UK Pay Rises Among Worldís Lowest in 2009

Average UK pay rise under 1.5 per cent this year
Over a third of organisations reducing headcount and freezing wages
90 per cent fear damage to staff morale and loss of critical talent

UK employees will receive a pay rise of less than 1.5 per cent this year – among the lowest raises on offer anywhere in the world, according to research by global management consultancy Hay Group.

The study reveals how the recession is hitting UK employers harder than when last conducted in November 2008, and highlights how the UK is more exposed to the impact of the global downturn.

Colin Evans, UK Head of Reward Services at Hay Group, comments: ìThe results reflect the tough economic climate for UK employers, as well as uncertainty over how long the recession will last and how severe it will prove.î

The twice-yearly study spanned HR and reward professionals in almost 2,000 private and public sector organisations across 88 countries.

Crunch hits UK hardest
UK employees will experience one of the lowest base salary increases in the world this year. Their 1.46 per cent average pay rise falls well short of the global mean of 3.8 per cent.

This lags behind all but six of the 88 countries in the global study, including other troubled Western economies such as France (2.2 per cent), the USA (1.78 per cent) and Germany (1.48 per cent).

UK staff will only fare better than those in Hong Kong, Slovakia and Portugal (1.2 per cent), Ireland (0.8 per cent), Latvia (0.67 per cent) and Singapore (0.22 per cent) in terms of pay rises this year.

Pay freezes and headcount cuts
Though the proportion of UK employers freezing pay (38 per cent) is broadly on a par with the rest of the world (36 per cent), the scale of cutbacks on staffing levels is higher: 36 per cent compared to 27 per cent globally.

Meanwhile, significant numbers of UK organisations are restructuring their organisations to reduce headcounts further – at various levels of the organisation.

Two thirds (66 per cent) are implementing or considering restructuring at management level; nearly half (48 per cent) at executive level; and around a third (30 per cent) at blue collar level.

Recession bites deeper
Hay Group has been tracking the effects of the recession on organisations globally since March 2008. A comparison of the latest results with the last study, in November, reveals that UK employers are experiencing increasing fallout from the economic downturn.

The proportion of organisations implementing staff cuts has nearly doubled: just under a fifth (19 per cent) had decreased staffing levels in November, compared to 36 per cent today.

There has also been a significant step up in the number freezing salaries: 38 per cent compared to just under a fifth (18 per cent) who were freezing or considering freezing salaries in November last year.

And worryingly for the long-term, almost a quarter (24 per cent) of organisations are eliminating or decreasing training and development programmes, compared to less than a tenth (8 per cent) in November.

Damage fears
HR and reward professionals fear the impact on their organisations of such short-term actions in the face of the economic climate, the study suggests.

90 per cent of employers expressed concerns about employee morale. The same number are also worried about their ability to retain critical skills and talent.

Colin Evans comments: ìThere is huge pressure on organisations to cut staffing costs quickly. But the focus on short-term measures, particularly reducing headcount, may jeopardise the UKís ability to bounce back come the eventual upturn.î

Bonuses and incentives below target
UK employees have also seen their bonuses significantly reduced this year. Over two thirds (70 per cent) of UK organisations reported that their short-term variable pay programmes (e.g. bonuses, incentives, profit sharing) paid out less than target in 2008.

Looking ahead, more than a third (36 per cent) are making or considering changes to the design of their short-term variable pay programmes in 2009 - in most cases, increasing performance thresholds required to qualify for a bonus.

A similar number (38 per cent) are projecting that 2009 bonuses will be below target.

Long-term variable pay value down by a third
Almost four in ten organisations (39 per cent) said that the current value of their long-term incentives have fallen during the downturn - by an average of 35 per cent. 36 per cent are already making or considering changes to their long-term incentive programmes.

Colin Evans, UK Head of Reward Services at Hay Group commented: ìWhile senior executivesí salaries and incentives are being hardest hit, employees further down the organisation are bearing the brunt of restructuring and job losses.î

UK pensions feel the heat
One third of companies with defined benefit pension schemes are considering changes, with 36 per cent of these closing membership, 28 per cent planning to move members to a defined contribution scheme and 26 per cent decreasing benefit levels.