Ken Mulkearn | 13 Jun 2022

How inflation and a tighter jobs market have changed the picture on pay

We recently conducted some preliminary research into how settlements have changed between this year and last. It was preliminary in that we’ll most likely investigate further, especially since the picture is still developing. Settlements continue to be reached for 2022 and the relevant economic conditions - high inflation and tight labour markets - still pertain, with the latter evidenced most strongly by new footage of lengthy queues of holidaymakers as airlines and airports struggle to recruit enough baggage handlers and check-in staff. (In an effort to plug some of these gaps, airlines are offering signing-on bonuses to new recruits, for example £1,000 in the case of BA.)

So what did we find? The first finding is the most obvious – the level of basic pay awards has risen sharply for a matched sample of generally larger non-unionised and unionised employers that we examined, most of whom were in the private sector, with a small proportion in the not-for-profit sector. Overall, the median rose from 2% last year to 3.74% this year, while the upper quartile more than doubled from 2.3% to 5.1%.

Interestingly, the picture was slightly better for employees at non-unionised organisations than for those with trade union recognition. At the former the median rose from 2.1% to 3.9%, and the upper quartile from 2.4% to 5.2%, while at the latter the change was slightly less marked, from 2% to 3.43% on the median and 2.3% to 5% on the upper quartile. This could be a sampling effect but is certainly worth investigating further, as it will be interesting to see what the year-end picture shows in this respect, particularly as we might expect collective bargaining to produce a ‘union premium’. That doesn’t appear to be the case at the moment, in these preliminary figures anyway.

We noticed a small increase in the prevalence of interim pay awards, that is, increases in pay ahead of the usual review date. This is partly connected to greater recruitment and retention pressures and partly connected to the need to spread the cost of pay rises. Costa Coffee is one major example and we have also seen this at Onward Homes, a Liverpool-based housing association with 900 staff.

Long-term deals

In some cases, long-term deals have emerged with imaginative approaches to staging dates. This was the case at Airbus, for example, where a lump sum was paid from 1 June 2021 in the first stage of a three-stage, 24-month deal. The second stage was a consolidated rise of 5.1% from 1 May 2022 and the final stage will be 3.5% from 1 January 2023, with a new review due from 1 June 2023.

Some specifics we have picked up on include an increase in underpinning flat-rate awards that benefit the lower-paid. This was the case at Lloyds Banking Group, for example, where this element increased from £400 in 2021 to £1,000 in this year’s settlement.

We have also charted upward pressure on premiums for unsocial hours working, especially for nights. Tesco raised these in its pay deal last year and other major retailers have shown an interest in the issue as well, hiring us to carry out bespoke research on the topic for them, something that is usually evidence of upward pressure. We have written about trends in this area in a recent article on our website.

Accompanying lump sums are somewhat more in evidence this year than previously, as companies struggle to obtain agreement or staff buy-in during a period of high and rising inflation. One example is at BMW’s Oxford plant, where the Mini car is manufactured, and where the latest pay award comprised a basic increase of 5.5% plus two lump sums of £1,500 each in the first year of a new three-year deal. At the moment the main focus elsewhere appears to be on basic consolidated uplifts, but if the cost of living continues to rise, a greater proportion of subsequent awards could see the addition of lump sums as a way of reaching a deal.

Pay review body reports due

Meanwhile in the public sector, the pay review bodies (PRBs), which recommend increases for a range of groups including nurses, police and teachers, have delivered or are about to deliver their reports to Government (more details in Pay Climate issue 29). Previous years have seen the administration delaying announcements until the end of the parliamentary term, and our expectations are for similar (mis)timing this year, though we could be confounded.

Speculation about the likely percentages has centred on the figure of 3% mentioned by the Government in its remit letters to some of the PRBs. Increases in fact should vary, with some targeted rises above this figure, but in the current climate, central recommendations at this level will disappoint many or even most staff subject to the PRB process. If regarded as too low, they will add to the pressure on this type of pay setting mechanism, pressure that has led to the Scottish Government awarding higher increases to NHS staff than those recommended by the PRB and the establishment of a separate PRB for teachers in Wales, which has turned its back on the performance-related pay system introduced at the behest of Westminster. It could even prompt some employee representative organisations to move towards withdrawing co-operation with the PRB process. Let’s see what happens…

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