Fragile economic recovery continues to keep a lid on salary growth

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Fragile economic recovery continues to keep a lid on salary growth

The aftermath of the financial crisis and the subsequent turmoil in the UK and European economies have had a significant impact on employees salaries which continue to lag behind inflation, according to Aon Hewitt. Salaries rose 2.5% last year and 3.1% in 2011. Projected salary increases for 2012 are 3.2%.

The study suggests that UK companies are remaining cautious with regards to their salary budgets and illustrates to what extent both employers and employees are feeling external pressures.

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Duncan Brown, Principal for Talent and Reward at Aon Hewitt, said: “Employees are feeling this pressure. While salary packages are seeing little increase, the standards of living continue to be eroded by higher rates of price inflation which is adding to the complexities of the current socio-economic crisis. After three years of very low salary increases, savings are running out and the knock-on effect of reduced consumer spending and slower economic recovery seems highly likely.”

Key survey results

  • Salary freezes and reductions were not reported by any participating organisations in 2011, compared with 12% of respondents who reported a salary freeze in 2010.

  • Retention of high performers is at the top of the agenda for most UK organisations.

  • When it comes to setting pay increases, 63% now operate merit-based increases, compared with an increasingly smaller proportion (14%) awarding across-the-board general increases.

  • Similar to 2009 and 2010, organisations have awarded the highest rises at the middle management and professional levels (3.1%), rather than the top executives (2.8%) who usually received the highest increases prior to the recession.

A final word

“Not surprisingly, these survey findings clearly highlight the need for effective reward management including benefits and communications. Employers often can't pass on price increases to their customers so are trying to restrain pay awards, but they are also worried about retaining their best people. A total rewards approach, making clear all of the rewards in working for an employer, is ever more essential.” - Duncan Brown, Principal for Talent and Reward, Aon Hewitt.

Want to know more?

Title: European Salary Increase Survey, Aon Hewitt, September 2011.

Survey details: The survey incorporates responses from over 230 UK companies, representing a cross-section of industry sectors.

Availability: For more information about the research, contact Aon Hewitt, email: enquiries@aonconsulting.co.uk or tel: 0800 279 5588.

Aon Hewitt is the “global leader in human resource consulting and outsourcing solutions”. It designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. Aon Hewitt has more than 29,000 professionals in 90 countries. For more information visit www.aonhewitt.com.