The First Study on Salary Increases in Croatia Conducted

SELECTIO Group, the largest domestic consulting firm for human resources consulting, has conducted the first study on the impact of inflation on salary increases in Croatia, covering over 30 organizations. The same consulting firm awards the prestigious Employer Partner certificate, known as Poslodavac Partner, every year in more than 100 organizations.

– In recent months, we have witnessed a noticeable decline in standards due to rising prices, and there are concerns about a new inflationary shock following the introduction of the euro. Employers face a significant challenge – How to ensure business development and retain motivated employees? We have noticed that salaries have become part of an open discussion since the inflation rate has heightened tensions in the domestic and regional markets due to factors that have been affecting the salary system for some time. These are often migration and flexibility of job seekers, remote work, and emigration. To stimulate discussion in Croatia, we organized a study among the holders of the Employer Partner certificate, who we hope will be leaders of positive changes in this area, as well as in many other areas related to human resource management in society. – said Lara Šubić Šuša, project manager of Employer Partner

The study included employers who continuously invest in employees

Organizations that participated in the study continuously confirm the highest quality of human resource management by renewing their status as holders of the Employer Partner certificate, and their innovative people & culture practices have been introduced based on the best global practices. Therefore, the results of the study are a very good indicator of upcoming changes that other companies in Croatia will implement.

The SELECTIO Group study primarily covered the financial sector, followed by the manufacturing and processing industry, pharmaceuticals, ICT, the public sector, retail, hospitality, and 6 percent of the surveyed organizations belong to specific sectors. The emphasis was placed on organizations with over 250 employees, as these organizations have the greatest impact when it comes to introducing new reward systems or changes in salaries.

Employees are seeking answers

In most organizations, employees have already raised the topic of the impact of inflation on salary increases and openly discuss it with employers, which is best illustrated by the fact that 78 percent of organizations in the past few months have received inquiries from employees regarding salary increases due to inflation through formal communication channels.

The practice of aligning salaries with inflation did not exist in most domestic companies from 2019 to 2022

The majority of surveyed organizations, specifically 61 percent, had not considered the inflation rate in the context of salary increases until this year. While state-owned companies followed regulations and government decisions, other organizations mostly oriented themselves towards the state of the targeted labor market, monitored industry trends, and conducted benchmarking. Salary alignment involved: correcting salaries that were below internal and external comparisons, increasing salaries and/or employee earnings with a clear focus on non-managerial positions, introducing new employee benefits, increasing the base as a result of collective bargaining, and increasing salaries in accordance with salary surveys. Additionally, salary alignment was conducted in two ways: (1) linearly, for all workers through an increase in the amount of salary supplements, payment of meal allowances, and one-time bonuses, and (2) based on employee performance. A minority of surveyed organizations, specifically 38.5 percent, included the inflation rate in salary alignment from 2019 to 2022. They did this through an annual salary increase cycle, which also included alignment with the inflation rate.

The economic situation is changing the budgeting process

The vast majority of surveyed organizations have introduced or already implemented changes in the salary budgeting process due to the current economic situation since the beginning of 2022. As many as 40.6 percent of surveyed organizations have already implemented salary increases due to inflation, 46.9 percent plan to implement them, while 12.5 percent do not currently plan to change salaries due to inflation.  Some organizations highlighted that in the past few months, corrections due to inflation have been factored in, along with raising the minimum wage in the organization and a comprehensive investment in increasing salaries that are at or below the national average (DZS statistics) and increasing occasional gifts. Additionally, in some organizations, gross salaries have been increased for all employees in non-managerial positions in sales, logistics, and headquarters, while salaries in state-owned companies are determined by regulations for the public sector.

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Salaries are increasing in almost all surveyed organizations

The surveyed organizations, due to inflation, have on average increased salaries by 7 percent, with a range between 2 percent and 20 percent. The same average is present in organizations that are just planning to implement salary increases as a consequence of inflation. It was also examined whether the increase would affect employees at all levels or whether the increase would only apply to a portion of employees, and the responses were divided. Specifically, 40 percent of surveyed organizations will not include all employees, but only those in lower pay grades, while 37 percent of surveyed organizations plan to include all employees.

Some organizations have decided to increase salaries for those who have an average or below-average salary compared to the national average, while others have increased salaries for those who have a gross salary of 2,000 EUR or less. Similar decisions were made in organizations that increased salaries for employees who are not part of middle and upper management. Some organizations placed special emphasis on technical positions that are in demand in the market and on the most vulnerable, while other employees were covered by non-taxable benefits. There were also cases of salary increases that did not apply to the top 10 percent of employees with the highest earnings.

Salary increases also bring new challenges for employers

Domestic employers are actively working on changes in the salary system to support the changes brought by inflation, and while there are organizations that do not face challenges in this process, some organizations still cite external and internal challenges.

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– Annual salary increases are influenced not only by inflation but also by a number of other factors, and the reward system and compensation package only partially affect employee engagement. In every organization that holds the Employer Partner certificate, there is a team of human resource management experts who take care of each of these factors. Desirable employers thus retain motivated employees through active and continuous work on the attractiveness of the entire compensation package. First, the pandemic, and now inflation present serious challenges for all companies, which are trying to ensure financial stability and competitiveness in the market at the same time. Among certificate holders, we observe agility and boldness in initiatives in the field of human resource management to maintain workforce motivation in these challenges. We are confident that such human resource management will, among other things, increase the competitiveness of the Croatian labor market. – said Lara Šubić Šuša, project manager of Employer Partner