How to manage a salary expectation gap

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The 23/24 financial year could be described as the ‘year of the raise’ for employees, with 95 per cent of employers intending to increase salaries, according to our latest Hays Salary Guide FY23/24.

Despite this, employees’ salary increase expectations and the salary raise employers intend to pay are at odds.

For the latest edition of our salary guide, we spoke to more than 14,000 survey respondents across Australia and New Zealand to gather their views on salary policy, hiring intentions and recruitment trends.

The data we gathered demonstrates that while more skilled professionals will receive a pay rise in their next review (95 per cent of employers will increase salaries, up from 88 per cent last year and 67 per cent the year before), overall salary increases will still sit below the expectations of employees.

Two thirds of employers (66 per cent) intend to increase salaries by three per cent or more, with 10 per cent considering a raise of between seven and 10 per cent and three per cent offering more than a 10 per cent raise.

Despite salaries continuing their upwards trajectory, a salary expectation gap remains, with 91 per cent of employees believing a salary increase of three per cent or more would better reflect their individual performance and the demand for their skills. Of these, 34 per cent say between three and six per cent would be fair, while 31 per cent say between seven and 10 per cent is reasonable. Over one quarter (26 per cent) believe a salary increase of more than 10 per cent would better reflect their performance.

How to manage a salary expectation gap sensitively

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

To build engagement and reduce turnover, communicate transparently with employees about salary increases.

1. Explain your salary-setting rationale

Our findings show that only 28 per cent of skilled professionals are satisfied with their current salary. This is primarily because they believe it inadequately reflects their individual performance over the past year or doesn’t align to external typical salaries.

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 and be transparent about how salary increases are determined.

Communicate with your employees your organisation’s performance, budget and the wider economic climate. Share how their role fits within this wider context. 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) of the overall compensation package. The additional benefits you offer is just as important to most employees as the financial salary. While money is, and always will be, important, improving the benefits on offer can be highly rewarding and motivating for staff.

As this year’s Hays Salary Guide shows, a wide range of benefits are now on offer. According to our survey, the top benefits employees want are:

Training: 61 per cent
Career progression opportunities: 60 per cent
Over 20 days’ annual leave: 58 per cent
Ongoing learning and development: 46 per cent
Wellbeing leave: 30 per cent
Mental and physical health and wellbeing programs: 29 per cent

Offering additional benefits is one way to help close the salary expectation gap so consider how your organisation can deliver on these benefits.

3. Provide opportunities for promotions

Providing employees with an opportunity to work towards a promotion presents them with a clear path to a higher salary. You can help to manage a salary expectation gap by showing them the long-term value of their position and performance.

By linking promotions to specific performance metrics, you can offer transparency around the results that would qualify them for promotion and a future salary increase. There are also retention benefits. A lack of career progression is a common factor motivating people to search for a new job.

You can improve career progression opportunities for your staff in a number of ways, such as by matching employees with appropriate mentors, entrusting them with new challenges and planning a detailed career path together.

Such actions can be powerful in negating detrimental impacts a minimal salary increase can have on employee engagement and turnover.

4. Offer skills development

Our Salary Guide shows that top talent values upskilling. Almost all professionals say upskilling is “very important” (67 per cent) or “somewhat important” (29 per cent) to future proof their career.

Upskilling top talent can help manage a salary expectation gap. It also allows you to build new capabilities into your organisation.

To assist, we offer a free 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 on the job.

5. Provide greater flexibility

If your employees are expecting more salary than you can offer them, you could also consider the merits of providing them with greater flexibility in how they get their jobs done.

For desk-based employees, hybrid working is now an expected norm. Of the employees we surveyed, 65 per cent will look for a hybrid role when they next job search and 18 per cent will look for a completely remote role.

But flexibility extends beyond hybrid and remote work models. According to our survey, the other flexible work practices employers commonly offer today are flexible working hours (58 per cent), part-time employment (50 per cent), flexible leave options (24 per cent), compressed working weeks (20 per cent) and purchased leave (also 20 per cent).

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 FY23/24 features data from more than 14,000 employers and employees. 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.

Follow Nick on LinkedIn

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