Pay, living standards and Scrooge, by Charles Cotton

While reading ‘A Christmas Carol’ on my Kindle e-reader last month I was struck by what Scrooge said to his nephew about Christmas: “What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer; a time for balancing your books and having every item in ‘em through a round dozen of months presented dead against you?”

While this is an example of Scrooge’s bah humbug towards Christmas, it also had an element of truth in that lots of people will have found money tight, especially at the end of the year. Many employees covered by the CIPD survey Employee attitudes to pay  had not seen a pay increase in 2010. Of those who did see a rise, research by ourselves, IRS and IDS, etc, all indicate that most will have received a pay rise below the cost of living.

Our survey found that more employees had seen their living standards fall than rise and that many had responded by cutting back on their expenditure.  Half  of the sample (49%) had spent less on nice things to have; 45% had gone out much less often (50% of 18 to 24-year olds and 51% 25 to 34 year olds); 42% have spent less on shoes and clothes (34% of men and 52% of women, possibly reflecting that men don’t spend that much on shoes and clothes in the first place); and 38% had spent less on alcohol and takeaways 38% (47% of 25 to 34-year olds). In addition, 30% had cut back on Christmas.

Looking forward to this year, just under half of our sample expects to receive a pay rise. Of those that do, 3% is the anticipated increase in the private sector and 2% in the public sector. However, inflation is predicted to be higher than these pay rises and unsurprisingly, perhaps, more employees think that their living standards will fall in 2011 than think that they will rise.  According to our sample, 56% plan to reduce their lifestyle spending (eg going out, holidays and Christmas). Four in ten expect to make financial changes, including increasing their overdraft, stopping or reducing pension payments and living off savings and half said it was likely that they would cut back on day-to-day expenditure.

While the pay story of the past two years has been the number of pay freezes, the story of the next few years could be the number of below inflation pay rises. I might finish by saying that the next couple of Christmases could find many employees again ‘a year older, but not an hour richer’, but I won’t. Instead, I’ll finish by saying that while a lot of attention has been given to the outcome of employer pay decisions recently; little research has been conducted on how pay decisions are actually arrived at. The CIPD will be launching a guide next week on the pay review process and I’ll be blogging about that. So, happy New Year to you all and I hope that it will be a rewarding one.