Companies across the UK are recalibrating compensation strategies to secure and retain the skilled professionals they need to stay competitive and resilient in a fast-changing environment. Instead of broad-based increases or flat raises across the board, the move is toward more precise, performance-driven strategies that target the skills, roles and talent segments that matter most for your business.
The way organisations use their salary budgets is changing significantly, with more boards taking a cautious approach to get the most value from compensation spend. Salary growth has remained relatively unchanged across recent periods. Data from the CIPD’s Summer 2026 Labour Market Outlook shows that the median expected basic pay increase for the next 12 months has remained at 3% overall for more than two years, with negative real pay growth expected in the coming months if inflation rises.
Gone are the days of simply finding the average UK pay rise and applying it across your teams. Today’s compensation landscape requires smarter, more strategic decisions where salary planning weighs in several things at once, from cost management and inflationary pressures to market conditions and retention risks for hard-to-fill roles.
Giving Everyone the Same Increase Is Becoming Harder to Justify
Offering a standard percentage increase can simplify things, but it also treats every employee as if they’re providing the same value, market position, and retention risk.
This can quickly create problems when you’re managing a limited budget. You don’t have to give an employee with skills that are readily available in the market the same increase as someone with specialist technical expertise. A high performer who could move to a competitor also presents a different risk from someone whose pay already sits comfortably above the market rate.
PwC’s 2025 All Employee Reward Intelligence Survey supports a more targeted approach. Nearly 50% of organisations surveyed said they were giving higher salary increases to top performers, with targeted increases for critical skills, particularly in IT, technical, cyber and digital roles.
Instead of treating everyone equally, an effective salary budget reflects where losing talent could hurt your business most. The question isn’t simply, “What percentage can we afford?” but “Where will an additional percentage make the biggest difference?”
Skills are Influencing What Companies are Willing to Pay
The salary market isn’t moving at the same speed for every skill. Data from Robert Half’s 2026 UK Salary Guide shows that 67% of employers are willing to stretch their budgets and offer higher salaries when candidates bring in-demand, specialised skills to the table.
This matters for executive teams, as the CIPD reports continued skill mismatches across the country, with 31% of employers reporting hard-to-fill roles because they can’t find the talent they need. Paying a premium for a scarce skill can look expensive on a spreadsheet, but losing the person who holds it can be more expensive when you consider the wider business impact.
A better approach is to identify which capabilities connect directly to your business’s strategic priorities.
Pay Transparency is Changing the Conversation
Employees increasingly want to understand how pay decisions are made. The UK Government published new guidance in March 2026 encouraging greater transparency around pay, promotion and reward decisions. Clearer processes can help employees understand how they can progress and how decisions are made.
Data from PwC also shows that 79% of organisations now disclose to employees how they make pay and incentive decisions. This doesn’t mean that you must publish every individual’s salary. You only need a credible explanation for why people in similar roles can earn different amounts and what employees need to do to progress.
Managers also need to have those conversations. A compensation framework can look perfectly reasonable in a board meeting but create confusion when managers have to explain it to their teams.
You Don’t Have to Give a Big Salary to Have a Strong Reward Package
Although the salary remains a major part of the employment proposition, it isn’t the only lever available to employers. Organisations are increasingly adopting more benefits programmes to attract and retain talent.
According to PwC, 64% of organisations offer benefits related to flexible working arrangements, wellbeing, enhanced leave policies and professional development. This can give your business a competitive edge even when budgets are constrained.
You may not be able to match the highest salary in the market, but you can still offer more value across the wider package.
The right package should reflect the individual and the role and can include long-term incentives, flexibility, pension arrangements, development opportunities or a clearer route towards greater responsibility.
Novo’s Perspective
Salary budgets are becoming more controlled, but leadership teams still need to compete for people who can make a meaningful difference. A blanket approach to pay may be easier to administer, but it won’t necessarily protect the capabilities your strategy relies on.
The better question for boards is where additional investment will protect performance, retain critical leadership and close genuine market gaps. For some, this can mean paying more for scarce skills, while for others, it may mean fixing pay compression or reviewing the wider executive proposition.
At Novo Executive, we believe the strongest reward decisions start with your business strategy and work from there. In a tighter salary market, compensation is only one part of a wider leadership decision, and precision matters more than simply spending more. The package must reflect the value of the role, the expectations placed on the individual and the business context around the appointment.
