Pay bargaining agenda 2013: private-sector services

XpertHR has asked the opinion of key pay setters about the prospects for the coming bargaining round. This article sets out their predictions for pay setting in private-sector services for 2013.

As the XpertHR annual survey of pay prospects 2012 makes clear, an organisation's overall financial performance remains the single most important influence on pay decision-making. While a cautious approach to the 2012/13 bargaining round comes as little surprise when expressed by employers, it is also clear that employees and their representatives are also aware of the precarious economic conditions at home and abroad, and so may be prepared to adjust their wage expectations accordingly.

In this round-up of the pay setting intentions of those due to sit at bargaining tables over the next 12 months, we cover the following private-sector services:

• finance;
• not-for-profit;
• retail and wholesale; and
• transport and communications.

A separate article reviews the prospects in the manufacturing sector, while XpertHR has recently published a review of 2011/12 pay settlements as well as pay forecasts for 2013.

Finance: Unite to keep up the pressure

The pay setting agenda in financial services is influenced not only by "internal" factors such as company profitability but also by external considerations including regulatory requirements. There is also the public's perception of an industry that has got out of control and has been blamed for many of the UK's economic woes.

Against this background, XpertHR's analysis of the reward in financial services found that pay growth has been sluggish in the past year and has lagged behind inflation as employers react to concerns over the economy and the cost of impending regulatory changes.

Over the next 12 months, the trade union Unite expects corporate profits to rise significantly as the money put aside to deal with compensation claims relating to mis-sold payment protection insurance has already been accounted for in previous financial years. However, it recognises that the costs associated with the implementation of the Independent Commission on Banking (on HM Treasury website) recommendations on the ring-fencing of funds, together with other regulatory requirements, may act as a downward drag on overall settlement levels, as will a continuation into 2013 of job losses in retail finance services.

However, Unite says it will pursue "decent" pensionable salary increases for workers across the sector, as well as calling for a more equitable distribution of pay within individual organisations. Indeed, the union has been active in raising concerns about executive remuneration at finance company annual general meetings.

Recruitment organisation eFinancialCareers.com (external website) predicts that there will be more job losses across the sector over the next few months, with banks possibly trimming staff by as much as 10%. The biggest threat over the next 12 months is a "messy dissolution" of the eurozone, it says, leading to a run on the European banking system. "With luck, this is a threat that won't become substantive," the organisation says.

Not-for-profit: the squeeze is on

Summarising the key challenges currently facing the not-for-profit sector, the Unison trade union says housing associations are yet to feel the full effect of the financial squeeze. However, it anticipates that forthcoming reductions in social security benefits such as the housing benefit cap will increase cost pressures over the next four years, and this will inevitably exert a downward pressure on pay. Other employers, notably those providing care services on behalf of local authorities and the NHS, have tried to hold down wage levels in order to help them compete for contracts, the union adds.

According to Unison, the strategies used by organisations to reduce pay costs include: the dismissal and re-engagement of employees on inferior terms and conditions; increasing workloads; and the closure of defined-benefit pension schemes.

Overall, the union anticipates that salaries may rise marginally in housing associations over the next 12 months, while they are expected to fall slightly in the charity sector.

Retail and wholesale: follows national minimum wage

Retail has one of the highest proportions of workers paid at the national minimum wage and so employers, as well as their workers, keenly anticipate its annual uprating as announced by the Low Pay Commission (external website).

Given the fact that so many retail and wholesale employees are on the statutory minimum, it came as little surprise that the median pay increase across the sector as a whole over the 2011/12 pay round was 2.5%, exactly the same as the October 2011 increase in the minimum wage.

From 1 October 2012, the minimum wage increased by 1.8%, taking the hourly adult rate (for workers aged 21 and over) to £6.19. If previous years are anything to go by, it seems likely that the settlement levels in the coming months will closely track this uplift, although of the pay deals collected by our researchers to date, 2% is so far the most common increase.

Unsurprisingly, Usdaw, the main retail trade union, is strongly in favour of the minimum wage and supports any increase. However, it says it would have preferred the 2012 uplift to have been "less cautious". Despite this, it predicts that the pay awards it will secure over the next 12 months will exceed the latest rise in the statutory minimum. Mitigating this is an anticipated fall in the headline rate of inflation, coupled with the effects of a double-dip recession. This is likely to affect employers' ability to pay and thwart the union's plans to push up settlements.

Transport and communications: more of the same

Andy Kerr, deputy general secretary of the Communication Workers Union (CWU), summarises the past bargaining year as being "very tough", with most members hard pushed to secure wage increases matching, let alone exceeding, headline retail prices index (RPI) inflation.

His prediction for the 2012/13 pay round can be summarised as "more of the same", with an economy struggling out of recession likely to exert a significant downward pressure on settlement levels across large parts of the communications sector, particularly in the mobile phone industry, where price competition is intense and consumer spending power on the wane.

"The climate remains difficult and we expect employers to use subdued growth and economic uncertainty as an excuse for pay restraint," Kerr says. "But it is in their interests to recognise that cost-of-living wage rises are necessary to encourage consumer confidence." The CWU pays close attention to the "bottom line" of the companies it negotiates with, and it is likely to push for above-trend wage awards where profitability remains buoyant.

The recent spotlight on top pay is also likely to be a factor shaping the union's future bargaining strategy: "Executive reward packages, including wage increases, bonuses and pensions, remain generous and vastly superior to those of ordinary workers," says Kerr, "and this is something we will use to leverage pay awards for our members in the coming months."

As ever, the CWU will be aiming to secure deals in excess of RPI, still the inflation yardstick used by the union when negotiating. "Last year was a difficult one for us in terms of pay bargaining, but settlement levels have picked up in the last few months, and we will be working hard to push them up further in the coming year," Kerr concludes.

The Prospect trade union represents more than 120,000 engineering, managerial and scientific employees in a wide range of industries as diverse as agriculture, defence, energy and shipbuilding. The union has a separate section, Connect, which represents workers in telecommunications and IT. It has approximately 16,000 members in these industries and XpertHR talked to the union about its bargaining priorities for these workers.

The union has always negotiated on the basis of headline RPI and sees no reason to deviate from this. The vast majority of private-sector employers it bargains with do the same, it says, and it does not anticipate that they will move to negotiations based on consumer prices index inflation in the foreseeable future.

In broad terms, Connect says the key influence on settlement levels will remain the overall state of the economy, with deals projected to come in at between 2% and 3%; at the lower end of this spectrum if the downturn continues and headline inflation falls as predicted.