Pay: the lagging indicator

By Charles Cotton, CIPD Reward Adviser

While various economic data indicates that the UK may be coming out of recession, one measure has not started to grow significantly - pay. In a recent CIPD survey 2,200 employees were asked if they had received a pay rise between 1 January 2013 and 1 July 2013 and found that while 28% had enjoyed a pay rise 67% had not, while 5% had seen their pay drop.

By age, younger workers have been more likely to receive a pay rise, with 41% of the 18 to 24 year olds enjoying an increase, followed by 38% of the 25 to 34 doing likewise. By contrast, just 21% of those aged over 55 had a pay rise in the first half of the year.  To a certain extent, these findings are reflected in an analysis by length of service, where those employed at the same organisation for between 1 and 2 years are more likely (36%) to have seen their pay go up than those who have been at the same employer for 25 or more years (20%). The largest proportion of employees have been with the same organisation for between 6 and 10 years and just over one in four (26%) of them have seen a rise in their salaries.

By sector, we find that those employed by charities and not-for-profit organisations have been more likely to enjoy a pay rise (33%) than those working for private (31%) or public (18%) sector organisations. Within the private sector, those employed in finance (44%), transport (41%) and manufacturing (37%) have been more likely to have seen their pay rise. By contrast, those working in construction (23%) have been less likely to have seen their pay go up, reflecting ongoing problems in that industry. Larger employers have been more able to give pay awards with just half of all employees (32%) employed by such organisations reporting their salaries increasing. Micro employers have been less able to give rises, with just 18% of their workers enjoying an increase.


Those least likely to have enjoyed a pay rise are based in the East of England (22%), the West Midlands (22%) and the East Midlands (22%). In comparison, those working in Yorkshire and Humberside (35%), London (35%) and Scotland (32%) have been more likely to have seen their salary go up.

What pay rises have people enjoyed in the first half of 2013? Looking at the mean of all pay outcomes, the average overall is 1.07%. Again, 18 to 24 year olds (2.25%) have done better than those over 55 (0.66%). This could be something to do with the sectors older workers are employed in and that they may be more expensive (in pay terms) to employ than younger workers (18% of the 18 to 24 year olds in our sample earn more than £25,000 per annum compared to 36% of workers aged over 55).

Perhaps unsurprisingly, given wage constraints in the public sector, pay has increased by just 0.69% compared to 1.2% in the private and 1.19% in the voluntary sectors. Those working in London (2.11%), the south west of England (1.21%) and Scotland (1.19%) have enjoyed pay rises higher than the UK average, while those employed in the north east of England have been more likely to have seen below average increases (0.62%).

Just 12% of respondents predict that their pay will increase over the coming 12 months by more than the rate of inflation compared with 71% who think their earnings will rise by less than the cost of living. Again, younger employees (26%) are more likely to believe that their pay will outstrip inflation than those aged 55 or more (7%). Similarly, those with fewer years of service are more likely to think their pay will rise faster than inflation, with 19% of those between 1 and 2 years’ of service believing this compared with 9% of those with 25 years or more. Permanent staff are more likely to predict an increase in real pay (13%) than temporary staff (5%).

By sector those working in the private sector (15%) are more optimistic in their forecasts of inflation busting pay rises than public (5%) or voluntary sector (4%) employees. Workers employed in transport (20%), finance (18%), real-estate and renting (18%) and manufacturing (17%) are more optimistic about how much their pay will grow between July 2013 and June 2014, reflecting the prevalence of inflation-based pay deals in manufacturing and transport firms, the importance of finance to the UK economy and growing demand in the London and south east housing market.

According to data from the CIPD’s summer Labour Market Outlook, these employee pay predictions may be justified. Overall, employers forecast that salaries will rise by just 1.71%, between summer 2013 and summer 2014. Those organisations based in the private sector are more optimistic predicting pay will rise 2.12% over this period. However, manufacturing and production firms are more bullish believing that salaries in their sector will increase by 2.52% compared to the service sector where firms expect that they will go up by 1.63%. Public service employers have forecast salary increases over the coming year of 0.93%, reflecting government-inspired pay restraint in this sector. Nevertheless, with the CBI predicting that the CPI measure of inflation will average 2.9% in 2013 and 2.5% in 2014, most workers will endure another fall in the real value of their base pay.

When asked which options would offer them the best opportunity for them to earn more money in the next 12 months, 41% taking on a higher paid job, 29% replied taking on a second job, while 24% said increasing their hours of work. However, of those who said that the best opportunity to boost their pay was by taking on a higher paid job, only 20% thought that this was likely while 51% thought that it was unlikely. Only 19% those who thought that taking on a second job as a way of boosting pay thought that it was likely possibility. By contrast, employees thought it was more likely that they could pay by working more hours (31% believing this to be likely).

Overall, the survey indicates that not only has pay been subdued in the first half of the year, it is predicted to be subdued over the coming 12 months. Of those lucky enough to get a rise in the next 12 months most will find that it will not match the rate of inflation.  Instead, employees will be looking to boost their pay either by leaving the organisation by taking on a higher paid job, or staying with it and looking for a promotion, extra hours or a second job. All these responses will raise a number of challenges for HR to manage, especially in a way that does not destroy employee engagement and trust in the organisation mission, vision and culture. If currently money is simply too tight to mention, then HR will have to look at how they can make work itself more engaging for staff, such as through job/work design, flexible working and staff development, until the arrival of better times.

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