What salary increases to expect in 2018

While there are increased market expectations, modest salary increases are still forecast, unless the chequebooks suddenly appear, writes John McGill.

Having experienced a period of price and wage stability for a number of years, the growing expectations and vocal statements of a number of groups suggest we are likely to see increased wage inflation in the year ahead. 

Not only must the living wage advocates be delighted with the government’s minimum wage statements, but also the residential care workers’ (and more recently their mental health counterparts) settlements have set a precedent for many others. 

At the time of writing we have the NZ Nurses Organisation making its views known (with DHBs obviously very cautious and cash-strapped). The teachers are also sharpening their arguments as they will soon be putting their case forward.  

This level of debate and argument has not been heard in New Zealand for a number of years and it poses particular issues for a new Government looking to appear fiscally stable and judicious in its financial management.

One question we ask our (large) client base every six months concerns wage expectations. It relates specifically to organisations’ forecasting for payroll increases. 

This statistic is really at the heart of the matter in terms of affordability. It is, of course, a number that includes allowance for increased staffing as well as annual increases. Our experience is that the predicted payroll increases (i.e. the answer to our question) bears a close relationship to actual annual increases the year following.

The results are clear from our clients as they completed the survey in February of this year. An overall median increase of 2.4 percent is expected across the whole market. 

The private sector is forecasting a median three percent and the public sector a lower 2.1 percent. Note that our public sector includes central government, education, health and local government and the figure is the median across all those groups. 

The payroll increases are in effect reflective of organisations’ budgets and once set reflect their funding (in the case of public sector organisations) or pricing (in the case of those in the private sector).

Is there any room to move with these figures? A small amount usually can be accommodated but nothing substantial. A predicted two percent increase cannot turn into five percent or more unless drastic changes are made elsewhere.

These are not the numbers that will meet nurses’ expectations (they are balloting for strike action at the time of writing) nor, I suspect, the teachers’ when their turn comes around. 

Employers are well aware of the broader issues, for example dealing with those groups that have to reach the new minimum wage by 2020. They will likely receive five percent annual increases for the next two years to ensure they reach the new minimum levels.

When heightened expectations for larger pay increases hit the wall of cast-in-stone pay and salary budgets something has to give. 

Will the Government find more money for nurses (if they do I imagine the teachers will see their case as being very strong) and will this create a wave of larger than expected claims/increases across the whole of the public sector and perhaps affect private sector pay movements?

The next few months should give us our answer. 


John McGill is the CEO at Strategic Pay Limited.

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