Over the last two weeks we have been running the Pay Trends Roadshow 2017. We’ve been talking to HR professionals about the key issues coming up this year, including an overview of economic predictions, Brexit implications, and the real figure behind pay settlements – and most importantly, what this means for HR. Read on for part one of our key points from the Roadshow.
Economy
For UK businesses, 2017 will be a year of uncertainty. In 2016, GDP growth was 2%, down from 2.2% in 2015. Forecasts for this year have recently been uplifted to 2% from 1.2% demonstrating the unpredictability of the future. The CPI measure of inflation reached 1.6% in December, up from just 0.3% at the start of 2016. Predictions are that CPI could reach 2.3% this year. Unemployment in Aug-Oct 2016 was 4.8%, down from 5.2% a year earlier. Forecasters expect unemployment to rise back to around 5% in 2017, but we think this is unlikely, as EU nationals potentially start to leave the UK.
What this means for HR
Higher inflation means another year of little or no real wage growth and continued low unemployment will put pressure on talent acquisition so:
- Use your pay pot carefully – the cost of recruitment will be high and hanging on to talent will be challenging. Use data insight tools, like PayLab, to provide greater insight into your pay decisions.
- Understand the real picture with analytics – do you know who your flight risks and past glories are?
- Calculate the value of your leaky bucket – how much are you spending outside the pay review?
Brexit effect
The value of the pound has fallen significantly since the EU referendum; from 1.1997 EUR in July last year to 1.1327 EUR in January. Depreciation will boost net trade initially, but the fall will also add almost 2% to consumer prices over the next two years, squeezing households’ budgets. Furthermore, an uncertain outlook for businesses may lead to a lack of investment in infrastructure, jobs and people.
What this means for HR
It’s businesses that can make or break the economy around Brexit. They should:
- Provide strong and confidence boosting employee communication, sharing the message that ‘you are important to us and we will look after you’.
- Continue to invest in people and differentiate their employee deal.
Industry effect
Pay settlements in 2017 are predicted to remain around the same level as previous years, with the private sector median pay award expected to be 2% again. However, there is some variation across sectors; the not for profit sector is predicted to be 1.5% in 2017, the construction sector will see the highest median pay award worth 3% due to long term skills shortages and the financial services sector is predicted to be 2.3%.
The real story here will be the National Living Wage rise from £7.20 to £7.50 – a 4.2% increase. What effect could this have on the median pay award in sectors like retail, hospitality and healthcare where there is a high proportion of lower paid workers?
Staying power
The 2% median pay settlement figure hides a different picture – the real figure behind the headlines is actually 4.6%. This is the wage growth for employees in continuous employment (in one role for more than one year). In April 2016 median earnings for this group grew by 4.6%, up from 4.3% in April 2015 (ASHE, ONS). This is twice as much as the annual review pot and the impact of the number is huge – it’s driving unseen wage inflation, despite the pay pot of 2%. Do you know how much your business is spending and on whom?
Look out for part two of this blog next week, where we will share highlights of the legislative issues covered in the Pay Trends Roadshow 2017. For more information on Pay Trends, call us on: 020 3457 0894.
