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Pay matters in 2012 (but then doesn’t it always?)

As we enter the new year economic uncertainty looks set to persist, notwithstanding improving inflation figures (see under “Economics” below). As one commentator puts it: this uncertainty “masks a real range of business contexts and subsequent actual and planned reward practices”. At one extreme there will be base pay freezes and/or very limited pay spends (most notably, of course in the public sector) at the other bonuses are likely to re-emerge and the continuing issue of “how to get the rewards right for top performers” will remain.

The recently announced steep rise in rail fares will, of course, hit those employees using that means of transport to get to work and can therefore be expected to put pressure on any pay negotiations in the short term.

Another pressure on pay levels is likely to arise if the report from Bersin & Associates that spending on talent acquisition is increasing by some 6% (2011 compared to 2010) is to be believed.

Finally according to the recent CIPD Reward Risks Survey employees are concerned about their overall reward package and their employer’s ability or otherwise to increase pay levels.

In such a context using a limited pay budget to maintain market competitiveness in the pay of your staff and particularly those with in-demand knowledge and skills remains a persistent priority we believe.

The key question here is how often should you review your pay arrangements to ensure that they remain market competitive? We would recommend that an annual review should be carried out or at the very least once every 2 years.

Economics

At last inflation, as measured by both the Retail Prices Index (RPI) and the Consumer Prices Index (CPI) has dipped below the 5%+ levels that were seen in 2011. Commentators ascribed this fall to the plethora of special offers by the retail trade in the Christmas period  as an effort to boost sales and it therefore remains to be seen at this stage whether this fall will continue as 2012 unfolds. Certainly the fall was forecast and, it is expected to be maintained which will obviously then influence pay negotiations, many of which take place in the early months of the year.

Pay Bargaining Stats – January 2012

Inflation

Headline inflation
Retail prices index (RPI): 4.8% (December 2011)
Next release date: 14 February 2012.

Underlying inflation
Retail prices index excluding mortgage interest payments (RPIX): 5.0% (December 2011)
Next release date: 14 February 2012.

Consumer prices
Consumer prices index (CPI): 4.2% (December 2011)
Next release date: 14 February 2012.

Inflation forecasts
Q1 2012: 3.9%; Q2 2012: 3.3%
Next release date: 24 February 2012.

Pay Settlements

Xpert HR  headline pay measure
The XpertHR measure of pay awards - the midpoint in the range of basic pay deals - stands at 2.5% in the three months to 31 December 2011, up 0.5% from the revised figure for the previous rolling quarter, according to the latest provisional analysis. The inter quartile range stands between 1.6% and 3.0%.
Next release date: 24 February 2012.

Engineering and manufacturing (EEF)
Average settlements for three months ending 31 December 2011:  2.4%
Next release date: 24 February 2012.

Manufacturing and services (LRD)
Median settlement levels for three months ending 31 December 2011: 2.5% (manufacturing);  2.5% (services)
Next release date: 24 Febuary 2012.