Private sector employers are predicting a 2.5% pay award over the next year, according to pay specialists XpertHR.
Based on a survey of predicted pay awards for 343 groups of employees in the private sector, findings include:
When asked about the factors expected to influence the level of their next pay award, almost all respondents (92.5%) cited company performance/ability to pay. Almost as important will be inflation (79.5%). While inflation is expected to present an upward influence to pay award levels, company performance is expected to exert a downward pull.
However, there is evidence that employers are worried about skills shortages and employee engagement – which may push pay levels up. Recruitment and retention was cited as the most important upward influence on pay settlements over the next year.
Analysis of the current picture of pay settlements reveals that in the three months to the end of September 2012, the whole economy median pay award fell to 2% (from 2.4% in the previous quarter). The fall was caused not only by continuing freezes and low pay awards in the public sector, but also weakness in private sector awards – the median award in the private sector fell from 2.5% to 2.3%.
With retail prices index (RPI) inflation at 2.6% in September 2012, the gap between private sector pay awards and inflation has fallen to just 0.3 percentage points. This may be as close as it gets – with inflation predicted to rise again in October.
According to our pay forecasts survey, inflation remains a key factor in the determination of pay budget increases. However, while almost all organisations (83.3%) refer to the RPI measure, employers are increasingly also referring to CPI inflation (58.3%).
"Our latest data shows a small dip in the level of pay awards, while the predicted 2.5% pay increase in the year ahead demonstrates continued caution on behalf of employers, who will again primarily assess company performance and their ability to pay when setting their pay award budget. Employers are also looking at how they can attract and retain employees in the current climate – from keeping an eye on competitors' pay rates to being creative with their reward budget.
"Further evidence of a continued squeeze on pay award budgets comes from the finding that 60% of respondents reported that 'controlling paybill costs' will be a top priority for their reward department over the next year."