LMO shows HR, leadership and productivity key to higher salaries
A wage divide is opening up between employers that can afford to increase staff pay by 2 per cent or more and organisations forced to freeze or cut pay, the latest CIPD Labour Market Outlook (LMO) has found.
The research shows that 42 per cent of UK employees received no wage increase in 2014. Almost two-fifths (39 per cent) faced pay freezes last year, while 3 per cent of the UK workforce had their pay cut.
A similar proportion (40 per cent) have received a pay increase of 2 per cent or more, while 18 per cent were given a rise of between 0.1-1.99 per cent.
Nearly half of private sector firms (48 per cent) said they had paid a basic increase of at least 2 per cent in 2014, which included 54 per cent of manufacturing and production firms. However, during the same period, more than a third of manufacturing and production firms (35 per cent) froze pay.
This ‘hour-glass’ shaped distribution of pay awards is similar in the services sector, where 47 per cent agreed pay deals worth 2 per cent or more, while 35 per cent imposed a pay freeze.
Public sector employers were most likely to freeze pay with 54 per cent opting not to increase wages in 2014. Small and medium sized employers showed similar wage restraint with 45 per cent reporting pay freezes.
Gerwyn Davies, CIPD’s labour market analyst, said: “The figures show a clear gap between employees that have comfortably exceeded the current inflation rate in their pay packets and those who haven’t seen any increase at all. What’s interesting is that this gap exists within sectors, with a significant proportion of employers able to afford a 2 per cent or above pay increase and a significant proportion of organisations in the same sector imposing a pay freeze.”
He explained that the difference in employers’ ability to increase pay, or not, was down to an organisation’s productivity. Davies pointed to evidence in the CIPD report showing “a clear correlation between employers that state they have adopted a high value business strategy, as opposed to a low cost strategy, and those that were able to afford to pay increases of 2 per cent or more”.
The report suggests that the quality of leadership and management and level of workforce investment are partly responsible for the disparity in pay deals within sectors. Further evidence showed that organisations with more sophisticated product market strategies were more likely to have advanced HR management strategies that used progressive people practices and invested more in their workforce.
Davies added: “The role for government is not to cajole business into giving more generous pay awards on the back of stronger economic growth and lower costs, but to understand the levers that can help more firms increase their workplace productivity and move up the quality chain. This includes supporting businesses to improve management practices and encouraging greater investment in skills and the effective utilisation of skills.”
Median pay awards in the 12 months to September 2015 are expected to remain unchanged at 2 per cent. Public sector increases will continue to lag behind at 1 per cent, with 1.5 per cent in the voluntary sector and 2 per cent in the private sector, forecasts showed.