Bad news for salary increases in 2023
South African workers are unlikely to receive an increase in line with the cost of living this year.
According to Dr Mark Bussin, an EXCO member and Master Reward Specialist at the South African Reward Association (SARA), economic instability in the country makes the chance of receiving an increase that matches inflation incredibly unlikely unless the government intervenes quickly.
“Unfortunately, the current state of South Africa means the financial outlook for companies is generally bleak, and this will have a direct impact on their ability to offer any kind of meaningful increases to employees,” Bussin said.
He added that certain aspects of the current economic climate will impact salary increase decisions. These include:
- Pedestrian economic growth;
- Despairing energy supply;
- Zero investment confidence;
- High inflation;
- Dismal service delivery at all levels of government – local, provincial and national; and
- No political will from the government.
Bussin added that these economic headwinds will make employers more cautious and force them to prioritise corporate budget stability, limiting employee rewards.
Businesses will also likely see a decrease in revenue, meaning that salary increases may be delayed or reduced.
In addition, employers will look at the current unemployment rate and market competition for labour while making salary increase decisions.
Employees may have to work harder for bonuses and incentives as businesses adjust the amount and frequency of payouts depending on the company’s financial performance. Other businesses could opt to entirely eliminate bonuses or incentive payouts to reduce costs.
According to research by global broking and solutions company WTW at the start of the year, employers in South Africa said they were planning on increasing their pay budgets for the year as high levels of inflation have hit workers hard, while the labour market has become more competitive and challenging.
WTW’s Salary Budget Planning Report surveyed 423 employers across the country, finding that bosses were aiming for salary hikes averaging a 6.1% increase for this year – slightly higher than the 5.9% average boost in the pay budget given in 2022.
Despite the slightly higher pay budget, however, this comes in lower than average annual consumer price inflation for 2022, which was recorded at 6.9% for the year (i.e. the average CPI for all urban areas for 2022 compared with that for 2021).
Inflation for 2023 is expected to come down further, with economists anticipating an average of 5.6%.
Solutions
Although there are numerous possible solutions to the problem, Bussin said that several interventions must be put in place at all levels of government to ensure that salary increases in the future are possible.
One of the biggest issues hampering South Africa’s economy, which feeds into all other aspects relating to business operations, is widespread corruption, which needs to be urgently addressed, Bussin said.
Other interventions from the government revolve around reducing red tape and regulations to make it easier for companies to conduct business.
The rewards specialist said South Africa also needs to overhaul the education system and encourage entrepreneurship to address a skills mismatch in the economy.
Bussin said that the promotion of exports and further support to SMMEs could also address the issue.
Investor confidence must be acquired through the management of government debt and the implementation of fiscal discipline, he said.
“Until the government takes decisive and proactive steps to remove these economic barriers, organisations will be unable to respond positively to their employees’ cost-of-living requirements,” Bussin said.
“Unless legal and socio-economic foundations are put in place, there is no way for South Africans to climb out of the current economic situation.”
Bussin said that companies and civil society groups should put further pressure on government officials to address the economic disaster facing South Africa.
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