The majority of employers in New Zealand (95%) plan to increase salaries in their next review, up from 88% last year and 67% the year before, according to research from Hays New Zealand.

The research, based on a survey of 1,904 New Zealand organisations and 2,048 New Zealand professionals, found 71% plan to increase salaries above 3%, another step up from 37% last year and 12% the year prior.

David Trollope, Managing Director of Hays in New Zealand, said, “We’re calling this the year of the raise, where the promise of higher salaries reflects the intensity of the skills shortage in today’s jobs market.”

Trollope added, “Despite the increased salary boost, employer and employee expectations still fail to align. Many employees feel undervalued and underpaid. Only 28% are satisfied with their current salary, with most (71%) believing it doesn’t reflect their individual performance.”

Hays’ data showed 3% of employers intend to increase salaries by more than 10% compared to 27% of employees who said an increase of more than 10% would reflect their individual performance and demand for their skills. This further indicates a mismatch between employer and employee salary increase expectations.

According to Hays, there are four key factors motivating employers to increase salaries in their next review: Competition amid a growing skills gap crisis; The ripple effect of falling real wages; The impact of pay transparency; and the ‘The great ask’ which refers to employees asking for pay rises.

The research showed that over three quarters of employers have offered higher salaries than planned to attract skilled candidates (22% ‘substantially higher’ and 56% ‘nominally higher’). Further, many professionals have already benefited from the demand for their skills through a salary increase (30%), new job (14%) or both (23%).

On the wages front, Hays found that almost three quarters of employers say it’s reasonable to expect pay rises to keep up with inflation (31% ‘strongly agree’ and 42% ‘agree’ that pay rises should keep up with inflation).

Meanwhile, many employers are transparent with employees about how salary levels and increases are set to improve fairness and build trust, as 31% are transparent with all employees and 32% with select employees.

Furthermore, this year, 72% of professionals plan to ask for a pay rise, up from 58% last year and 45% the year before. Further, 68% admit the skills shortage makes them more confident to ask for a pay rise and 53% believe they’d benefit financially from changing jobs.

Other key findings from Hays showed that in the past 12 months, staff turnover increased in 41% of organisations, down from 58% the year prior.

At the same time, of those intending to or considering changing jobs, an uncompetitive salary is the top reason, cited by 51%.