Tech workers banking on a pay rise in the new year to help with rising living costs might end up disappointed. 

Only 35% of European startups and scaleups are planning to increase salaries in the coming months, while a fraction (3.4%) plan to bump up salaries in line with inflation, which currently stands at 10.1% in Europe. That’s according to data from compensation benchmark platform Figures, which surveyed 169 companies across stages. 

To raise salaries or not is a question many startups have been wrestling with this year. Companies want to remain competitive when it comes to hiring while ensuring they have enough cash in the bank to survive a tougher macroeconomic environment. 

“Founders are facing a trade-off between keeping talented people and realities of their runway”

“Salaries typically account for 50% to 70% of a software company’s spend, so founders are facing a trade-off between keeping talented people and realities of their runway,” says Michelle Cheng, talent director at Notion Capital.

Uncertainty among leadership

Many startups haven’t yet raised salaries because they’re undecided on the best course of action to take. In Figures’ survey, 20% of companies said they won’t be taking action yet, and 44% simply haven’t decided what to do about compensation.

“For the companies we spoke to who are not taking action on inflation (for now), they told us they weren’t sure how to respond. In places like the UK where inflation hit a 40-year high, even the most seasoned people leaders are unlikely to have experienced anything like it at this scale,” says Figures’ cofounder and CEO Virgile Raingeard.

People teams and senior leaders are struggling to make decisions under the weight of “rising employee voices” who are looking to them for support, while also keeping costs down, adds Raingeard.

Benchmarking salaries using market data is one way of understanding which employees are “undercompensated from a cash value perspective,” says Raingeard.

It’s also helpful to survey employees about how they feel about their pay compared to “total benefits, market position, location and company equity,” he adds, to ensure compensation is fair and competitive.

Salary increases and bonuses

32% of companies surveyed said they plan to increase salary budgets less than 3%, while 15% of respondents will increase budgets between 5% and 10%.

However, Raingeard says that this doesn’t necessarily mean the increases will be equitable across a company’s entire workforce: some employees will receive a 5% increase or above, while others may not.

To contextualise this somewhat, the rate of inflation reached 10.7% in November in the UK, and in Europe it reached 10.1% in the same month. 

It’s not clear whether companies will really lose out on talent if they don’t offer salary increases, especially since many employees seem to be prioritising job stability over seeking greener pastures. Data from Otta.com shows that the number of new candidates applying for jobs has dropped by 40% in the UK compared to March 2022.

Supporting employees without raising pay

If companies — especially those that are early stage with less cash flow — cannot raise salaries in line with inflation, they can offer transport allowances, increase health insurance or offer a home office stipend, says Raingeard.

Other options that came from Figures’ survey of respondents include energy bill contributions and discount vouchers for food.

Cheng says some of Notion VC’s portfolio companies have been offering one-off cost of living stipends, which “beyond the amount of the stipend itself, can speak volumes about the culture and values that (companies) stand for.”

Miriam Partington is Sifted’s DACH correspondent. She also covers future of work, coauthors Sifted’s Startup Life newsletter and tweets from @mparts_