HR professionals have forecast a 2% median pay increase across the UK private sector this year – a marked improvement on predictions of just 1% in March 2009, a survey has found.

Study results published by management consultancy Hay Group today provide an early indication that salary increases are beginning to recover.

Nearly four fifths (79%) of organisations intend to increase salaries over the next 12 months – compared to 57% that actually did in 2009.

Predictions

The report, Reward in 2010, based on predictions from 200 large organisations and representing more than 370,000 employees, also found that 75% of organisations that froze salaries in 2009 plan to lift them within the next 12 months, although 23% are considering a second freeze.

A further two-thirds of HR professionals anticipate an upturn this year: 57% expect business results to be on or above targeted levels for 2010.

However, 90% of firms said they believe the recession will get worse before it improves.

Optimism

Claudia Canavesio, reward expert at Hay Group, said: “We are starting to see a cautious but growing optimism among UK organisations, reflected in a predicted recovery in salaries and bonuses. However, there remain significant challenges ahead.”

Public and not-for-profit organisations are more pessimistic, with nearly three quarters (71%) not expecting to benefit from the upturn for more than 18 months. Predictions for pay rises in the public sector also remain lower than the private sector, at just 1%.

Last year Personnel Today revealed that the basic salary for HR staff at all levels, including bonuses, increased by 0.8% (excluding bonuses by 3.8%). The results, published exclusively on XpertHR.co.uk, were based on 130 organisations, covering 7,147 HR staff.

Recovery

Mark Crail, head of salary surveys and data benchmarking for XpertHR, said: “More than one-third of employers imposed pay freezes in 2009. But with inflation picking up and the economy beginning to make a slow recovery, it is highly likely that pay settlements will also increase this year.

“Employers will obviously be wary of giving pay rises when their businesses are still suffering, but it is going to become harder for them not to, especially as the jobs market picks up and people begin to look around for their next career move.”

Other Hay Group survey findings included:

• 68% of reward professionals say they have changed the way they manage reward as a result of the recession
• 79% of organisations intend to pay bonuses over the next 12 months, 50% of which are expected to be on or above target
• 70% of firms cite employee engagement and talent management as the most significant priorities for 2010.

Pay Trends 2010

XpertHR’s pay and benefits editor Sarah Welfare and group editor David Shepherd discuss forecasts for pay trends in 2010 and examine the main influences on remuneration, including the prospects for economic recovery, rising inflation, unemployment and the squeeze on public sector pay.