IDR monitoring of pay reviews in local government shows that while the median at opted-out councils is in line with the National Joint Council pay award, merit-based rises appear to be gaining popularity among employers outside the national deal.
The median pay increase across the economy held steady at 2.5% in the three months to July 2018, according to the latest monitoring figures from IDR. It has not dipped below this figure since the three
months to November 2017. Continue reading Pay reviews – Median rise steady at 2.5%
We publish the results of our pay planning survey – which looks at employers’ reward intentions for 2019 – at a time when the economy and the labour market present a series of apparent paradoxes. On the one hand, economic growth is weak in comparison with previous periods, with the manufacturing sector virtually in recession and job losses in parts of retail. Productivity growth has faltered since the crash of 2009, and business investment remains low in historic terms.
On the other hand, the labour market seems to be robust, at least in terms of falling unemployment (down to 4%, a figure it last reached in the mid-1970s) and still growing employment. But there is a debate about the extent to which the labour market may have a soft underbelly. This is mostly framed in terms of how ‘underemployment’ – the extent to which employees would like to work more hours, while falling, is still some way above pre-recession levels, indicating that there are still areas of weakness in the labour market. Our survey results tend to support the view that the labour market is tighter, or at least tightening. Over three-fifths of respondents said that pay pressures are increasing, with recruitment and retention issues the main factor behind this. It could be that we have reached the point where it is no longer possible to reduce unemployment and raise employment without increasing wages further. The changing make-up of the labour market in the run-up to and in the aftermath of Brexit could also be a factor here. In addition, while inflation is not as high as it has been in previous periods, it remains at moderate levels and is expected to remain so over the next period, with the possibility that Brexit could see it rise further (see forecasts on page 5). It is not surprising, therefore, that the cost of living has become more important for employers when it comes to determining the level of pay rises. These pressures could produce higher pay rises in 2019 than in 2018. We asked respondents how they thought their 2019 pay awards would compare to inflation. Similar proportions – just below a third – thought they would be equal to the RPI and CPI/CPIH in each case, while just above a quarter thought that pay rises would be in-between the CPI/CPIH and RPI percentage rates. If economists’ predictions are correct and the RPI is around 3% in the first quarter of 2019, then we could see a third of awards at this level (with a further small proportion, 6%, above the RPI). A further third could be worth around 2.2%, while just above a quarter could be set at intermediate levels, eg around 2.6%. Overall this points to between three-fifths and two-thirds of pay awards in 2019 coming in at 2.6% or higher, with many of these at 3% or above. Meanwhile the NLW will also continue to present an upward pressure at the lower end of the earnings distribution.
Other issues for HR/reward professionals in the year ahead include the burgeoning agenda around the reporting of various pay statistics. Employers had to publish their gender pay gaps for the first time this year. The new rules made for an enhanced focus on equal pay issues, even if figures for gaps by job or grade were not required, and this is unlikely to diminish. In fact, the prospect of extra data requirements figured in the Conservatives’ 2016 manifesto and is therefore possible even if the current administration survives. Indeed, the Commons committee on the lessons learnt from the introduction of gender pay gap reporting makes a number of recommendations that point in this direction, including gaps at deciles rather than quartiles and measures to improve data accuracy.
Added to this (in 2020) will be the obligation to report the ratios between the salaries of chief executives’ and those for each firm’s ‘average’ worker. All of this means that properly communicating reward practices to employees will gain in importance over the coming period. Another emerging theme is the possibility that more employers could consider linking pay to productivity improvements. This can be done crudely in those instances where output can be easily measured, but in most cases the emphasis is likely to be on connections between salaries and some indicator of capability, competency or skills. These sorts of relationships could help improve the economy’s poor performance in respect of productivity.
It has to be said, though, that widespread developments in this area are unlikely without a rise in business investment. This tends to be positively related to wage growth. Indeed, the fact that business investment has faltered in the wake of the recession and in the advent of Britain’s departure from the EU is a key explanation for the relatively weak real-terms wage growth witnessed since the crash. For the economy to resume growth, investment will have to begin again, whatever the UK’s relationship with its nearest trading partners. If and when it does, wage growth is likely to be stronger.
Around 10,000 firms have published their gender pay gap figures in line with the government’s deadline and there have been numerous headlines about those with the highest gaps. But what does the data really tell us? Here, we look at how and why the figures vary, with an emphasis on sectoral variations, as well as the impact that collective bargaining appears to have on the size of gender pay gaps.
Employers’ publication of their gender pay gaps has sparked a national conversation about the relationship between gender and pay. To date 10,249 firms have published their figures. IDR analysis of these shows an average gap of 14.4% between the average pay for men and that for women. There are, however, significant differences by sector.
The proportion of pay awards at or above 3% has increased, according to the latest analysis from IDR, with these awards accounting for over a third of all settlements monitored in the three months to the end of April 2018. This compares to just under a quarter of awards recorded at this level in the three months to the end of January. The median pay increase across the economy remains at 2.5%. This is the same increase recorded in the last five three-month rolling periods. The interquartile range, where half of awards are set, has widened slightly to between 2% and 3%. The latest figures are based on 96 pay awards, covering over 1.5 million employees.
The latest instalment in the debate over which inflation indicator is the most appropriate for uprating benefits such as pensions took place in the High Court in January. The case, brought by telecoms firm BT, was that the company should be allowed to change provisions for uprating pension payments from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI), on the basis that the former had ‘become inappropriate’, according to the rules of the scheme. The case has implications for setting pay as well as pensions.
According to our most recent detailed quarterly analysis, the median pay award across the whole economy was 2% in the three months to October 2017, according to the latest monitoring figures from IDR. See the full quarterly analysis here.
The Budget on 22 November sparked a debate over the prospects for wage growth over the coming period. The Bank of England is on one side, while on the other stand the government’s Office for Budgetary Responsibility (OBR) and the Institute for Fiscal Studies (IFS).
Earlier, in announcing its decision to raise interest rates marginally on 2 November, the Bank argued that while pay increases are currently subdued – mostly because employment has been growing in lower-paid occupations and industries – it expected earnings growth to strengthen during 2018. This will occur, the Bank said, ‘as the tightening labour market starts to put more widespread upward pressure on wage demands’. Continue reading Viewpoint: ‘There are bad times just around the corner…’
Our latest analysis of pay review outcomes shows the whole-economy median remains steady at 2% but the median for awards in private services has increased to 2.6%. This is based on 90 pay awards monitored by IDR in the three months to the end of September.
Our latest pay settlement analysis shows the private sector median is unchanged at 2.5% in the three months to the end of August. Meanwhile the whole economy median has fallen from 2.4% in July to 2% in August, owing to the inclusion of some lower-level awards in the not-for-profit and public sectors. Continue reading Settlements in brief: private sector median unchanged at 2.5%