PAY DATA
Pay predictions spell uncertain outlook for 2011
Pay forecasts for 2011 suggest mixed fortunes for the UK workforce and economy in the coming year, according to new research from global management consultancy, Hay Group.
While pay increases will be higher than in 2010 - at a median 2.5% - they will continue to be outpaced by the rate of inflation. The outlook is “particularly grim” for public sector employees, who will receive a median pay rise of less than 0.5%.
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The study sees confidence rebounding across the private sector – though fortunes vary by industry – but predicts stiff challenges for public organisations.
The Hay Group report, Reward in 2011, is based on forecast data from HR and reward professionals in over 200 medium and large organisations, representing over one million UK employees.
Claudia Canavesio, reward expert at Hay Group, said: “Increasing wage budgets reflect gathering confidence in business conditions, but salary rises will remain behind inflation, representing a fall in real term pay for UK employees in 2011.”
Key survey results
Salary forecasts show improvement for the second successive year. The overwhelming majority (82%) of organisations – and 93% of private sector firms – indicated that they would increase salaries in 2011.
The median salary increase forecast for UK workers in 2011 is 2.5%. However, pay rises will continue to lag behind inflation.
The news is “bleaker” for workers in the public sector, where the median pay rise will be markedly lower – and well behind inflation – at just 0.4%. Less than two-fifths (39%) of public organisations questioned, plan to increase salaries.
Only a quarter (26%) of private sector firms experienced a pay freeze in 2010. Four-fifths (78%) of organisations are planning to lift the freeze during the coming 12 months.
Again, the situation is starker in the public sector, where 50% of organisations had a pay freeze in 2010. Only 15% plan to lift the freeze in 2011.
Increasing numbers (from 46% in 2010 to 71% in 2011) of private sector organisations intend to pay bonuses in 2011. Almost three-quarters (73%) of firms expect short-term incentive payments to be on or above target in 2011, a sharp increase on just half in 2010.
Canavesio said: “The return of short-term incentives not only reflects improving performance, but also the need for firms to retain high performers as the business environment picks up.”
Sector outlook
Public sector: The impact of the Comprehensive Spending Review (CSR) and ongoing austerity measures has not only affected pay rises and freezes, but has also prompted a wave of restructuring. Almost all public organisations (91%) have or are planning to implement restructuring changes, redundancies, recruitment freezes or, at least, a review of employment terms in 2011. The majority (72%) anticipate that staffing levels will decrease in the next 12 months.
Retail: Three-quarters (75%) of retail firms foresee an upturn in business performance within the next six to 12 months, and all respondents plan to increase salaries in 2011.
Financial services: The vast majority (90%) of firms experienced an upturn in business performance during 2010, and more than three-quarters (79%) report business performance to be on or above target. All firms will increase salaries during 2011, by an average of 2.8% – slightly above the overall median of 2.5%.
Manufacturing: An overwhelming majority (86%) report business performance on or above 2010 targets - compared to 69% in last year’s report - while more than three-quarters (78%) experienced an upturn in the last year. More than two-fifths (42%) agree that the greatest impact of the recession is now over for their organisation. All firms will be increasing pay in 2011, by slightly above the overall median at 2.6%.
HR priorities and challenges
HR professionals identified employee engagement and talent management as their two most significant priorities for 2011. These remain persistent concerns despite returning confidence, as prevailing economic uncertainty demands a continuing tight rein on costs. As many as 61% of public sector and 52% of private sector HR professionals are concerned that cost control will damage the organisation’s ability to retain high performers.
Canavesio said: “While confidence is returning and reward budgets are inching up, how organisations manage pay and incentives effectively remains challenging.”
She added: “Amid continuing uncertainty, firms need to ensure that reward strategy is closely aligned to business objectives and that they seek innovative approaches to rewarding key talent and successfully communicate the real value of reward packages to employees.”
A final word
“The sizable gap in predicted pay rises between public and private sector employees risks pricing public organisations out of the market for key talent. This, coupled with unsettling developments such as restructuring and the threat of redundancies, makes a potential ‘brain drain’ from public to private sector a very real threat.” - Claudia Canavesio, reward expert at Hay Group.
Want to know more?
Title: Reward in 2011, Hay Group, January 2011.
Survey details: The report summarises information provided by HR and reward professionals in 211 organisations - 165 from the private sector and 46 from the public sector - who participated in an online survey. These organisations represent around one million employees - at least 750,000 from the private sector and 250,000 from the public sector. Typical respondents included HR and reward professionals from medium to large size organisations across all major industries.
Availability: Click on the link to view the full report: www.haygroup.com/uk/services/index.aspx?id=28877.
Hay Group’s PayNet remuneration databases have over 12 million individual records from more than 13,000 organisations.
Hay Group is a “global consulting firm that works with leaders to turn strategies into reality”, with 86 offices in 47 countries. For more information, visit www.haygroup.co.uk.