Pay increases could rise above 3 per cent

Over the next 12 months, almost nine in 10 (87.5 per cent) private sector employers expect to award their staff a pay increase that matches or exceeds their previous settlement.

But in their in an annual survey launched today in IRS Employment Review, a sister publication of Personnel Today, pay experts are worried that UK pay awards cannot stay at the standard 3 per cent.

In the year running from 1 September 2004, employers predict that four in 10 (40.4 per cent) pay settlements will be worth 3 per cent. When making their pay decisions employers will be weighing up a number of conflicting pressures, including their ability to pay and the rate of inflation.

However, as headline inflation edges upwards, employees could see their pay rises fall behind cost of living increases if the 3 per cent pay benchmark is not breached.

IRS Employment Review pay and benefits editor, Sheila Attwood said: “The IRS headline measure of pay awards has remained remarkably stable over the past year at 3 per cent.

“Although many employers are looking to replicate this over the coming year, there is a real possibility that pay rises will move above 3 per cent in the early months of 2005, in response to higher inflation at the end of this year. But this is unlikely to be sustained beyond that time, and pay settlements will fall back to our 3 per cent plateau.”

Key findings

– The manufacturing sector is less likely than the service sector to make higher pay awards in the year ahead. Six in 10 (60.2 per cent) manufacturing pay awards are tipped to be the same. A quarter (25.4 per cent) are likely to receive a higher increase while 14.4 per cent are facing a lower settlement

– In the service sector, more than one third (36.4 per cent) of bargaining groups are expected to receive a higher award, 53.1 per cent are forecast to be worth the same as the previous year, while just 10.5 per cent are looking at a lower settlement.

Key influences on pay

– The main factors driving the level of future pay awards continue to be company performance and ability to pay; the rate of inflation, and pay levels in other organisations in the same industry sector

– More than half the respondents (54 per cent) expect company performance to exert an upward pressure on the level of their next pay award, although a further 44.2 per cent believe it will serve to keep the level of pay settlement down

– The rate of inflation is forecast to put upward pressure on 38.7 per cent of pay settlements over the coming year, while 29.5 per cent of employee groups could see this measure forcing settlements lower.

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