- UK workers are set to receive a real wage increase of 2.3% next year – the largest since 2008
- There is a mixed picture across sectors, with the O&G industry suffering and FMCG organisations set to offer more generous increases
- The National Living Wage will drive further salary increases in the UK, presenting challenges for organisations in 2016
- British optimism is echoed in Europe, where workers will receive a 2.3% real wage increase
A forecast issued today by Korn Ferry Hay Group, the preeminent global people and organisational advisory firm, reveals good news for UK employees, who are set to experience the highest increase in real wage growth since the financial crisis. This year’s research finds that, while salary forecasts of 2.5% are the same as 2015, lower inflation levels (predicted to be 0.2%) mean employees will experience a 2.3% increase in real income.
A mixed sector picture
Despite the overall positive picture, variations emerge when looking at the UK by sector, according to the Korn Ferry Hay Group forecast. While last year saw oil and gas organisations forecast above average pay increases (3.5%) due to competition in the sector, this year employees will see much more conservative increases (0.6%), due to sustained low oil prices.
By contrast, fast moving consumer goods companies expect to increase salaries by 3% - this is 20% above the UK average. This responds to increasing consumer confidence but also represents large employers and recognised brands getting on the front foot with the living wage; factoring in the increases they’ll need to give their lower paid employees.
Adam Burden, Consultant at Hay Group, comments: “The minimum wage increases planned over the next five years to meet the Government’s living wage requirements will place pressure on many organisations. This is especially true for retailers, where wages are such a large proportion of their overall costs. In current trading conditions, these rising costs cannot be simply passed onto customers. If employers wish to keep pace with the changing pay market, they’ll have to find other ways (increasing productivity or reducing headcount) to bring costs down and satisfy consumer demand for low prices.”
A (mostly) optimistic outlook for Europe
The positive outlook for the UK is echoed in Europe, where workers are set to see an average salary increase of 2.8%. Taking into account inflation at 0.5%, this will mean a 2.3% real wage increase.
Two outlier countries are excluded from the regional average, due to specific political issues causing high inflation. Workers in Ukraine are forecast to see the biggest wage rises in Europe (11.5%), but due to high inflation (48.3%) real wages are set to drastically reduce by 36.8%. The outlook is similar in Russia as the impact of economic sanctions and falling oil prices hit the economy. Despite an average salary increase of 7%, with inflation at 14.5%, real wages are set to fall by 7.5%. This is significantly more than the 0.7% decrease in real wages seen last year.
Despite the well reported economic slowdown, Asian workers are expected to see the biggest real wage rise in 2016 (4.2%), with China forecast to experience the second highest real wage increase globally (6.3%). A contrasting picture can be seen in Latin America where, despite predicted headline salary increases of 11.4%, high inflation (12.8%) means workers can expect to see real wage cuts of 1.4%
Burden continues: “This year’s global salary forecast shows the majority of countries are set to see healthy real wage increases. Differing macro-economic conditions mean there are stark variations globally but overall decent pay increases, coupled with extremely low (and in some cases, zero) inflation, mean that the outlook is positive for workers.”
“The majority of UK employees should feel optimistic. Despite the sector variations and the fact that we’re still catching up after several post-recession years of shrinking real wages, there will be a tangible increase in real income for many.”