How to attract staff as inflation soars? A nice fat bonus helps

Average wage growth in Britain is not keeping pace with inflation, leaving workers facing the biggest annual fall in living standards since records began in the 1950s.

Some employers, however, are ramping up bonuses in an attempt to lure new recruits and retain existing staff, as record job vacancies intensify the battle for talent and companies work to support staff hit by dwindling spending power.

Figures from the Office for National Statistics last week showed the value of bonuses paid across the economy jumped by almost a quarter in the year to February, the highest level of one-off awards relative to basic wages since 2013.

While the biggest payouts went to bankers and accountants in the City of London after a boom year for the finance industry, the data also reveals a marked rise in retail, construction and hospitality bonuses.

In some sectors, employers are finding creative ways to attract and retain staff. Alongside a bumper 34% rise in finance bonuses, the ONS figures show payouts up by 20% in construction and by 19% in wholesale retail, hotels and restaurants.

“Bonuses are a lot higher this year than last,” said Tony Wilson of the Institute for Employment Studies thinktank. “Across the economy it’s adding about a percentage point to pay growth right now. It’s being dragged up by large bonuses in finance, but there are proportionate big increases in other industries too.”

Britain’s cost-of-living crisis hit its fourth month in February as average earnings growth, including bonuses, of 5.4% failed to keep pace with a 6.2% increase in the consumer price index. Inflation rose further in March, to 7%, and for those who didn’t get a bonus, things were far worse, with average pay up just 4%.

Workers in the public sector are falling furthest behind, because one-off payouts are rare for NHS staff, council workers, teachers and police. In real terms, average weekly pay in the public sector is falling at the fastest rate in 20 years.

Economists say there are two primary reasons why bosses could be considering paying bonuses. First, with record job vacancies and an unexpected fall in unemployment after the end of furlough, workers have more bargaining power. Several firms – including Starbucks, Domino’s Pizza and Holiday Inn – are using one-off joining bonuses to attract recruits: these can be more eyecatching than headline pay rates.

Second, employers may believe the inflation shock is likely to fade next year. Paying one-off bonuses avoids permanently higher wage bills, at a time when firms are unsure about how profitable they might be in future.

“The thing about wages is they are sticky. They go up but don’t go down very quickly,” said Jonathan Boys, a labour market economist at the Chartered Institute of Professional Development. “If you want sustained wage growth, it has to be because we’re better at doing stuff, we’re more productive. That’s the long-term gain.”

Faced with soaring demand for international travel after lockdown,

British Airways is offering £1,000 welcome bonuses – two years after it attempted to sack thousands of staff at the height of the pandemic.

Sharon Graham, general secretary of the Unite union, which represents BA workers, said the “sign-on bribes” would do little to solve recruitment and retention problems if they still came with low base pay and lousy conditions.

“It’s really very simple – to attract workers, employers have to offer pay and conditions that match, if not better, what’s on offer elsewhere,” she said. “That’s what Unite is fighting for – decent wages on decent conditions. So far, our collective bargaining strength has won a huge number of wage deals well above inflation.”

Some employers are trying more creative retention techniques. According to jobs website Indeed, the number of vacancies offering perks such as wellbeing programmes – including mental health support – has risen by 1,719% compared with before the pandemic. Employers are also offering gym memberships, subsidised travel and financial advice. Last year, employers including Amazon, Ocado and Tesco offered signing-on bonuses worth thousands of pounds before the Christmas rush.

Figures from Indeed show signing-on bonuses rising particularly sharply in social care, a sector where employers might struggle to pay a permanently higher wage bill.

However, union leaders have warned that bonuses, which do not usually count towards a worker’s pension, typically fail to make up for lower pay, following a decade of stagnating average wage growth and a squeeze on UK living standards.

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