Vast majority of pay awards lag behind inflation

Pay awards are continuing to lag well below inflation, with just 2% of settlements keeping up with the retail prices index (RPI) in 2011, research has found.

According to XpertHR’s latest pay trends report, the median basic pay award remained at 2% for the three months to the end of November. It has been stuck at this level for eight consecutive quarters.

Despite a predicted fall in RPI from an average of 5.3% in 2011 to 3.5% in 2012, the report says that pay settlements are also likely to stay below inflation in the new year.

Sheila Attwood, XpertHR’s pay and benefits editor, commented: “Although inflation is set to fall further in the new year, it will remain at a level that is unattainable for most employers to match in pay packets. We expect to see improving pay settlement levels in 2012, but pay rises will continue to lag behind inflation.”

A separate piece of research also published today by XpertHR revealed that bonus payments in 2011 were worth a median 6% of earnings, 4% lower than that recorded in similar research in 2008, prior to the recession.

The survey found that only half of organisations operated a cap on the size of bonus payments, which ranged from 10% to 150% of salary, with open-ended bonuses more prevalent in financial services and retail companies.

However, the report, based on 91 bonus schemes, stated that the size of payments was expected to fall in 2012 to a median of 5% of earnings.

Employers reported that the top problem with their bonus schemes was employee disappointment with the size of payments, followed by a lack of employee understanding of the scheme.

Attwood added: “Bonus payments made to many junior employees are almost universally far lower than those received by employees occupying the top tiers of management. Nevertheless, they can represent a significant, if variable, element of total remuneration.”