Organisations will face a talent challenge as salary increases hit an all-time low. Steve Paola discusses salary forecasts for 2016 and what organisations need to do to attract and retain their best talent.

It’s that time of the year again. As the holidays approach us, it’s time to reflect on the year that has passed, to celebrate the highs and to plan for what’s ahead. It’s also the time to review past performances, which inevitably brings forth the discussion around bonuses and salary increases.

Australian workers will be in for a shock with average salary increases set to hit their lowest point in almost a decade. With a predicted rise in inflation for 2016, Australians are expected to see the first negative wage growth since the global financial crisis.

Slow pay movements across the board

The latest findings from the Australian Salary Movement Index (ASMI), an annual overview of the Australian reward climate based on data from ’s PayNet database, reveal slow salary movements across a range of sectors.

Key industry trends include:

  • Financial services – One of the worst performing in 2015, with fixed wages growing at only 2.6 per cent, down from 4.0 per cent last year.
  • Industrial and services – 2.8 per cent growth, down from 3.5 per cent.
  • Resources – 2.1 per cent growth, down from 4 per cent.

Salary trends that emerged in 2015 are expected to continue in 2016. Salary movements have been consolidating across all sectors and in almost all roles, and unlike the past few years, there are very few standout roles or industries when it comes to salary growth.

The most notable decline has been in the resources sector. The data will come as a reality check for many workers who had experienced almost unprecedented wage growth during the past few years. The reality is that salary increases in the resources sector haven’t been at sustainable levels for a number of years, and we are now seeing a uniform correction.

Areas less reliant on the resources sector were largely spared any dramatic change. When compared to the national average, wage premiums in Sydney were -1.8 per cent, Melbourne -1.4 per cent and Brisbane -1.1 per cent. Salaries in Tasmania (-7.7 per cent) and Adelaide (-5.0 per cent) were the most heavily impacted.

Globally, Australia was amongst the worst performing countries, with inflation-adjusted salary growth at 1.2 per cent for 2015, below that of our New Zealand counterparts at 1.6 per cent as well as Asian (3.1 per cent), European (1.6 per cent) and African regions (2.0 per cent). Only North America (0.7 per cent) and Latin America (-1.1 per cent) have less salary growth.

Pressure to recruit and retain

A spot survey of the ASMI findings was conducted with 50 senior HR executives. According to respondents, many organisations are looking to cap salary increases in 2016. 10 per cent of businesses have already implemented pay freezes, while another 15 per cent are expected to take similar measures in the coming year. This is likely to cause plenty of headaches for the human resources department with 24 per cent of businesses already finding it difficult to recruit or retain talent for certain roles.

Organisation-wide salary freezes may be unavoidable for many businesses which may cause discontent amongst the workforce. Organisations can counter balance that by introducing/promoting non-financial rewards. A Total Reward strategy that uses the right non-financial rewards will benefit most companies in difficult times and can make a substantial impact on employee engagement and motivation.

At , we advise businesses to make more use of cost-effective non-financial incentives to help attract and retain their best talent. Here are a few recommendations:

  • Make existing non-financial reward programs more accessible, such as remote working, improving work-life balance, or extra leave.
  • Be completely transparent when communicating reward policies i.e. what do you reward and recognise and why – this helps employees be clear on what and why certain things are happening.
  • Focus on each individual – align their role or certain things in their role that they get motivated by.
  • Invest in training and development for the future and ensure that key talent especially see where and how they can progress their career.

Non-financial rewards can help you weather these bleak business conditions whilst keeping your employees engaged and performing at their best.

Remuneration is no longer simply about pay. Read Trevor Warden's article The bigger picture on reward to find out how to adopt an Employee Value Proposition approach to reward

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