Could the graduate pay stagnation finally end?

PwC does not appear to have obtained the Bank of England warrant.

The Bank of England is keen to adjust wages to stem the wage-price spiral, where workers’ salaries increase to offset inflation that is fueling higher corporate prices – and more inflation. Instead, the Big Four announced Sunday that it will pay at least 9 percent salaries to half of the employees. Seventy percent get a raise of at least 7 percent.

This is clearly a huge hike from a great employer. PricewaterhouseCoopers has over 24,000 employees across the UK, Channel Islands and the Middle East. But its economic importance is more evident as a destination for graduates. The company will take in nearly 2,000 UK university and school graduates this year, more than anyone else in the private sector.

This makes how PwC organizes its pay raise even more interesting. It raises base salaries rather than offering one-time bonuses. Some of the largest increases will be in the lower degree. Starting audit salaries go up 10 percent. (KPMG has done something similar, announcing steady price hikes last month of between £2,000 and £4,000 that are designed to make the biggest difference to those making the least profit.)

It makes sense that wage increases should target at least the affluent part of your workforce. But then think about what happened to graduating entry-level salaries at top employers in the ten years through last year. None (or close enough).

This year, recent graduates at top UK employers are finally on their way to earning a raise to £32,000, according to an annual survey by High Fliers Research, which collects the student bible from graduate employers. But this follows nearly a decade of stagnation. High Fliers says the average starting salary went from £29,000 in 2011 to £30,000 by 2021.

The increase in accounting and professional services was not that bad. The industry went from a starting salary of £28,000 in 2012 to £32,000 before the latest round of mid-year increases were announced: below inflation, but better than the overall market. Pay per PwC employee actually rose roughly in line with inflation between 2011 and 2021, from an average of around £63,100 to £75,400.

10%

It is the rate of increase to start salary audit

But it is unlikely that this increase will be evenly distributed among the ranks. As one industry executive explained, during periods of low inflation when extracting higher prices from clients is more difficult, professional services firms have relied more on instant bonuses than salary increases. This keeps the high performance sweet. The rest rise up a level on the internal wage ladder every year anyway, so they might not notice much if salaries in each rung don’t rise as fast as (low) inflation.

Meanwhile, the Big Four have lured graduates with the promise of internships, a name on a resume, and accounting qualifications after three years rather than just paying—particularly since money-focused people will focus their efforts on law and banking anyway.

The problem comes when inflation hits 9 percent and focuses on food and energy. The worst of it will feel so bad. These are not costs that can be met with an end-of-year bonus that graduates will not receive for another year.

This poses a problem for the likes of PricewaterhouseCoopers. Employers are increasingly focusing on their equality and diversity statistics. Those are no longer limited to gender and race. Social mobility is also becoming a more prominent corporate objective, with the Big Four capturing increasing numbers of school leavers, interns, and tracing socioeconomic backgrounds into their partnership.

If those from less affluent backgrounds are the ones who are put off by wages that fail to keep pace with inflation – especially as they have to commute from home to work – this will be a problem that appears very quickly in the company’s diversity statistics.

Not all industries will face the same pressures. Some have relatively specialized propositions which means they will continue to hire regardless of what they do when starting salaries. Banks will continue to pay huge bonuses.

But as long as inflation remains high, it could lead companies like PricewaterhouseCoopers to shift the balance of wage increases away from bonuses and toward salary increases, particularly at the lower end of the wage scale. Finally good news for the new graduates.

cat.rutterpooley@ft.com
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