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Review of pay awards 2018: Basic pay awards

Author: Sheila Attwood

We round up the pay rises that were awarded over the past year, and look at the factors that drove awards higher at the beginning of the year.

Key points

  • In the year to the end of August 2018, the median basic pay award across the economy is 2.5%, half a percentage point higher than the same period a year ago.
  • Public-sector pay awards continue to languish behind those in the private sector, but have nudged higher than the 1% benchmark figure recorded for much of the past three years.
  • Pay awards continue their two-year run of falling behind inflation.

The past year has been notable in pay setting terms for finally recording a sustained increase in the level of pay awards, following around nine years of subdued rises. As organisations start to think about what level of pay award they might give their employees next year, we round up the state of pay bargaining over the past 12 months, encompassing all pay awards made between 1 September 2017 and 31 August 2018.

XpertHR records pay awards in one of two ways - as a basic pay award extended across the board to all employees, or as the percentage increase in the paybill from which performance-related increases will be made. In this resource we examine the basic pay awards, while Review of pay awards 2018: Performance-related pay awards looks at those based on a measure of performance. In both, we present findings for the whole economy as well as breakdowns by sector, to allow you to compare your organisation against others.

Review of pay awards 2018

This resource forms part of the 2018 XpertHR annual review of pay awards. In this series we examine the pattern of pay awards over the past year and provide analysis of the trends identified.

Other resources in the series include:

XpertHR works throughout the year to collect pay awards from as many organisations as possible. The peaks and troughs of the pay bargaining year are examined in Review of pay awards 2018: Pay bargaining calendar, while our monthly pay trends resources round up pay awards in each three-month period. Over the past year, we have collected 1,292 pay awards covering the pay outcomes of 6.7 million employees, equivalent to 20.7% of the UK workforce. Although we do not guarantee to have a representative sample of the UK economy, we collect information from all major organisations in the manufacturing-and-production, private-sector services and public sectors, as well as from numerous smaller employers. For more information on how XpertHR collects and analyses pay data see How to use the pay resources on XpertHR.

Review of 2018 pay awards

Of our total sample of pay awards effective between 1 September 2017 and 31 August 2018, 1,003 are based on an across-the-board formula. Key findings based on this sample are as follows:

  • The median basic pay award across the whole economy over the past year stands at 2.5%, half a percentage point higher than the figure for the year to the end of August 2017 (2%).
  • The range of pay awards is also higher than a year ago. The lower quartile (marking the level below which a quarter of deals lie) stands at 2%, and the upper quartile (the cut-off point for the highest quarter of deals) is at 3%, resulting in an interquartile range of 2% to 3% (1.3% to 2.5% a year ago).
  • Pay freezes, while no longer a key feature of the pay landscape, are still apparent. Among our sample, 5.1% of pay reviews resulted in a pay freeze, which is in line with our long-run average.
  • Public-sector pay awards have risen to a median 2% settlement, double the 1% recorded in the year to the end of August 2017.
  • A matched sample analysis shows that a clear majority of pay awards over the past year were higher than the same employees received at their previous review (see Matched sample analysis for more information).

The full range of pay awards over the past year is shown in chart 1. As per last year, the most common pay award remains 2%, accounting for almost a quarter (23.2%) of all settlements. However, this is now followed by 3% as the second most common deal (14% of settlements), which pushes 2.5% into third place. At the higher end, one pay award in 10 over the past year was worth 4% or more - significantly higher than the 5.4% recorded at this level in the year to the end of August 2017.

Chart 1: Basic pay awards, 12 months to the end of August 2018

Basic pay awards, 12 months to the end of August 2018

n = 1,003 basic pay settlements.
Source: XpertHR.

Table 1 shows further breakdowns by broad sector.

The median pay award in the manufacturing-and-production sector over the past year stands at 2.6%, 0.6 percentage points up on the 2% recorded in the year to the end of August 2017. Half of all pay awards are worth between 2% and 3% (up on the 1.9% to 2.5% range recorded last year). The most common pay award is 3%, accounting for 19.8% of deals in the sector, while 8.5% of deals are worth 4% or more. Pay freezes account for just 4.5% of basic pay deals in the sector.

The 2.3% median pay award in the services sector in the year to the end of August 2018 is up 0.3 percentage points on the same period a year ago (2%). The interquartile range has also risen, to 2% to 3% (from 1% to 2.3% a year ago). The most common pay award is 2% (unchanged from last year), while pay freezes account for 7.7% of awards, higher than in the manufacturing-and-production sector. One pay award in 10 (10.9%) was worth 4% or more - although many of these reflect the increases to the national minimum wage for 21- to 24- year-olds (4.7%) and the national living wage (4.4%).

Table 1: Pay awards by sector, 12 months to 31 August 2018

Sector Median basic pay award, % Interquartile range, % No. of pay awards

n = 1,003 basic pay settlements

Source: XpertHR.

Whole economy 2.5 2.0-3.0 1,003
Private sector 2.5 2.0-3.0 959
Public sector 2.0 1.0-2.4 44
Manufacturing and production 2.6 2.0-3.0 353
Services 2.3 2.0-3.0 650
Private-sector services 2.3 2.0-3.0 606

Public-sector pay

The median public-sector pay award over the past year was 2%, up from 1% a year ago. There are several influences on this figure according to the pay awards we have gathered so far in the sector. First is the awards within the local authority sector - while the NJC agreement saw a 9.2% increase for the lowest scale point, local authorities that have opted out of the agreement often settled at 2% (see Pay awards: Local government). Second is the way in which many public-sector pay awards are structured: there is an ongoing emphasis on increasing the salary of the lowest paid workers, which will be evident in our figures - for consistency, XpertHR measures the value of any pay award by the increase in salary in the lowest adult rate. In the public sector in particular, this can be higher than the overall percentage increase. For example, the April 2018 pay award in the Scottish Government allowed for a minimum 3% increase for employees earning £36,500 a year or less, with smaller increases for higher paid employees. Finally, the removal of the 1% pay cap has seen many public-sector pay awards exceed this figure for the first time in many years. For details of some of the most recently settled public-sector pay awards, see Pay trends September 2018: Pay awards back at the 2018 norm.

