Pay trends July 2021: Pay awards show continuing signs of strength
Author: Sheila Attwood
Pay awards in the second quarter of the year are worth double those in the first quarter of 2021, according to the latest analysis from XpertHR.
- The XpertHR headline pay award in the three months to 30 June 2021 stands at 2%.
- The most common pay award is now a 2% pay rise, overtaking pay freezes for the first time this year.
- The value of pay awards in the public sector has fallen for the first time in almost three years.
XpertHR's latest analysis reveals that pay awards in the three months to the end of June 2021 were worth a median 2%, unchanged now for three consecutive rolling quarters. The increases over the second quarter of the year are therefore worth exactly double those in the first quarter - with the median award in the three months to the end of March 2021 recorded at just 1%. At the higher end of the scale, the upper quartile measure has also reached its highest level since November last year (see Chart 1).
More than a year ago, as organisations' April 2020 pay award plans started to falter, the proportion of pay freezes in our sample started to increase. Having reached a peak in the summer of last year, we are now seeing the reverse, with the proportion declining with every set of new figures each rolling quarter. In our current sample, just over one pay settlement in six (15.9%) resulted in a pay freeze, and this is no longer the most common outcome of a pay review.
Confidence at annual pay review time appears to be returning, too. Many of the figures for the year to date have nudged up with the latest pay award additions to our database, suggesting that the more recent deals are higher than those agreed earlier in the year and are slowly pulling the figures upwards (see Table 1).
We also know that organisations are looking beyond just salaries as a recruitment and retention tool. XpertHR's latest research into employee benefits reveals the importance that organisations are placing on getting their benefits strategy right. In particular, employers are keen to ensure that individual choice and relevance is prioritised, while understandably keeping an eye on costs in the current climate.
It is not easy to make predictions about how much the UK economy will grow this year. The latest estimates from the Office for National Statistics show that UK GDP grew by 0.8% in May 2021, marking the fourth consecutive month of growth. This slow growth means that organisations are still being cautious in their approach to annual pay reviews. While we have seen some growth from the awards made in the early months of the year, we are unlikely to see this level of acceleration continue.
Key findings from the XpertHR pay databank
Our analysis this month is based on details of 309 pay awards effective between 1 April and 30 June 2021, covering the pay review outcomes for just over 950,000 employees. Our headline figures are based on 267 across-the-board pay settlements, while the remaining 42 merit-based awards are analysed separately.
XpertHR Benchmarking provides a fully searchable version of the data. Our analysis reveals the following:
- Median pay award steady. The median basic pay award in the three months to the end of June 2021 stands at 2%, unchanged on the figure for the previous rolling quarter.
- Upper quartile nudges higher. The upper quartile - marking the cut-off point for the highest 25% of deals - has crept up to 2.3%, a rise of 0.1 percentage point on the previous rolling quarter. The lower quartile remains unchanged at 1% for the third consecutive rolling quarter.
- Pay freezes continue to fall. The proportion of all pay reviews resulting in a freeze for employees has fallen again, now accounting for 15.9% of all reviews in the current period.
- Service sector suffers small dip. Pay awards in the service sector - at a median 1.9% over the latest quarter - have slipped behind those in manufacturing and production (maintained at 2%).
- Lower awards prevail. Based on a matched sample, we continue to see slightly more than half (54%) of pay awards in the current period being worth less than the same group of employees received a year ago. Around a quarter (25.1%) are at the same level as the previous year, while the remaining 20.9% of deals made a higher award this year.
Analysed separately, pay awards based on a measure of performance are expressed as the percentage increase in the paybill from which individual pay awards will be made. The median increase in the latest quarter is 2.3%, with the interquartile range between 2% and 3%.
Chart 1: Pay review pattern - whole economy, June 2020 to June 2021
See note below.
Source: XpertHR pay databank.
Dip in public-sector pay awards
The value of pay awards in the public sector has fallen for the first time in almost three years. Since the 12 months to the end of August 2019, our measure of public-sector pay growth has been pegged at 2.5%, and notably above the private sector since the end of 2019. However, an influx of pay awards from April this year has caused our rolling annual measure to slip to 2.3% for the 12 months to the end of June 2021 (and be revised down to 2.3% for the previous two rolling quarters). This is the lowest reading in the sector since the 12 months to the end of July 2019.
Alongside a dip in the median pay award level, we are also seeing a wide range of pay review outcomes in the sector. The interquartile range - marking the middle 50% of awards - now spans two full percentage points between 1.3% and 3.3%. The highest awards over the past year remain those implemented as a result of the Scottish Government's public-sector pay policy for 2021/2022. Our sample contains a number of pay awards from local authorities in England that sit outside the national agreement. Among the 18 gathered to date, awards range in value from a pay freeze at Woking Borough Council to a 3% basic pay rise at Folkestone & Hythe District Council. The median increase among opted-out councils is 1%.
Due to the concentration of public-sector pay awards across just six months of the year, we do not produce a rolling quarterly analysis of deals in this sector. However, as April is the most common month for awards in the sector (54.8% of deals are effective in this month alone), we are able to do so at this time of year. Based on the sample of 45 deals effective in the three months to the end of June 2021, the median public-sector pay award is 2%, in line with that in the private sector. The interquartile range of between 1% and 3% reflects the differing fortunes of employees facing tighter pay policies in some parts of the sector and the increases favouring the lowest paid in the Scottish Government.
