Stuart Gentle Publisher at Onrec

Employees face another year of pay awards at 2%

Private-sector employers are predicting pay awards over the coming year of just 2%, XpertHR’s forecasting research has found

Private-sector employers are predicting pay awards over the coming year of just 2%, XpertHR’s forecasting research has found.

In a survey of 313 UK organisations, we find that employees are now facing a fourth year of pay awards at 2%, extending the period of muted pay increases once more. Pay awards in the private sector have been worth 2.5% or less since early 2009, whereas in the decade before the recession awards of between 3% and 3.5% were the norm.

Within the private sector, both manufacturing and services firms are predicting a median 2% pay award over the coming year. Delving a little deeper, we find that construction industry employers expect to make the highest pay rises, at 3%, with organisations in finance also among those predicting increases above the norm, at 2.5%. Utility sector employers are the least optimistic, expecting to award increases of less than 1%, with not-for-profit organisations predicting pay awards worth 1.8%.

Alongside the organisation’s ability to pay, which is the most commonly reported factor in decision making, market rates and recruitment and retention pressures also feature. However, when pressed on these issues, employers largely reported that they would be addressed through one-off increases or payments.

Inflation is also a key factor that employers will look at when setting the level of the next pay award, but in the current climate this is more likely to keep settlement levels low. On the September 2015 figures, CPI stands at -0.1% and RPI at 0.8%, both comfortably below both the current 2% pay award (for the three months to the end of September 2015) and that forecast for the year ahead. However, the current low inflation figures do mean that employees are experiencing real-terms growth in pay – something that was unheard of for the five years between the end of 2009 and the end of 2014.

Public-sector organisations were excluded from the research, as they are covered by the Government’s policy of funding workforces for a pay award of 1% for four years from 2016/17.

XpertHR pay researcher Rachel Sharp said:

"Instead of making higher pay awards across the board, employers are having to target their spend into areas where the labour market is tightest. Employees across the private sector are likely to be bitterly disappointed that their employers still don’t feel in a position to award higher pay rises than we’ve seen over the past few years.”