Could graduate salary stagnation finally be coming to an end?

PwC doesn’t seem to have got the Bank of England’s memo.

The BoE is keen for pay restraint to stop a wage price spiral, where workers’ salary increases to offset inflation feed companies’ price rises — and more inflation. Instead the Big Four firm declared on Sunday it was going to put up pay by at least 9 per cent for half of staff. Seventy per cent get at least a 7 per cent raise.

Clearly this is a big rise from a big employer. PwC has more than 24,000 employees across the UK, Channel Islands and the Middle East. But its economic significance is even starker as a graduate destination. The firm will suck in roughly 2,000 university and school leavers in the UK this year, more than anyone else in the private sector.

That makes how PwC is structuring its pay increase more interesting. It is raising base salaries rather than offering one-off bonuses. Some of the biggest increases will be on the bottom rung. Starting salaries in audit are rising 10 per cent. (KPMG did something similar, announcing flat rate rises last month of £2,000-£4,000 that were designed to make the biggest difference to those that earned the least.)

It makes intuitive sense to target pay increases at the least well-off portion of your workforce. But then consider what has happened to graduate starting salaries at large employers in the ten years to last year. Nothing (or near enough).

This year, new graduates at the UK’s top employers are finally on course for an increase to £32,000, according to an annual survey by High Fliers Research, which puts together the student bible of graduate employers. But that follows roughly a decade of stagnation. High Fliers say the median starting salary went from £29,000 in 2011 to all of £30,000 by 2021.

The increase in accounting and professional services hasn’t been quite that bad. The industry went from an estimated starting salary of £28,000 in 2012 to £32,000 before the latest round of mid-year increases was announced: below inflation, but better than the market overall. Pay per employee at PwC actually increased almost exactly in line with inflation between 2011 and 2021, from a mean of around £63,100 to £75,400.


is the rate of increase for starting salaries in audit

But that increase is unlikely to have been evenly distributed among the ranks. As one industry executive explains it, during periods of low inflation when price rises are more challenging to extract from clients, professional services firms have relied more on spot bonuses than salary increases. That keeps high performers sweet. The rest get bumped up a level on the internal pay ladder each year anyway, so might not notice so much if salaries on each rung don’t rise quite as quickly as (low) inflation.

Meanwhile Big Four firms have lured graduates through the promise of training, the name on the CV and an accounting qualification three years down the line rather than purely pay — particularly since the more money-focused will have focused their efforts on law and banking anyway.

The rub comes when inflation is at 9 per cent and focused on food and energy. That will be felt most keenly by the worst-off. And those are not costs that can be met with an end of year bonus that graduates won’t receive for another year.

That poses a problem for the likes of PwC. Employers are increasingly focused on their equality and diversity statistics. Those are no longer limited to gender and ethnicity. Social mobility has also become a more prominent target for firms, with the Big Four taking on ever-larger numbers of school leavers and apprentices and tracking socio-economic backgrounds in its partnership.

If those from less well-off backgrounds are the ones put off by pay that is failing to keep pace with inflation — particularly where they have to move from home for work — that will be an issue that turns up pretty quickly in firms’ diversity statistics.

Not all industries will experience the same pressures. Some have relatively specialised propositions that mean they will continue to recruit regardless of what they do on starting salaries. Banks will carry on paying outsized bonuses.

But so long as inflation remains elevated, that could result in firms like PwC tipping the balance of pay rises away from bonuses and towards salary increases, particularly at the bottom end of the wage scale. Good news, at last, for new graduates.

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