

 Nick Deligiannis, Managing Director, began working at Hays in 1993 and since then he has held a variety of consulting and management roles across the business. In 2004 he was appointed to the Hays Board of Directors. He was made Managing Director of Australia and New Zealand in 2012.

Prior to joining Hays, he had a background in human resource management and marketing, and has formal qualifications in Psychology.

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