Benchmarking

All pay awards effective between 1 September 2017 and 31 August 2018 are available on XpertHR Benchmarking, allowing subscribers to interrogate the data and run reports by sector.

Looking back... and forwards

The 2.5% median basic pay award over the year to the end of August 2018 is half a percentage point higher than over the same period a year ago (2%). It is also a marked improvement on the level of pay awards over the past nine years, during which our annual median did not rise above 2.3%. Pay awards on our annual measure have not been higher than 2.5% since early 2009.

On a rolling quarterly basis, pay awards in the three months to the end of August 2018 are also at a median 2.5% (see Pay trends September 2018: Pay awards back at the 2018 norm for more detail). This has been the case since the beginning of the year (bar a slight dip in July) and marks the longest period of pay awards being worth more than 2% since early 2009.

The current 2.5% median is in line with the forecasts we produced this time last year, but will it be sustained into the New Year? Our next set of pay award forecasts, looking ahead to the year to the end of August 2019, will be published on XpertHR on 27 October 2018.

Chart 2: Pay review pattern - whole economy, August 2017 to August 2018

Chart 2: Pay review pattern - whole economy, August 2017 to August 2018

See note below.
Source: XpertHR.

Matched sample analysis

We contact many of the same organisations each year, and are therefore able to track their pay awards over time. Among our sample for the 12 months to the end of August 2018 we have details of 723 deals where we have the most recent and the previous pay award, and are therefore able to compare the two.

Our analysis shows that 59.1% of this matched sample awarded employees a higher pay award than they received at their previous review. This is a significant increase on the 37.5% we recorded last year as having received a higher increase than the year before (see chart 3).

By broad sector, the picture is broadly similar. In the manufacturing-and-production sector, 60.6% of deals are higher than a year ago, while 13.6% are lower. In the services sector, 58% of deals are higher than a year ago and 17.5% lower.

Among those organisations freezing pay, one-third also did so at the previous pay review. Organisations awarding a 2% pay rise often also did so last year, while increases of 2.5% were typically higher than employees received at the last pay review.

Chart 3: Comparison of 2017/2018 and 2016/2017 bargaining rounds

Chart 3: Comparison of 2017/18 and 2016/17 bargaining rounds

Source: XpertHR.

The real terms value of pay rises

A key measure for employees in assessing their pay award is to compare its value against inflation. Yet while employees will typically compare against retail prices index (RPI) inflation, employers are increasingly using the consumer prices index (CPI) when they assess the value of the award they are making.

Chart 4 shows the relationship between both measures of inflation and pay awards over the past 10 years. In that period, RPI inflation has outstripped XpertHR's headline measure of pay awards in 83 months, and has been on a par in two months. In the remaining 34 months, pay awards have been worth more than inflation, most recently in August 2016. In August 2018, the median 2.5% pay award is set against RPI inflation of 3.5%, a shortfall of one percentage point. As CPI is often slightly lower than RPI, pay awards have outstripped CPI in 41 months, but at 2.7% CPI currently stands 0.2 percentage points higher than our 2.5% headline pay award figure.

Chart 4: Pay settlements and inflation, 2009-2018

Chart 4: Pay settlements and inflation

Source: XpertHR.

Breaking the pay award mould

Although we reduce each pay award to a single figure for the purposes of our analysis, some are more complex than a single across-the-board increase to all employees for 12 months.

  • Staged deals: The employer gives two or more pay rises within the review period, but not at yearly intervals. An example includes a two-year deal that sees three 2% increases on 1 January 2018, 1 September 2018 and 1 May 2019, with the next review date scheduled for 1 January 2020.
  • Long-term pay awards: The longest deal we have recorded over the past year is a seven-year deal in the entertainment industry. There are a handful of four- and five-year deals, 30 three-year deals and 49 two-year awards. It is commonplace to agree the value of the award in each year at the outset, or at least a formula for it. For example, at one organisation it has already been agreed that the 2% basic pay rise from 1 March this year will be followed by 2.5% increases in both 2019 and 2020. Another paid a 2% rise in the first year of their award, with the second- and third-stage payments made in April 2018 and 2019 based on the March consumer prices index for that year or 2.9% (whichever is highest).
  • Varying awards by salary: In a bid to boost the pay of the lowest paid staff, a handful of organisations vary the value of the pay award according to the salary of each individual. For example, one organisation awarded a 3% basic pay rise for those earning less than £30,000 a year; 2.5% for those earning more than £30,000 a year; and 1.75% for those paid above £60,000 a year. Another awarded a 3.5% basic pay rise for those paid below £50,000 a year, but those paid above this threshold received a flat-rate £1,750 increase.
  • Cash underpins: Again used to boost the pay of lower paid staff, the cash underpin will be worth more as a percentage of salary to the lowest paid. One organisation gave a 1.5% basic pay rise subject to a £550 cash underpin, which was worth 2.48% for the lowest-graded adult employee. Another paid an increase of the greater of 2% or 45p per hour, worth 3.8% for the lowest graded adult employee.

Note on the chart

Chart 2 shows the median, upper and lower quartile settlements for the whole economy over three-month rolling periods.

For each pay review, XpertHR uses the annualised percentage increase received by the lowest adult grade, excluding any additional payments that are made 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 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.

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