Private sector pay awards to stay high in 2008

One in three private sector employers expects to come out of the 2008 wage round with a settlement of 4% or higher, according to the latest report from a long-running research series by Personnel Today’s sister publication, Employment Review.


Listen to our Audio Guide on private sector pay settlements 2008. IRS pay and benefits editor Sarah Welfare talks to Rob Moss about likely pay settlements for next year 


The annual Pay Prospects Survey is based on responses from 350 organisations with more than one million employees. The survey asks employers about the factors affecting pay settlements and asks them to predict the outcome of the next pay round.

This year’s survey found that just one in seven employers (14.5%) expects to see pay awards fall below 3% during 2008, while 27.7% anticipates settling at exactly 3%. And until the surge in awards that produced a new ‘going rate’ of 3.5% at the end of 2006, settlement levels had scarcely twitched away from a headline 3% for nearly eight years.

In a clear indication of the continuing pay pressures in the private sector, 23.7% of employers expect to settle at between 3.1% and 3.9% again next year, while one in five (21.5%) expects to have to pay between 4% and 4.9%. One in eight employers (12.6%) anticipates having to increase pay by 5% or more during 2008.

One-third believe settlements will rise

One in three employers (33.4%) expects to have to make a higher pay award in the 2008 wage round than they did this year, the Employment Review survey shows.

This time last year, just over one in four (27.3%) expected to have to raise settlement levels over those reached in 2006.

The survey suggests there is more uncertainty this year, however, with just under half (49.9%) anticipating that the 2007 pay award will be repeated again this year.

And while the number of employers expecting to pay more has risen, so too has the number expecting to pay less. One in six employers (16.7%) believes they will be able to make a lower pay award in 2008 than in 2007. Last year’s survey found less than half this number (7%) expecting to see pay awards fall.

A more detailed breakdown shows that more companies in the services sector (35.6%) than in the manufacturing sector (28.9%) expect to see pay awards rise in 2008. Correspondingly, fewer service sector firms (13.1%) than manufacturers (23.9%) expect pay awards to fall.

Inflation and recruitment costs driving wage awards up

Inflation and the rising costs of recruitment and retention are the key pressures driving wage settlements up, according to the survey.

However, rising pension costs, poor company performance and employers’ inability to raise prices are keeping awards in check.

Respondents were asked to indicate which, from a series of 14 factors, were influencing the level of pay awards and to say whether each tended to drive settlements up or down.

The survey also shows that just 21% of private sector employers will use the CPI inflation index adopted by the government for public sector pay awards. Four out of five plan to stick with the Retail Prices Index.

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