Employers predict 2.5% pay increase for 2013

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Private-sector staff are likely to enjoy a median increase of 2.5% in their wages next year, according to a survey by XpertHR.

Seven pay awards out of 10 next year are likely to be worth between 2% and 3%, the survey found.

Manufacturing-and-production firms, at 3%, are likely to pay slightly more than services-sector employers, at 2.4%. Pay freezes will account for less than 10% of all pay awards.

Almost all (92.5%) respondents to XpertHR’s survey said that company performance and their ability to pay was the key factor influencing salary increases. Inflation levels are also important, cited by 79.5% of respondents. While inflation is expected to push up pay award levels, company performance is expected to exert a downward pull.

However, the desire to retain staff and recruit into areas where there are skills shortages could have a positive impact on wage levels. Recruitment and retention were cited as the most important upward influences on pay settlements over the next year.

In the three months to the end of September 2012, the whole economy median pay award fell to 2%, from 2.4% in the previous quarter. This was due to continuing pay freezes and low awards in the public sector, and a slight downturn in private-sector pay increases from 2.5% to 2.3% over the period.

The gap between private-sector pay awards and inflation has fallen to just 0.3 percentage points, which may be as close as it gets, according to XpertHR. Retail prices index (RPI) inflation stood at 2.6% in September 2012, but is predicted to rise again this month. Most organisations (83.3%) refer to the RPI measure when determining pay awards, although a growing number now also use the consumer prices index (CPI) figure.

XpertHR’s pay and benefits editor Sheila Attwood said: “Our latest data shows a small dip in the level of pay awards, while the predicted 2.5% pay increase in the year ahead demonstrates continued caution on behalf of employers, who will again primarily assess company performance and their ability to pay when setting their pay award budget. Employers are also looking at how they can attract and retain employees in the current climate – from keeping an eye on competitors’ pay rates to being creative with their reward budget.

“Further evidence of a continued squeeze on pay award budgets comes from the finding that 60% of respondents reported that ‘controlling paybill costs’ will be a top priority for their reward department over the next year.”

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