PAY RISES PREDICTED AT 2% in 2021

Posted on 21st March 2021

XpertHR's latest research into private-sector employers' pay intentions for 2021 suggests that last year's reading of lower pay awards and an influx of pay freezes is likely to be repeated.

For many organisations, pay reviews over the past year were low priority as the need to protect jobs and ensure the viability of the business took precedence. Over the 12 months to the end of December 2020, XpertHR recorded a median 2% pay award, down from 2.5% over the same period the previous year. One-fifth (19.3%) of all pay awards resulted in a pay freeze, compared to around one in 20 (5.3%) in 2019. Almost all the pay freezes recorded in 2020 affected the private sector.

Looking ahead, the analysis finds that just over half (55.5%) of employee groups can expect a pay rise this year. Pay freezes are still a reality, with 7.7% expected to see no increase in their salary at all. In addition, the outcome for a further 36.8% is uncertain and they may not have their pay reviewed this year. Some organisations are clearly taking a "wait and see" approach to their annual pay review while they assess the impact of the coronavirus pandemic on business performance and decide whether or not any pay increases are affordable, with a number of those currently undecided hinting that the outcome may well be a pay freeze.

The survey respondents are predicting a median 2% pay award for 2021, with likely increases closely bunched around this figure. Key findings include the following:

- Predicted awards are tightly bunched around the median, with the middle half falling within a narrow 0.8 percentage point range, between 1.5% and 2.3%.
- The most common pay award predicted is 2% (40.2% of forecasts).
- In the manufacturing-and-production sector, a median 2% pay award is forecast. The middle half of pay awards are expected to fall between 1.5% and 2.2%.
- Private-sector services employers also predict a 2% pay award for 2021, with the lower quartile expected to fall at 1.5% and the upper quartile at 2.5%.
- Almost one-third (30.3%) of pay awards are forecast to be worth less than 2%.

Based on a sample of 170 pay awards for the three months to the end of February 2021, XpertHR found the following:

- Median pay award unchanged. The median whole-economy basic pay award is worth 1% for the third consecutive rolling quarter.
- Interquartile range remains wide. Both the upper quartile (at or above which the top quarter of deals lies) and the lower quartile (at or below which the bottom quarter of deals sits) are unchanged, with the interquartile range between nil and 2%. A high proportion of pay freezes means that the lower quartile (at or below which the bottom quarter of deals lies) has not shifted from nil for eight consecutive rolling quarters.
- Eight in 10 deals are lower. Among a matched sample of pay awards, 80% were lower than in the previous year, while 15% made the same award. Just 5% of groups have seen a higher award.
- Pay freezes account for one-third of reviews. One-third (34%) of the settlements recorded in the current three-month period have resulted in a pay freeze.

XpertHR pay and benefits editor Sheila Attwood said: "Employers are taking a cautious approach to deciding pay increases, with many still uncertain of the outcome of any 2021 pay review. However, the decision is not an easy one to make. Not only are organisations navigating how to balance staff morale and retention with affordability, they are also trying to work out how their reward strategies fit with new and emerging work models."

For more information visit xperthr.co.uk