Britain's companies will need to find more creative ways of incentivising staff to mitigate pressure on bottom lines as they start to feel the pinch of increasing inflation over the coming months.
FTSE 350 companies have already pencilled in two per cent wage increases for 2016 according to a survey by PwC.
While pay increases have been similar to, or ahead of, inflation in recent years, the market expectation is that inflation in the UK is heading north once again. The concern is that this will place additional upward pressure on wages, a cost that some companies will struggle to absorb.
Alastair Woods, a partner at PwC, said that it was a balancing act for companies between treating their employees fairly and getting the most out of them.
"If inflation does rise over the coming year then employers will have to work harder to get value from their reward spend and look more creatively at other mechanisms for recognising contribution and driving productivity," he said.
Total pay including bonuses among Britain's largest firms is expected to edge up only slightly over 2016 according to the research. This is because bonuses across all levels of employees will have fallen by five per cent on aggregate.
Thinking outside the box and not simply focussing on how staff are remunerated is key to keeping them motivated said Woods.
"Productivity of the workforce generally is prompting the need to rethink reward and identify more creative ways of motivating employees such as real-time recognition and gamification in the workplace that meet the needs of a changing workforce."