Pay trends January 2017: first indication of New Year pay award levels

Author: Sheila Attwood

Our latest analysis of pay settlements reveals that levels increased slightly at the end of 2016. We also look ahead to the first pay awards of 2017.

Key points

Provisional analysis of XpertHR's pay settlement database reveals that the median basic pay award in the three months to the end of December 2016 stands at 1.9%. This represents a 0.3 percentage point increase on the 1.6% figure recorded for the three months to the end of November 2016. It also almost brings us back to the 2% median that has been our benchmark pay award for the best part of the past five years.

The last quarter of the year is not a popular time for pay reviews to take effect, so our figures are based on a smaller sample than at other times of the year - most notably those analyses that include the months of January and April. So in this article we will also take a look at pay awards in January 2017 - it is still early days for awards to be concluded for this month, but our sample to date does provide an indication of the direction of pay awards to come.

While it is positive news that pay award levels rose at the end of last year, there is still a downside. Not only did our median measure not make it back to 2%, it also sat below the rate of retail prices index (RPI) inflation. In December 2016, RPI sat at 2.5%, a 0.3 percentage point rise on the November reading, and now just over half a percentage point above the level of pay awards.

Forecasters are predicting the current upwards path for RPI will continue through the year, fuelled by the weak pound and a rise in fuel prices. The consensus of our panel of experts is that RPI will reach 3.2% by the end of the year. As one City economist put it: "For consumers seeing only sluggish pay growth, it is bad news."

Wage growth as measured by the average earnings index suggests a slightly more positive picture, with average earnings growth in November at 2.8%. This is up on the October figure (2.6%), and the highest level since September 2015.

Key findings from the XpertHR pay databank

Our latest analysis is based on a sample of 68 pay settlements effective between 1 October and 31 December 2016. This cohort covers the pay outcomes of just over 241,000 employees across all sectors of the economy. Within our sample, 60 pay settlements comprise an across-the-board increase to all employees, and are used to calculate our headline measure of pay awards.

Key findings are presented below, while XpertHR benchmarking provides the full data. Our analysis reveals the following:

• Median pay award almost back to its norm. The median basic pay award in the three months to the end of December 2016 stands at 1.9%, up 0.3 percentage points on the previous rolling quarter.
• Range of awards remains low. The middle half of pay awards are closely bunched around the median, with half of all basic pay awards worth between 1% and 2.1%.
• 2% pay award still stands out. The most common pay award in our analysis continues to be 2%, accounting for exactly a quarter of the sample.
• Private-sector pay awards show small dip. Pay settlements in the private sector held up well in the early part of last year, but in the final few months of 2016 dipped below 2%. In the current analysis period, private-sector pay awards are recorded at a median 1.8%.
• Individual deals the same or lower. A comparison of how the latest pay awards compare with the increases given to the same employees at their previous review reveals that just 15.4% were higher, with the clear majority being either worth the same (41%) or less (43.6%) than a year ago.

Private sector limps to year-end

On a rolling-quarterly basis, pay awards in the private sector were worth a median 2% between January and August 2016, but then took a tumble, falling back to 1.7% in the three months to the end of October 2016. No one industry was responsible for the fall, with pay freezes and lower awards seen across the sector. Since then, some recovery has taken place, but the 1.9% figure recorded for November was not the end of the story, with our figures showing a 1.8% median increase in the three months to the end of December. As can be seen below however, in the first deals for January 2017 we are seeing further recovery.

Meanwhile, pay awards in the public sector have firmly settled at a median 1%. A quarter of deals are recorded as being worth 1.5% or more, reflecting the continuance of weighting pay awards to the lowest paid by some organisations.

What do we expect in 2017?

We are just beginning to add details of pay awards taking effect in January 2017 to our extensive pay award databank. To date, we have the details of 103 settlements effective in January 2017 alone. Analysis of this group reveals that:

• the median basic pay award so far in 2017 stands at 2%. This is based entirely on pay awards in the private sector, as no public-sector deals take effect in the first month of the year;
• half of all 2017 pay awards are worth between 1% and 2%; and
• the majority of awards continue to be worth the same (25.6%) or less (51.1%) than employees received at their previous award.

