Private-sector employers are predicting pay awards of just 2% over the coming year, no higher than the level seen during 2014, according to the latest survey findings from pay analysts at XpertHR.
Pay awards at the 2% level were unknown in the years before the recession - between 1993 and 2008, XpertHR recorded pay settlements in the region of 2.5% to 3.5%.
The XpertHR pay prospects survey investigates private-sector employers' predictions for the outcome of their annual pay review in the year to 31 August 2015.
The majority of employees are unlikely to receive a pay rise that matches inflation. Retail prices index (RPI) inflation is forecast to be 3% over the course of 2015, and only one pay award in three is expected to match or exceed this figure.
Other survey findings include:
- just 6.7% of private-sector pay settlements are expected to result in a pay freeze;
- manufacturing-and-production firms are forecasting a 2.5% pay award, but private-sector-services companies expect a median 2% settlement;
- one-third of pay awards are expected to be at 2%, with a fifth worth 3%; and
- around one-third of pay settlements are expected to be worth more than the same group of employees received this year, but a similar proportion are forecast to be lower.
Although the annual pay review is expected to deliver another below-inflation increase for most employees, many employers will be making increases to pay levels outside of this process - around two-thirds said that this would be the case. The sort of actions expected to be taken include upping the salaries of employees who are thought likely to leave; increasing salaries for employees that have taken on additional duties; and increasing starting salaries at the recruitment stage. But for the most part such one-off changes are for specific individuals or skills-shortage areas, rather than among the workforce more generally.
Questioned about the factors that will influence the value of their next pay award, employers told XpertHR that the labour market would provide the greatest upward pressure on settlement levels. Responses included using reward to aid employee retention, needing to keep up with the market in their industry, and upping starting salaries to ensure they are able to attract new recruits to the organisation.
XpertHR Pay and Benefits editor Sheila Attwood said:
"Employees' annual pay awards are expected to be worth just 2% over the next year. It won't always be possible for employers to target the pinch points in the labour market through the annual pay review so many will be making one-off changes to address particular issues such as the retention and recruitment of particular workers."
Latest quarterly data
Figures for the latest rolling quarter continue to show a subdued level of pay awards, says XpertHR. In the three months to the end of September 2014:
- The median basic pay award was worth 2%.
- The interquartile range (marking the middle half of all pay awards) stood between 1.3% and 2.5%.
- Just 6.8% of all pay awards resulted in a pay freeze.
- Manufacturing-and-production firms continue to lead the way, with pay deals at a median 2.4% compared with 2% in private-sector-services companies.