Bigger pay increases in 2007

Nov 06 2006 by Brian Amble Print This Article

Many people in the UK look as if they will be in line for bigger pay increases next year as inflationary pressures force employers to contemplate more generous wage settlements.

That's according to latest annual Pay Prospects survey by pay specialists Industrial Relations Services (IRS).

Overall, respondents to the survey said that they expect pay awards in the next year to range from 1.2 per cent to 20 per cent, with a median forecast pay rise of 3 per cent.

Half of all pay deals next year are expected to be worth between 3 per cent and 4 per cent, with almost eight out of 10 private sector employers expected to receive pay awards worth 3 per cent or more,

Over the past year, only around half (53 per cent) of awards have been at this level.

More than a quarter (27 per cent) of pay rises in the next year are expected to be higher than the previous year, the survey suggests, while just seven per cent of employee groups are predicted to receive a lower pay rise in the year ahead.

That means that almost two-thirds (65.7 per cent) of all employee groups can expect their next pay award to be roughly the same level as their most recent increase.

The key influences on the level of pay rises over the next year will be company performance, ability to pay and inflation. However, company performance is expected to produce a net downward pull on settlement levels, while inflation is expected to provide a significant upward pressure on the level of pay awards.

Of the companies that take inflation into account, almost two-thirds said that they would be looking to set their next pay award at the level of their chosen measure of inflation. A third intend to pay above inflation and fewer than four per cent predict that they will make a below-inflation pay increase.

Asked what reward systems were used at their company, more than half (55.1 per cent) of firms report that they use performance-related pay for at least some of their employees, making this the most popular reward strategy for eight consecutive years. Market-linked pay (used by 44.4 per cent of companies) and cash bonuses (44.4 per cent) are the next most commonly-used reward tools.

"We have found that the majority of pay deals in the past year were worth less than in the previous year. This pattern could well be reversed over the 2006/07 bargaining year," said IRS Pay and Benefits editor, Sarah Welfare.

While we continue to expect many employers to settle for a 3 per cent pay rise in the coming year, with headline inflation continuing to rise, there is a significant upward pressure on pay increases and we expect to see the proportion of deals worth more than 3 per cent increase significantly."