When we surveyed private-sector employers at the end of August 2016, they predicted a median 2% pay award in the 12 months to the end of August 2017. These first 2017 pay awards put our survey respondents on track to have correctly predicted the level of pay awards for this year.

Manufacturing ends year ahead of services

Among the small cohort of manufacturing-and-production pay settlements recorded in the final three months of the year the median award is 2%. This compares with 1.6% among the services sector, and private-sector-services organisations. Since the middle of 2016, pay awards in the manufacturing-and-production sector have largely stayed ahead of those in private-sector services. However, the differences are small, and organisations in both arms of the private sector have predicted a median 2% pay award for this year.

The highest increase in the manufacturing-and-production sector contained in our latest analysis is for workers at Jaguar Land Rover, who in November 2016 benefited from a 3.5% increase in the first year of a two-year deal. By contrast, workers party to the offshore divers' agreement had their pay frozen for the second year in a row.

Among private-sector-services firms, the highest awards went to cleaners at two organisations, one of which adopted the London voluntary living wage. Again at the other end of the scale were a number of pay freezes, most commonly in the not-for-profit sector.

Sector review for the year

Table 1 presents our final figures on pay awards by industrial sector for 2016. The key takeaways from these figures are that:

• the majority of industrial sectors recorded a 2% median pay award over the course of 2016;
• in the private sector, the highest basic pay awards were recorded in the construction sector (2.5%), while the lowest are to be found among not-for-profit organisations (1%);
• within the private sector, pay awards in manufacturing-and-production companies are marginally ahead of those in private-sector-services (at 2% and 1.9% respectively); and
• public-sector pay awards are stuck firmly at 1%, in line with government policy.

Overall, 2016 has been more of the same on the pay awards front. Pay freezes are still evident, and continue to be in force for several years in some organisations. Few organisations are awarding high pay awards out of choice, with many of the highest awards linked to the introduction of the national living wage in April 2016 (although some did choose to extend this rate to all their employees, not just those aged 25 or over). The interquartile range of pay awards across the whole economy, at 1% to 2.3%, demonstrates the bunching of pay awards around the median. The dominance of just one pay award in our figures is a new phenomenon for us, with 22.8% of basic pay awards over the past year set at exactly 2%. All the indications are that this figure will continue to dominate our analysis over the coming months too.

Table 1: Pay awards by sector, 2016

Sector (sample size)1	Lower quartile, %	Median basic pay award, %	Upper quartile, %
Manufacturing and production
Chemicals, pharmaceuticals and oil (43)	0.5	2.0	2.4
Construction (39)	2.0	2.5	3.0
Electricity, gas and water (54)	1.3	1.6	2.0
Engineering and metals (85)	1.5	2.0	2.5
Food, drink and tobacco (37)	1.0	2.0	2.5
General manufacturing (122)	1.0	2.0	2.2
Paper and printing (16)	-	1.9	-
Total manufacturing and production (401)	1.3	2.0	2.5
Private-sector services
Finance (38)2	2.0	2.5	3.0
Hotels, catering and leisure (131)	1.5	2.0	2.5
Information and communication (85)	0	2.0	2.2
Not-for-profit (138)	0	1.0	1.8
Professional and business services (110)	1.0	1.5	2.0
Retail and wholesale (87)	1.9	2.0	3.0
Transport and storage (59)	1.8	2.0	2.2
Total private-sector services (638)	1.0	1.9	2.2
Public sector (84)	1.0	1.0	1.5
All economy (1,123)	1.0	1.9	2.3
1 Medians are not provided for sectors where the sample is too small, but are included in total figures. 2 Performance-related pay awards. Source: XpertHR.

What should I do now?

• Read employers' predictions for 2017 in Forecasts for pay awards in 2016/2017.
• Take a look at our review of basic pay awards 2016 to benchmark your organisation's most recent pay award against the market.
• Check Pay awards by industry to see a breakdown by industry of all pay awards covered by XpertHR.
• Understand how to use the pay resources on XpertHR, including the pay settlement monitoring service and salary surveys.