How to manage a salary expectation gap – sensitively

Colleagues discussing salary expectation gaps
The salary increase employees are expecting in their next review, and the salary raise employers are expecting to pay, are at odds.

That’s one key finding from our recently released Hays Salary Guide FY21/22.

For the latest iteration of our salary guide, we spoke to almost 3,500 organisations (representing over 8.8 million employees) across Australia and New Zealand. They shared their views on salary policy, hiring intentions and recruitment trends. 

We also surveyed over 3,800 skilled professionals about their salary expectations, career plans and current priorities.  

Their feedback shows that while more skilled professionals will receive a pay rise in their next review (67% of employers will increase salaries, compared with 45% last year), overall salary increases are set to sit well below the expectations of employees.

Only 12% of employers intend to increase salaries by 3% or more. Most employers raising salaries intend to limit their increase to 3% or less.

That’s news likely to disappoint a significant number of employees, since 67% believe a salary increase of 3% or more would better reflect their individual performance. They say the efforts they have made to help their employers navigate the pandemic and restore growth justify a higher salary increase.

How to manage a salary expectation gap sensitively 

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

To protect engagement and turnover, our advice is to communicate sensitively with employees about salary increases. More so than ever, when budgets are tight 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 39% 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.

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 talk to your employees about your organisation’s performance, budget and the wider economic climate. After all, 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.

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:

  1. Regular flexible work practices. This includes flexible working hours, location of work and working practices (79%)
  2. Career progression opportunities (52%)
  3. Training – either internal or external (50%)
  4. Ongoing learning & development (44%)
  5. Over 20 days' annual leave (30%)
  6. Mental health and wellness programs (20%)
  7. Physical health and wellness programs (15%)
  8. Payment of professional membership fees (13%)
  9. Company car or car allowance (11%)
  10. Payment of usage charges for employee-owned devices used at work, or salary sacrifice (11%) 

Think of how your organisation delivers on all these benefits ahead of salary discussions with your employees. Remember, offering additional benefits is one key 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.
  • 38% of skilled professionals are looking or planning to look for a new job this financial year, and an additional 39% are open to job opportunities. 
  • The top reason professionals are exploring the job market is to address the lack of promotional opportunities available to them (43%).
  • Almost one quarter of survey respondents also report that they think career progression opportunities in their organisation have diminished since the onset of the pandemic.
  • 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 skills is the top priority for 65% 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 knowledge into your organisation to help it succeed.
  • To assist, we offer a new online 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. 

Our research shows flexibility is the number one benefit skilled professionals are seeking at work today. Remember, 79% of employees want regular flexible working practices, including flexible work hours, work location and work practices. 

With remote work and hybrid models of work becoming more common since the pandemic began, it’s no surprise that employees are developing new appreciations for the role flexible work practices can play in their lives. Employers who revert back to the rigid work structures of pre-pandemic days 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.
Interestingly, a FlexJobs survey found that more than one quarter of respondents would take a 10-20% pay cut in exchange for flexible work. This means, if you can accommodate it, additional flexible working could help you manage the salary expectation gap. 

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 FY21/22  is based on a survey of close to 3,500 organisations and more than 3,800 skilled professionals. 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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