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Employers dash pay award hopes

Employers are planning yet another year of low pay awards, according to the latest data from pay analysts at XpertHR. The findings dash hopes of a recovery in real-terms increases as inflation continues to surge ahead.

Research among 275 private-sector employers reveals that while more than three-quarters (77.5%) are planning to award a pay rise to employees, this is most likely to be at the same level as they paid over the past year. Just one-fifth (20.4%) of employee groups are on course for a higher pay award over the next year. And a handful of employers are planning to freeze employees’ pay.

Private-sector employers are forecasting a median 2% pay award over the next year (defined as the 12 months to the end of August 2018). Based on a rolling 12-month period, XpertHR has recorded private sector pay awards at a median 2% since the year to the end of January 2013.

As the chart below shows, a pay rise of 2% dominates our findings, with just shy of one-third of employers planning a pay rise at this level. Although a reasonable number have pencilled in an increase of 3% or more, this is not enough to push our forecast median pay award above 2%. Half of all pay awards are expected to be between 1.8% and 3%.

Asked about what might push pay award levels higher over the next year, employers cited recruitment and retention factors, as well as competitor pay rates and inflation. However, on the flipside are increasing pension costs and the ability of the company to afford higher increases.

With retail prices index inflation currently at 3.9%, prices are rising almost twice as fast as pay. Although analysts expect inflation to reach its peak during the final quarter of this year, it is forecast to fall back only slightly, to 3.5% during 2018, continuing to leave employees out of pocket.

Latest pay award findings

In the three months to the end of September 2017 XpertHR has recorded a 2% median basic pay award across the economy. Based on a sample of 76 basic pay awards effective between 1 July and 30 September 2017, we find that:

  • The median pay award across the whole economy is 2%, with the middle half of pay awards (the interquartile range) worth between 1% and 2.5%.
  • While only a quarter (24.6%) of pay awards were lower than the award received by the same group of employees last year, the majority (42.6%) were the same. One-third (32.8%) of awards were higher than the employee’s previous increase.
  • Within the private sector, the 2% figure is recorded for pay awards in both manufacturing-and-production organisations and in private-sector services firms.

Over the 12 months to the end of September 2017, the median pay award in the private sector is 2%, compared with 1% in the public sector.

XpertHR pay and benefits editor Sheila Attwood said:

“The 2% pay award is all too familiar to employees, with employers ignoring pressures from rising inflation and a tight labour market to keep a lid on pay rises. With only a minority of the workforce having the backing of a trade union to fight for higher pay rises, it looks like a large proportion will, yet again, have to settle for a below-inflation increase.”