PAY DATA
Causes of pay drift in the UK
Ever since the 1960s, economists and companies alike have been concerned about the problem of pay drift. Recent research from Incomes Data Services for the Office for Manpower Economics sheds light on this subject and helps clarify what we actually mean when we are talking about the phenomenon.
The definition of pay drift has changed over the years, says the report, from one that described management losing control over payment systems for manual workers in the 1960s to its wider meaning in subsequent periods.
More recently, pay drift is described as the difference between average earnings growth and basic pay settlements, where average earnings grow typically at one or two percentage points faster than settlement levels.
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Case study and statistical analysis
To gain a more precise definition, the IDS research draws on figures from its own pay databank, the government’s average earnings index and more in-depth information from 13, mainly public sector, case studies.
It concludes that a modern definition of pay drift would need to say that it consists of all the unplanned, ad hoc increases to earnings above the basic settlement level, but does not include those elements of the earnings movements which are the product of structural changes planned and designed to recruit, retain and motivate staff.
Planned incremental increases in addition to the general pay review, therefore, would not be classified as contributing to pay drift.
Pay drift versus “pay drive”
As a result, a distinction is made between pay drift that describes earnings movements that are unintended and what IDS calls “pay drive” for that which is planned or managed.
Ad hoc moves to increase recruitment or market supplements, for example, might be drift but planned implementation of modernised pay and grading structures might be considered “drive”. Determining what is “drift” and what can be defined as “drive”, however, is a major difficulty as there will always be ambiguities. To help, IDS draws up a comprehensive list of pay components that make up gross earnings that need to be considered.
Further research required
IDS recognises there will be ambiguities between “drift” and “drive” so calls for further qualitative research to be carried out in this area. As a starting point, the researchers suggest that experienced HR managers in the private and public sectors be asked to provide comments on this report.
A final word
“Where drift does exist it is not particularly seen as worker or union instigated, as originally envisaged in the 1960s. Rather, it is seen as the product of market forces and exists where employers respond with additional payments here and there (ad hoc moves and off-cycle payments) in response to market needs. Planned structural changes are seen as managed change or pay drive.” - Incomes Data Services.
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Title: An Assessment of the Causes of Pay Drift in UK Organisations, a research report by Incomes Data Services on behalf of the Office of Manpower Economics, December 2006.
Methodology: Analysis of IDS Pay Databank and government pay statistics and 13 case studies.
Availability: To download the 72-page report, free of charge, in PDF format visit the OME web site and choose the “Research” section at www.ome.uk.com/research.cfm
The Office of Manpower Economics is a non-statutory body set up to provide an independent Secretariat for each of the six Pay Review Bodies and the Police Negotiating and Police Advisory (England & Wales) Boards. The total annual pay bill for the 1.8 million public sector employees covered is in excess of £56 billion. For more information visit www.ome.uk.com
Incomes Data Services is an independent research organisation providing information and analysis on pay, conditions, pensions, employment law and personnel policy and practice. Find out more at www.incomesdata.co.uk.