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Employers use bumper bonuses to lure workers

manufacturing sector

The number of jobs being advertised offering bonuses has more than doubled since the start of last year, as employers seek to fill staff shortages without committing to inflation-proof pay rises.

Mounting concerns that the UK is headed into an economic downturn have led companies to contain costs while trying to attract talent amid record levels of vacancies.

The percentage of recruitment advertisements offering bonuses rose from 13.6 per cent, or 90,345, at the beginning of last year to 16 per cent, or 190,333, this month, according to figures from Adzuna.

The rise in bonuses was widespread across sectors, according to Paul Lewis, chief customer officer at the job search engine. He added that retail, IT, and customer service roles had all seen “notable proportional increases in jobs advertising a bonus since January 2021, directly responding to talent shortages worsened by the pandemic.”

However, the level of bonuses offered varied significantly by sector, with public sector workers earning an average of £2 a week compared with £43 a week across the private sector. Employees at banks and other financial services companies earned the highest bonuses, averaging £94 a week in May, according to the latest figures from the Office for National Statistics.

The government announced last week that the lowest paid NHS staff, including cleaners and porters, would receive a 9.3 per cent increase in their pay, with most other public sector staff receiving pay rises of about 5 per cent. Private sector pay rose by 7.2 per cent including bonuses and 5 per cent without bonuses in the three months to May.

The vast majority of pay rises fall short of inflation, which hit a fresh 40-year high of 9.4 per cent in June, and is expected to rise to 12 per cent when households receive their winter energy bills in October.

Offering bonuses is a way for employers to keep pay in line with inflation without creating the expectation that workers should expect significant jumps in their wages, according to Xiaowei Xu, a senior research economist at the Institute for Fiscal Studies. “If inflation drops you can go back to just paying regular pay and in a way, I think it’s a good thing because it means that you would be much less likely to see a wage-price spiral,” she said, adding that it is difficult to reverse pay rises when inflation is falling. “I think it’s probably quite a clever way to keep up with the cost of living crisis whilst not intervening in that wage-price spiral.”

Andrew Bailey, the governor of the Bank of England, faced criticism this year for calling on workers to show restraint when asking for pay rises, and has reiterated that the central bank is concerned high expectations for wages and prices could cause further inflation.

The TUC has called for the government to implement measures to clamp down on “excessive” bonuses and instead boost wages across the economy.

Duncan Brown, principal associate at the Institute for Employment Studies think tank, said the rise in bonuses as a proportion of pay allowed employers to vary pay packets depending on the company’s finances. “The historic trend over the last 20 years has been that bonuses have gradually been going up,” he said. “If you’re paying people bonuses, particularly if they’re performance related, they go up when the economy is good, and down when the economy’s bad. And that’s one of the reasons that they’ve been growing.”

Some companies offer bonuses at their discretion, while others have performance criteria for workers to meet to qualify for one. Schemes include profit-share plans such as those at John Lewis, the retailer, or one-off cost of living payments such as those offered to some staff at Virgin Money and Rolls-Royce.

For Brown, the need for a one-off cash payment to help people to cope shows that wages for the lowest earners are too low. “You could argue they need to address the low base pay level as well,” he said. “We are having to make emergency payments because our base pay levels at the bottom are so appalling. Government can argue that they are pushing up the minimum wage at a faster rate, which they are, but I think it’s a real question: why can’t you live on the minimum wage?”

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Employers use bumper bonuses to lure workers