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

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%, an increase compared with 37% that planned such an increase last year and 12% the year prior.

“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,” said David Trollope, managing director of Hays in New Zealand. “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 cites four factors for the salary increase: competition amid a growing skills gap crisis; the ripple effect of falling real wages; the impact of pay transparency; and “the great ask,” which Hays says refers to the research showing that 72% of professionals plan to ask for a pay rise this year, up from 58% last year and 45% the year before.

On the competition factor, Hays found 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%).

Meanwhile, 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).

Further findings from Hays showed in the past 12 months, staff turnover increased in 41% of organisations, down from 58% the year prior. Nearly half of professionals, 47%, unquestionably intend to remain with their current employer beyond fiscal year 2023/24, with another 36% unsure whether they will remain.

Uncompetitive salaries and cost of living motivate job switching, Hays also found. Of those intending to or considering changing jobs, an uncompetitive salary is the top reason, cited by 51%. This is ahead of the rising cost of living (50%), a lack of promotional opportunities (43%) and a poor management style or workplace culture (36%).

At the same time, employers intend to increase their permanent (44%) and temporary or contract (23%) headcount. This comes as 88% of employers are experiencing a skills shortage, while 38% say the impact of skills shortages has intensified in the past 12 months.