Just as pay awards in the public sector have started to slip, private-sector figures on the annual measure are also notably lower - the impact of falling pay awards a year ago is now seen in the figures. In the 12 months to the end of June 2021, private-sector pay awards were running at a median of just 1.3%, down from 2.2% in the 12 months to the end of June 2020. However, the latest quarterly data shows that actually pay awards in the private sector are beginning to pick up - the median sits at 2% for the third consecutive rolling quarter.
Chart 2: Pay review pattern - private and public sectors June 2020 to June 2021
See note below.
Source: XpertHR pay databank.
Manufacturing pay awards show some strength
Pay awards in the manufacturing-and-production sector are worth 2% in the three months to the end of June 2021. This is the same level they were at in the three months to the end of June 2020, but that was followed by six months of pay freezes dominating our sample in the sector (see Chart 3). The interquartile range currently sits between 1.5% and 2.3%, with both figures nudging slightly higher than in the previous rolling quarter (1.3% to 2.2%).
Pay freezes are now relatively uncommon in the sector, with just 7.5% of deals resulting in a nil increase.
In contrast, in the service sector (which includes the public sector) pay awards have dipped to 1.9% over the latest quarter (down from 2% in the previous three-month period). Pay freezes are very much still evident, accounting for 19.4% of all deals.
Chart 3: Pay review pattern - services, manufacturing and private sector, June 2020 to June 2021
See note below.
Source: XpertHR pay databank.
Pay awards by sector
We are now halfway through the year, and have passed the two months most popular for annual pay reviews (January and April). Table 1 shows how pay awards in the first half of the year break down by sector (where we have a large enough sample). While the median award in both the manufacturing-and-production sector and private-sector services is 1.5%, there are clearly more pay freezes lingering in the services sector, where the lower quartile remains at nil. Food manufacturers, chemical companies and retailers continue to record the highest pay awards in the private sector so far this year.
Table 1: Pay awards by sector, 2021
|Sector (sample size)1||Lower quartile, %||Median basic pay award, %||Upper quartile, %|
|Manufacturing and production|
|Chemicals, pharmaceuticals and oil (25)||1.5||2.0||2.5|
|Electricity, gas and water (13)||1.3||1.8||2.0|
|Engineering and metals (30)||0||1.5||2.0|
|Food, drink and tobacco (17)||1.2||2.2||2.5|
|General manufacturing (64)||0||1.0||2.0|
|Paper and printing (10)||1.5||1.9||2.0|
|Total manufacturing and production (172)||1.0||1.5||2.0|
|Hotels, catering and leisure (48)||0||1.0||2.0|
|Information and communication (27)||1.0||1.6||2.0|
|Professional and business services (64)||0||1.0||2.0|
|Retail and wholesale (35)||1.4||2.0||2.3|
|Transport and storage (43)||1.0||1.5||2.0|
|Total private-sector services (296)||0||1.5||2.0|
|Central government (25)||0.9||2.0||3.6|
|Local government (18)||1.0||1.0||2.0|
|Total public sector (47)||1.0||1.9||3.0|
|All economy (515)||0||1.5||2.0|
1Figures are not provided for sectors where the sample is too small, but are included in total figures.
Just completed a pay review? Take part in our research
Has your organisation recently settled its annual pay review?
If so, please get in touch so that we can add your organisation's award to the database we use to produce our XpertHR monthly analysis of pay deals.
You can submit confidential details of your organisation's latest settlement for inclusion in the XpertHR pay databank by completing the online form. Alternatively, please email Sarah Byrne if you are happy to share this information with us, and we will call you to go through the details.
Note on the charts
The charts show the pattern of basic pay reviews calculated on a rolling three-month or 12-month basis.
- Chart 1 shows the median, upper and lower quartile settlements for the whole economy over three-month rolling periods.
- Chart 2 shows the median basic pay award in the public and private sectors over rolling 12-month periods.
- Chart 3 shows the median basic pay award in the services, manufacturing and private sector over rolling three-month periods.
They are based on information from around 1,200 manufacturing and services pay reviews in the public and private sectors. For each pay review, XpertHR uses the annualised percentage increase received by the lowest adult grade, excluding any additional payments that are over and above the basic increase, such as consolidation, incremental rises and merit pay.
- The median increase is the midpoint in the total spread - that is, the percentage at which half of the pay reviews are at the same or a higher value and half are at the same or a lower value.
- The bottom 25% of pay reviews fall at or below the lower quartile and the top 25% at or above the upper quartile. Thus, half of pay reviews provide for rises between the upper and lower quartiles.
What should I do now?
- See the latest pay awards added to the XpertHR pay databank in Pay awards: 22 July 2021.
- Check Pay awards by industry to see a breakdown by industry of all pay awards covered by XpertHR.
- See private-sector employers' predictions for pay awards this year in Pay forecasts for 2021.
- Understand how to use the pay resources on XpertHR, including information on how we collect and record pay settlement data.
- Find out how you could use XpertHR's new reward analytics platform, Cendex, to help you benchmark your organisation's pay and reward offering.