SA cuts increases and freezes hiring plans to survive Covid-19

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At the beginning of 2020, employers in South Africa were planning to give their staff an average annual pay rise of 6.8%. But following the start of the pandemic they have cut that figure by almost 20% (1.3%) to 5.5%. With inflation over 2020 set to be 4%, that leaves a real-terms ‘take home’ average pay rise for workers of 1.5%.

Willis Towers Watson’s Salary Budget Planning Report, which studies the size of pay budgets at firms, also shows that in 2021 South African companies expect to offer average pay rises of 5.7%. Inflation is forecast to be 4.5% next year, leaving a real-terms rise of 1.2%.

Many of the 211 South African firms that took part in the global study faced tough decisions about pay. Almost one in five (21%) firms froze their pay increases for 2020 because of Covid-19, and a further 15% decided to postpone their pay rise to later in the year. 19% cut the size of bonuses, while 22% are delaying bonus pay-outs.

Asked about the size of their workforce, 15% said they had already reduced staff numbers due to the pandemic, and 44% are planning or considering doing so. 73% said they have now frozen or cut recruitment, while 21% are making plans to do so.

Melanie Trollip, Director of the Talent and Reward team at Willis Towers Watson South Africa, said: “The average South African worker has held onto a pay rise this year, although it has shrunk in size as businesses navigate extremely challenging conditions due to Covid.

“Many firms made their pay awards in January, ahead of the pandemic, but others were able to change their plans as economic headwinds take their toll. A third of firms are freezing or postponing rises, while 40% are cutting or delaying bonuses.

“It may seem surprising that businesses are talking of average pay rises of 5.7% in 2021, but many companies have multi-year wage agreements to honour, and are also worried about keeping the best staff. Whether the planned 2021 pay rises are cut remains to be seen, but we expect heavy downward pressure on them, especially in the hardest-hit sectors.

“The jobs market is in near lockdown, with almost three quarters of firms having frozen or cut recruitment, and a further fifth planning to do so. Almost a half of businesses are planning to cut staff numbers. It is not an environment where companies are able to be generous with pay rises.”

South Africa follows a similar pattern to many major global economies where employers are planning for lower 2020 pay budgets due to the coronavirus. In Europe, employers in the UK, France, and Germany are anticipating their ‘recovered’ 2021 pay budgets will still be lower than their pre-pandemic planned 2020 budgets.

*All figures given as a percentage.