Employers to rein in pay in 2020

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​As UK employers plan to scale back pay rises next year they must consider how to retain and motivate staff

Employers expect to offer a median 2.1% annual pay settlement between now and the end of August 2020, compared with an average 2.5% over the past 12 months, according to XpertHR.

Pay settlements are the official agreement of pay increase made between a company, its employees and the unions that represent them.

Manufacturing firms are predicting slightly higher pay rises of 2.2%. Meanwhile employers in the services sector are expecting a median pay award of just 2% over the coming year, down from 2.5% in the year to the end of August 2019. This was in line with elsewhere in the private sector, however, where the most common pay award forecast is 2% and half of pay awards are expected to fall within 2% to 3%.

XpertHR also found that average wage growth (which usually exceeds pay settlements because of the effect of promotions and job changes), rose to an 11-year high of 3.9% for the three months to July, before slowing slightly in August.

Unemployment is close to its lowest since the mid-1970s at 3.9%, but there was an unexpectedly sharp fall in hiring in the three months to August, raising concerns that a slowdown in the rest of the economy is spreading to the job market.

The British Retail Consortium said in a separate report on Thursday (24 October) that a long-term decline in the number of retail jobs had continued into the third quarter, though more firms planned to add seasonal staff in the run-up to Christmas than in 2018.

XpertHR pay and HR practice managing editor Sheila Attwood said that employers must think about how to motivate employees in uncertain climates: “While the strong labour market continues to put pressure on employers to raise wages, other costs and an uncertain outlook could well mean lower pay rises for employees.

"It's not particularly surprising that employers are seeking to put the brakes on pay next year – British businesses are operating in an uncertain climate, and many are taking contingency measures. However, in the middle levels of many organisations pay has barely kept up with inflation for the past decade, and organisations do need to consider how to keep their talent engaged and thriving in the workplace."

Ben Frost, solution architect at Korn Ferry, said that there are other options employers should consider if they can’t increase pay. "While not all businesses are in a financial position to offer monetary rewards to attract and retain top talent there are other ways to meet employees' expectations, especially as they increasingly demand flexibility and learning opportunities,” he said.

“There's a wealth of options that organisations can pursue, from flexible working schemes for a better work/life balance to robust career development programmes and creative working environments. At a time when buckles are tightening it's vital to ensure that your people are engaged, and businesses need to consider what other ways they can meet their needs and communicate the benefits associated with their brand."

XpertHR surveyed 123 private sector employers.

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