The end of the pay rise?

  14th February 2014      
 Company News

A report analysing the most sustained and severe fall in real wages since at least the Second World War, and warns that the decline will not be reversed until there is a substantial improvement in the UK’s poor productivity record.  The report is accompanied by new survey data showing many employees expect pay rises in 2014 to be below inflation — a repeat of their experience in 2013.

‘Have we seen the end of the pay rise?’, which is the third in a series of four Megatrends surveys exploring the future of work and the economic challenges which lie ahead, examines the effects of average weekly earnings that are now between 7.8% and 10.2% lower in real terms (depending on the measure of inflation used) than they were five years ago, in January 2009, leading to a sustained squeeze on household finances.

The survey also points to the US experience as evidence that a return to real terms increases cannot be taken for granted, even if economic growth does continue.  For the median full-time worker in the US, real earnings are no higher now than they were in 1979. According to the report, this is a trend that could take hold in the UK, and indeed in other developed economies.

Data from ‘Employee Outlook: Focus on employee attitudes to pay and pensions’ survey, released to accompany the Megatrends report, reveals that a third of employees expect no pay increase in 2014, with a further third expecting the same rise in 2014 as in 2013, when the median rise was a below-inflation 2%.  Looking back, the survey found 54% of private sector employees had a pay ‘rise’ in 2013, and the same was true for 51% in the voluntary sector and 43% in the public sector. However, only a minority (36%) received a real-terms rise to improve standards of living.

This signals a period of further challenges for managers, who will need to find other ways of motivating improved performance amongst their employees without the promise of increased pay.  Communication is vital.  Employees are much more likely to be satisfied with their pay rise if the reasons behind it are explained to them.  Managers will need to communicate effectively with their direct reports to manage their expectations and talk about the benefits of a wider reward package, such as pensions or investment in learning and development. Here, however, the ‘Employee Outlook: Focus on employee attitudes to pay and pensions’ survey is not encouraging, with many employees stating that their employer is not giving them the training that will allow them to progress to more senior and better paid roles.

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