It's almost six months since our Pay Trends roadshow in January, where we shared our predictions for pay, reward and HR in general in 2015. But, what’s happened so far? Let's take a look at our forecasts and how they feel six months on.
Economy
We said…
- Uncertainty around inflation and higher interest rates will fuel the push for higher wages and employee mobility
- Competition is coming from being 'self-employed' and new business start-ups as well as traditional sources
What’s happened so far…?
Well, inflation has been at its lowest since the end of 2009, sitting between 0.9 - 1.1% in the first four months of this year. Recent reports indicate that the Bank of England base rate is set to remain at 0.5%, until the first predicted increase in August next year. If the low rate of inflation and low interest rates continue, pressure on increasing wages may ease. However, over one in seven of the workforce is self-employed, above the European average, which suggests different employment models are on the rise.
Pay
We said…
- Businesses will continue to be cautious with pay budgets, following the trend of more strategic merit-based increases
- There will be a great deal of focus on the bottom end of the pay ladder and we'll see more initiatives that aim to help the lowest earners
- Behind the scenes, there's a 'grey economy' where pay reviews tell one story and the reality of pay movement another
What’s happened so far…?
Latest figures from XpertHR show there's still no sign of higher wage rises; in the three months to the end of April 2015, the median pay award sits at 2% for the 13th consecutive quarter. XpertHR also indicate private sector organisations are predicting 2% as the going rate for pay awards going into early 2016.
During the General Election campaign, the Conservatives pledged to increase the personal tax allowance, taking all those on Minimum Wage out of tax altogether. Now they're in government, we await this change.
Last year, statistics from the ONS revealed that pay for those in role for more than one year had risen by 4.1% - quite different to the median pay award of 2%. This difference is likely made up of out of cycle pay reviews, retention payments and higher recruitment salaries which are not declared as part of the main annual pay review pot. It’s probable that this 'grey economy' will continue, with greater competition in attracting and retaining talent.
Executive pay
We said…
- There will be greater emphasis on executive STIP/LTIP design rather than the size of the package and businesses will need to meet increasing demand from shareholders
- There will be focus on designing the 'perfect LTIP' that is meaningful to the business and attracts and engages great talent – LTIPs will have more meaningful metrics and longer performance periods.
What’s happened so far…?
Interestingly, the High Pay Centre has recently announced that they want to see LTIPs scrapped in favour of payouts based on a wider set of objectives. Their research suggests that LTIPs are still subject to short-termism; encouraging execs to play the system to maximise their potential earnings. They suggest moving towards less tangible metrics such as productivity measures.
Reward
We said…
- Holiday pay ruling could lead to a significant rise in payroll costs and potentially the re-design of variable pay schemes
- There'll be increased transparency around pay and reward so employers remain attractive to existing staff and new talent
- Businesses will need to review variable pay and recognition to make sure it is geared towards stimulating productivity
- Tight budgets and the challenge of differentiating yourself as an employer will lead to more creative benefits
What’s happened so far…?
Earlier this year, the UK employment tribunal applied an extra subsection to the Working Time Regulations which provides that the holiday pay of a worker whose pay normally includes commission should be varied to reflect the amount of work done. Businesses need to act on this to make sure they don’t fall foul of the ruling.
Again in the run up to the General Election, the Conservatives outlined their plans to require large companies to publish details of differences between average levels of pay for men and women. Gender disclosure is a good place to start with being more transparent. But surely it's only a matter of time before organisations feel pressure from employees for greater transparency around pay generally too. This said, only five big companies have published these details so far (Walmart and eBay refused); so is it a reputational risk for companies?
