Employers in South Africa are planning to increase their budgets for pay by 6.1% in 2024 as they try to attract and retain staff amidst ongoing inflation and a competitive labour market, according to HR consultancy group WTW.
This would place expected salary hikes for next year above current projections for headline inflation (CPI) which is expected to average around 4.5% year-on-year in 2024 – meaning salaried employees can expect salary growth in real terms.
According to WTW, the increased budgets for pay are lower than the hikes in 2023 (6.6%); however, average inflation in 2023 is tracking much higher for the year.
Inflation in South Africa has been steadily declining over the last few months, with CPI dropping from 6.3% in May to 5.4% in June. The Reserve Bank and economists anticipate inflation for 2023 averaging around 6.0%.
In real terms, the salary increases delivered in 2023 would average around only 0.6%. However, if no inflation shocks hit in 2024, the real increase in 2024 could be around 1.6% if not more.
WTW said that its research has pointed to organisations increasing their pay budgets in 2024 for two main reasons.
Inflationary pressure was a factor cited by seven in ten firms (70%), while almost half (44%) said they are responding to a more challenging labour market and trying to attract and retain staff.
“Businesses are still grappling with inflationary pressures and a tight labour market, and these factors are pushing up salaries,” said Melanie Trollip, Director of Work and Rewards, WTW South Africa.
“The forecast rises for next year are slightly lower than what we have seen this year, but overall they are still at a relatively high rate. Inflation seems to be cooling and that may leave people with an improvement in what they earn in real terms,” she said.
“Employers are trying to adapt to an evolving environment in which yesterday’s certainties no longer apply. Those companies that have a clear strategy on how they reward their workforce will be more successful at attracting and retaining the best people.”
Business Optimism and Hiring
While industry indices like the purchasing managers index (PMI) and business sentiment index point to muted if not depressed views on the South African economy, WTW’s survey points to a more upbeat sentiment emanating from businesses.
The group said that South African firms are fairly upbeat about the economy, with a third (34%) saying that the outlook for their business is better than they had forecast, while 57% said it was in line with their expectations.
“Reflecting this optimism, 16% plan to increase their total headcount over the next 12 months. Six in ten (59%) employers plan to recruit engineers in the next 12 months, while 56% are hiring in IT roles, and 48% want more salespeople,” the group said.
It noted that technical skills like engineering and IT remain hotspots in the labour market, while interest in sales staff often reflects an ambition to expand.
However, it warned that it takes more than higher pay to attract and keep great talent, and the past few years have pressed companies to be more resourceful.
“As workforces become more diverse, demanding and dynamic, the key is understanding their specific needs and preferences, and matching that to an overall reward programme,” it said.