One in five employers to give basic pay increase of 3% or above

17 August 2015

According to recent research from the CIPD, one in five employers expect to give a basic pay increase of 3% or above in their next pay awards.

The quarterly CIPD Labour Market Outlook (LMO) provides a set of forward-looking labour market indicators, highlighting employers’ recruitment, redundancy and pay intentions.

The survey is based on responses from 931 employers, many of whom are drawn from the CIPD’s membership of around 140,000 professionals.

Some of the key findings from the report are:

• Overall, one in five employers expect to give a basic pay increase of 3% or above in their next pay awards.
• A third of employers plan to increase pay by 2–2.99%, while a similar proportion (31%) report that there will be an increase of 0.1–1.99%.
• The key reasons behind employers’ decision to award 2% or more in their pay awards are an organisation’s ability to pay more (39%) and a movement in market rates (30%). Other reasons include pay catch-up (27%) to reflect previous pay freezes and below-inflationary pressures, employee productivity and performance (26%) and recruitment and retention issues (26%).
• Pay restraint in the public sector remains the most significant reason why employers cannot match the inflation rate of 2% in their pay award. In addition, one third (33%) of employers cite affordability.
• Excluding bonuses, the expected median basic pay settlement among those LMO employers planning a pay review in the 12 months to June 2016 has increased to 2% from 1.8% over the past three months.
• The average basic pay settlement excluding bonuses has increased to 2.1% from 1.8%. However, around half (51%) of employers have not given replies as they are unsure about the outcome of their pay awards.
• Public sector organisations remain significantly more likely than firms to report that their organisation will have a pay freeze. More than one in ten (13%) public sector employers plan to freeze pay in the 12 months to June 2016 compared with just one in twenty (5%) companies.
• Around seven in ten employers (71%) report that their organisation has conducted a basic pay review during the past 12 months. Meanwhile, one quarter (24%) say they did not carry out a pay review in the 12 months to June 2015 and 4% are unsure.

The CIPD report concludes that overall, the results only partly reflect the official statistics, which have pointed to stronger pay growth in recent months (increased by 2.4% including bonuses and by 2.8% excluding bonuses comparing April to June 2015 with a year earlier).

However, wage growth may be supported by other underlying drivers including the 3% increase in the National Minimum Wage (NMW) for people aged 21 and over, which affected around 1.4 million workers. In addition, firms are increasingly hiring new workers from other firms, although job-to-job flows remain below pre-recession levels, which may explain why fewer than one in five are raising salaries to respond to recruitment difficulties. Additionally, average earnings may be boosted by the compositional effects of the labour market over the past year, especially the million extra people working full-time compared with an increase of around 100,000 in the number of people working part-time.

Read the CIPD’s Labour Market Outlook full report.