South Africa Projected Salary Increases 2022
Has the dreaded E-mail arrived yet?
You know the email that strikes fear into all HR colleagues…
And this year, it will be even more difficult to formulate an equitable salary increase which solves the dichotomous problem of
The best way of providing Mike with an accurate and equitable salary increase for 2022 is to formulate the forecast percentage in a scientific manner; one which is both logical and defensible. We will take you through the necessary steps.
Salary increases are implicitly linked to inflation; where inflation is one of the most important determinants when deciding on the amount of the salary increase. Our employees want to retain the same purchasing power with their earnings year on year.
The departure point is to forecast future inflation rate
The table alongside details South Africa's historic inflation rate (in black) and Axiomatics' forecast of future inflation (in red)
Our inflation forecast is slightly higher than the South Africa Reserve Bank’s (“SARB”) forecast of 4.2% although the SARB did state at the September 2021 meeting that, “The risks to the short-term inflation outlook are assessed to the upside”. We are a little concerned that even our higher forecast may be too low given rising global producer prices, the supply chain constraints, food price inflation, higher oil prices, electricity and administered price increases, higher domestic import tariffs, and union demands for higher wages.
This is to establish the possible quantum of the “real increase”. A real increase is defined as the increase after inflation has been considered. As an example, if the salary increase is 6.0% and inflation is 4.0%, then a 2.0% real increase has been granted. The table below illustrates the average real increases granted by South African companies over the last 15 years.
This is to establish the possible quantum of the “real increase”. A real increase is defined as the increase after inflation has been considered. As an example, if the salary increase is 6.0% and inflation is 4.0%, then a 2.0% real increase has been granted. The table below illustrates the average real increases granted by South African companies over the last 15 years.
The historic methodology adopted in South Africa, when determining an equitable salary increase in the past, was to add a 2.0% real increase to the forecasted inflation figure. However, there has been a discernible trend over the last few years of lower real salary increases being granted. This assertion is corroborated by the 5-year moving average in the graph above, which has been steadily declining in recent years from 2.0% to 1.2%.
A 1% real salary increase is the "new normal"
4.4%
2022 Inflation
1.0%
2022 Real Increase
5.4%
2022 Salary Increase
The above is a scientific and quantitative derivation of the percentage. Before firing off the email to Mike, qualitative factors must now be considered…
StatsSA announced that the weights of the CPI components will be updated in the January 2022 CPI which will be released in February 2022. The current weights were last adjusted in January 2017 and the revision to inflation may therefore be significant.
This year, and perhaps more than in the past, the granting of salary increases will be dependent on financial affordability.
- Some companies have experienced boom trading conditions during the Covid pandemic; for example, online and tech-based companies where significant real salary increases are being considered to retain staff in an increasingly competitive labour market segment;
- Other companies remain in a perilous financial position where any salary increase is just not feasible;
- Diverse salary increases will be granted, and one must concomitantly be careful of salary surveys. Companies in a. may grant a 7.0% increase while companies in 2. may grant 1.0% – this does not mean that the market, in general, is granting an average 4.0% salary increase.
Even though unemployment is 34.4%, many companies report that they are struggling to attract and retain talent. Further, several of our clients have stated that their staff turnover in 2021 is at record levels. This is not a local phenomenon – in April 2021 in the United States, resignations were at the highest level since 2000. This has been attributed to workers reaching a breaking point after months of high workloads and pressure.
In addition, employees are rethinking their work and life goals and their future career paths.
The scientific salary increase formula derived a rounded 5.5% salary increase for 2022 however, given the qualitative factor review and especially when considering the ability to attract and retain talent, who will be crucial for the future growth of companies, our 2022 salary increase forecast is:
6.0%
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