More use of performance pay bonuses in 2006

PAY DATA

Companies in the private sector will make more use of performance bonuses in 2006, according to a report published by Incomes Data Services.

With a stable labour market and modest inflation, IDS forecasts basic pay increases in the private sector will remain around the 2.5% to 4% range in 2006. While firms are trying to keep labour costs under control, they will at least match the RPI inflation rate, forecast to run between 2% and 2.5%.

"In such a low inflation environment, companies are increasingly making use of bonuses to reward performance, which are not consolidated into salaries and are not pensionable," says IDS.

Key results

These are among the key findings of the annual assessment by IDS of pay prospects for the coming year. Among the other key results are:

Basic pay increases in the private sector will run between 2.5% and 4%, but these will be enhanced with a wide use of pay bonuses.
Basic pay increases in the public sector will be lower, at between 2.5% and 3%, but new pay systems are coming on stream and will add new money to average earnings.
Recruitment salaries are rising more quickly, especially for roles that are hard to fill.
2006 will be a key year for the renewal of long-term pay agreements with a significant proportion of those agreed in 2003 and 2004 coming to an end.
Greater co-ordination of bargaining arrangements will continue in 2006, in areas as diverse as the utilities, the civil service and the railways.

A final word

"It is not simply a matter of basic increases of 3%. The reward agenda is much wider and covers performance bonuses, market-based salary movements, higher recruitment salaries and new progression payments. There is also a greater emphasis on benefits and a particular focus on pension provision. There continues to be a tension between financial constraints and new initiatives to reward and engage employees." -- Alastair Hatchett, head of pay services, Incomes Data Services.

Want to know more?

Title: "Pay and Bargaining Prospects 2005/06", IDS Pay Report 938, October 2005.

Availability: To order your copy contact customer services at Incomes Data Services in London, tel: 020 7324 2599 or email: sales@incomesdata.co.uk.

IDS is a leading UK information and research service on employment issues, providing a range of publications for employers, unions, government departments and other agencies. To find out more visit www.incomesdata.co.uk

Posted 6 January 2006