After something of a rollercoaster in 2022 and 2023, inflation has finally come under control in 2024, and with it, the automatic wage indexations triggered by inflation of 2.5% or more in previous years.
Unfortunately, a slower market for everybody has also surfaced. A tighter market, means you face your competition on deals more often. By now everybody is also acutely aware of the gaps in their offering, strategy, and staff. A slowdown does that. (And some might say, that’s the silver lining 🙂 As Andy Grove, said,
“Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.”
So, it’s amid all this downward news, that we reach crunch time on salaries. The awkward end of the year moment, is likely to be even more so this year, because raises are likely to be quite modest in many areas.
This year most firms will still award their staff with wage increases in order to retain them, but they will be smaller than in previous years, reflecting the slower market.
There are a few areas where there are likely to be larger salary increases – and these are the same areas which are still currently growing;
– Regulatory roles – including AIFMD 2, AML, DORA and so on.
– Risk and Compliance more generally
– Management Company oversight roles
– Private Debt and Credit experience
– Outstanding performance in client areas
When is the next automatic wage indexation predicted for?
Spring 2025 according to the latest forecasts from Statec and Eurostat, but this could change based on economic data.
What do I do if I am planning to increase an employee’s salary at the same time as an indexation is planned, (for example, next spring)?
Lately it has been more common to see a clause added in new employment contracts to say that if the new employee joins within a month or so before indexation is expected, the offer is taking into consideration that indexation – but that would only apply to that one indexation.
The business hasn’t grown as expected this year, but it is still growing at a rate of 10% or more. But last year, we gave raises in line with inflation, which was 7.5%. Is it really necessary to increase salaries this year?
Unfortunately the answer is never as simple as just following the financials of the business. In the good years, when many firms were routinely growing at 25% or more, salaries didn’t match that.
Most staff in Luxembourg view indexation and salary increases as two separate things. Indexation is an increase by law, and a salary increase is a business decision.
To say the indexation is a salary increase is unlikely to translate well to the local workforce, because most of Luxembourg employees would know if an indexation is expected based on inflation.
While awkward, the truth is that many Luxembourg-based businesses have grown much faster than the rate of growth in other locations – even within the same group.
While many international business owners may question it, Luxembourg indexation is an extremely charged political issue with the electorate. It might just be a feature which one has to accept about doing business in Luxembourg, similar to the pros and cons we see in other jurisdictions.
For further information, I would like to direct you to the Statec website
Additionally, here is a helpful article on how indexation is calculated.
If you are looking for support in managing salaries, salary conversations, appraisals, salary benchmarking or similar services, please reach out to me directly on LinkedIn and/ or join our client mailing list here
