Outlook video: Pay prospects 2011

XpertHR's pay and benefits editor Sheila Attwood and group editor David Shepherd discuss the prospects for pay awards in 2011. 


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The questions in full:

Before we look at pay prospects for 2011, can you tell us what the pattern of pay awards in 2010 has been?
Pay awards fell to an historic low of a median 0% increase in July and August 2009. But this was in some ways unsurprising as headline inflation, the key yardstick for pay setting, was also languishing in negative territory. In general, through 2010 we saw a gradual increase in the level of pay awards. We started the year with pay awards at 0.8%, and our latest figures for the three months to the end of November 2010 show pay awards at 2%. What is interesting, though, is the movement of pay awards away from the prevailing rate of inflation. Inflation rose at a fairly rapid pace from November 2009, at which point pay settlements started to fall behind. This reached a peak in April 2010 when pay settlements, at 1.3%, were four percentage points behind inflation (of 5.3%). Pay settlements remain lower than inflation (2% and 4.5% respectively). 

We've heard a lot about pay freezes over the past year, is it true that most people have had a pay freeze?
Around three in 10 pay awards over the past year were worth nil. But this has affected different sectors to varying degrees. For example, almost half the pay awards in the not for profit sector were pay freezes, while 40% of public sector pay awards also were. But elsewhere, only 10% of deals in the food, drink and tobacco sector were nil, and 20% in the retail sector. However, only 4% of pay awards are a pay freeze two years in a row. And if we look at the rolling quarterly pattern, at the beginning of 2010 around half of all pay deals were worth nothing, whereas this proportion has shrunk as the year has progressed, and our latest figures show around one in six pay awards were a pay freeze. 

Looking ahead to the next year, what are likely to be the key influences on pay awards?
We've recently conducted a survey of pay prospects among around 300 private sector organisations. They told us that business and economic factors are going to have the greatest influence on the level of their pay awards next year. So company performance, coupled with an inability to raise prices, are expected to be a downward force on the level of pay awards. This is what we would expect in the current economic climate, with the recession technically being over, but many businesses still operating in an uncertain environment. 

And what about the role of inflation?
Headline, or retail prices index, inflation, is still expected to be a key determinant of the level of pay settlements in the year ahead. Around six in 10 private sector companies use inflation as a guide when setting pay rises, although for most of these it is just that, a guide rather than pay rises explicitly linked to inflation in a particular month. With RPI inflation expected to be in the region of 4% in 2011, it is expected to be the greatest upward influence on the level of pay awards. 

And what about the public sector?
The pay bargaining environment will be very different across the public and private sectors during 2011. In the private sector, many employers will be hoping to reward staff loyalty through two difficult years, while acutely aware that business levels still have some way to go on the road to recovery. Public sector workers, on the other hand, are bound by government policy. With a new government comes a new policy – instead of the previous government's 1% basic pay rise cap, the policy for 2011 is a pay freeze for all employees bar those earning below £21,000 a year (they will receive at least £250). So a large number of public sector workers will not receive a basic pay rise in the year ahead, while the prospects for private sector workers is looking up. 

Can you put a figure on what pay rise a private sector employee could expect in 2011?
Our survey of 300 private sector employers asked them to predict what level of pay rise their employees can expect in 2011. Encouragingly, more than half expect the 2011 pay award to be higher than was made in 2010, and less than 10% are expecting to offer a lower increase. Overall, respondents to our survey are predicting a median 2% pay rise in the coming year. Just 10% are expecting to make a pay freeze. On our current data, the median pay rise in 2010 is around 1.4%, so on this prediction pay rises are going to be a little higher in 2011 than they were in 2010. 


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