Our analysis of pay trends for software engineers across the UK finds that wages are increasing at a faster rate over the past three years versus the past five years. But questions remain about whether the pay premium for London will reduce over time.
The rise of remote working has provided HR and business leaders with an opportunity to rethink their overall location strategy — and it has not taken long to see the impact of this on rewards in two big ways. First, demand for certain jobs along with new talent pools opening up has contributed to higher salary increases. Second, many firms are rethinking and adjusting their approach to geographic pay differentials as remote employees relocate or new employees are hired outside of existing office locations.
To assess the impact of these workforce trends on salaries for core technology jobs in the UK, we examined data from the Radford Global Compensation Database for a software engineer across a range of job levels in three regions: London (Inner & Outer London), Scotland (selected as a market to compare to London) and the rest of the UK.
In this article, we present high-level findings on current salary trends and what the future may hold with the aim to provide important benchmarking data and rewards insights for technology firms as they navigate a competitive talent market.
Key Finding #1: Demand for technical skills in the UK is pushing salary levels higher — and at a faster rate.
In the UK, software development engineering pay levels have been increasing more quickly over the past three years compared to the past five years. Annualised increases in median salary levels have been between 3% to 4% since 2016. However, pay levels are trending upwards more quickly since 2018, at a level of almost 5%. This is particularly true for more senior-level roles. This trend reflects the higher demand for a limited supply of specialised and experienced engineering roles in the UK.
Key Finding #2: London is a hot market for talent and technology investment, and the pay premium has not disappeared.
Before the pandemic began, big technology companies were making major investments in London — for example, Apple’s investment into £13 billion megadevelopment project at Battersea Power Station. Meanwhile, venture capital investments in the UK hit a record high of $15 billion in 2020, according to the Tech Nation 2021 report. Amongst other factors, this investment is driven by the size and depth of the talent market in London and this remains the case even after Brexit. This continues to push salary levels higher than the rest of the UK. We’ve reported on the London premium before (see our article: Technology Wage Growth in Other Regions of the UK is Catching Up to London. Why It Matters.)
Over the past three years, salary levels for software development engineers increased between 4% to 7% in London compared to between 2% to 4% in the rest of the UK. We do, however, see an exception: Entry-level median salary increases for software engineers in Scotland grew at a similar rate to London.
Finding #3: Salaries for new hires are not as high relative to incumbents in London. This is a sign the London pay premium may not be as high in the future.
To get a sense of how new-hire salaries are being impacted by remote working and a dispersal of the talent pool, we examined the difference in 2020 and 2021 salary levels between existing employees and a new hire for the same job role and level. This is commonly referred to as the new-hire premium. A widely observed premium in the UK is around 10% for new hires. Our analysis finds a higher premium outside of London, which we believe is the start of the impact of greater talent mobility and the competition for talent in areas outside of the capital city.
Over time, a larger new-hire premium outside of London could lead to a convergence in pay levels across the UK. It remains to be seen if the trends we are observing now will continue, so it will be important to track them and assess the impact on the UK technology talent locations.
So far, there are only a few technology organizations that have announced a location-agnostic approach to pay. In fact, according to our seventh Global HR Pulse Survey conducted in April 2021, 55% of technology firms globally had differentiated pay by location even before the pandemic. Since the start of the pandemic, an additional 16% of organizations introduced geographic differentials or are considering doing so.
Despite the popularity of geographic pay differentiation, we anticipate that if talent mobility continues to increase in the UK, it could create more equalized pay levels for similar job functions and levels. In turn, this could reduce the salary premium within technology hubs such as London.
We stand at a crossroads — will pay levels further diverge across locations or are we entering into an era of pay convergence in a world of more remote work? The full impact of remote working and talent mobility has yet to be seen, but one thing is certain: To stay competitive in this fast-changing market, organizations need up-to-date and reliable rewards data.
To learn more about participating in our surveys or for questions regarding this topic, please write to email@example.com.