Pay: Firms fight back with counteroffers to keep staff

About 40% of employers have made counteroffers to keep hold of staff tempted by higher wages from rivals in the past 12 months, a survey has found.

The Chartered Institute of Personnel and Development (CIPD) said that of the 2,000 employers it questioned, many of those that made counteroffers expected to do so again to retain workers.

The number of job vacancies in the UK remains high at over one million.

But there are fears escalating salaries could keep inflation higher for longer.

The CIPD said that of the UK employers who had made a counteroffer in the past 12 months, 38% made a deal that matched the salary promised by the new firm. However, 40% offered even higher wages.

Meanwhile, companies expect to raise pay by 5% over the next 12 months.

The CIPD conducts a survey of firms every three months examining the UK labour market. The most recent report was the first time that the organisation asked employers about making counteroffers to staff, which means there are no comparisons available to show if the number has risen or fallen.

However, it expects the use of counteroffers to increase as businesses try to recruit new staff and retain existing workers.

The number of UK vacancies fell to 1,034,000 between April and June, according to the Office for National Statistics (ONS). However, it is 232,000 higher compared the pre-Covid period between January and March 2020.

Wage rises have struggled to keep up with inflation, which measures the rate at which prices are growing.

In its most recent figures, the ONS said average pay rose by 7.3% but, when taking inflation into account, fell by 0.8%. The latest data on pay and vacancies will be released on Tuesday when the ONS publishes employment figures.

Inflation eased to 7.9% in June and the figure for July - which is due to be released on Wednesday - is expected to fall again.

Both the Bank of England and the government are concerned that demand from workers for pay rises, as well as wage deals to fill vacancies, risks fuelling inflation.

As employees seek higher wages to cope with rising prices, this can contribute to inflation. If one keeps feeding the other, this leads to what is known as a wage-price spiral.

Prof Hilary Ingham, economics professor at University of Lancaster, said pay deals in the private sector were running at about 8%, "which is going to be above the rate of inflation so then this is going to be a danger that that is going to further fuel inflation so you're going to get this wage-price spiral".

The Bank of England has been raising interest rates to cool inflation, but this has led to higher mortgage costs for many homeowners.

Mark Reynolds, chief executive at construction giant Mace Group, told the BBC: "Our challenge at the moment is, quite frankly, wage increases and salaries. Because everyone's under pressure with increased mortgage rates, there is that demand for increased salaries."

The CIPD suggests that instead of raising pay, employers could offer other incentives to stay.

"While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions," said Jon Boys, senior labour market economist at the CIPD.

In its survey, the CIPD also found that of those employers who made counteroffers, just one in five of them had a formal policy to explain in which circumstances they can be made.

The institute warned "that a lack of a formal process could result in issues relating to pay gaps, pay fairness across similar roles, and the organisation's overall approach to reward".