Is the cost of an engaged workforce as little as a 3% pay rise?

By Charles Cotton, CIPD Performance and Reward Adviser, @CharlesMCotton

Employees in their 30s, 40s and 50s have suffered substantial falls in income, although the sharpest drops have been felt by younger employees, according to research commissioned by the Joseph Rowntree Foundation. Since 2007, there has been a 15% drop in real wages for people in their 20s, much more than the 6% drop experienced by 31 to 49 year olds. The research raises fears that the plight of young people will cause problems in the future.  

However, despite this gloomy outlook, analysis of the pay data from the CIPD’s summer Employee Outlook finds some grounds for optimism. It shows that those aged between 18 to 24 years and lucky enough to be in employment have been more likely to see their pay go up and more likely to have enjoyed a higher rise than any other age group. While 35% of this age group got a pay rise (worth 4.8% at the median) just 24% of those aged 55 and over got an increase (worth 2%). 

What else does the survey tell us? In the first half of the year, 30% of those questioned have enjoyed a pay rise, up on the 28% recorded this time in 2013 and on the 25% in 2012. However, when we look at the size of the pay awards enjoyed by those reporting an increase we find that the size as measured by the mean (and median) has dipped from 2.5% to 2% (4.37% to 4.32%), which is perhaps surprising given the UK’s economic success over the past 12 months. 

Another interesting finding for me was that despite the economic growth enjoyed by the south east, only 31% of those workers employed in London reported a pay rise, while just 28% of those employed in the south east also saw their pay go up. By contrast, those employed in the north have been more likely to get a pay rise: Scotland (38%), the North East (34%) and North West of England (33%). These findings may be a reflection of the composition of industries in the various regions.  Within manufacturing and engineering, 45% of employees saw their pay rise, while in finance 47% of the workforce has seen a pay rise to date. Shockingly, just 17% of those working in Wales have reported a salary increase since the start of the year. 

The survey also finds an association between employee engagement and a pay rise. Employees that are engaged are more likely to have received a pay rise (and one that is higher) in the first half of 2014 than those workers who are neutral (ie neither ‘engaged’ nor ‘not engaged’). The median pay increase received by those that are engaged is 3%, while the median award reported by those that are neutral is 2%. 

But, those employers that didn’t increase salary levels by 3% in the first half of 2014 should not start to panic. From the data, it’s not possible to make judgements around cause and effect and conclude that if all employers had given their staff a pay award worth 3% or more, then employee engagement would have been a lot higher.  

The data from our survey indicates that pay is only one part of the explanation and that there are other factors at work in creating employee engagement, job satisfaction and cultural fit. These could be related to existing salary levels; the level of benefit provision; feelings of being treated fairly; various non-financial rewards as well as the mission and vision of the organisation and the quality of its leaders; and external factors, such as the cost of living. So, while pay plays a significant role it is not the only factor at work. 

Finally, it is worth reflecting that despite being less likely to get a pay rise, those aged 55 years or over are slightly more likely to be engaged (46%) at work than those aged between 18 and 24 (43%) indicating once again that while pay is important is does not explain the whole picture. Rather like the 2014 football world cup winners, all elements of total reward, including pay, have an important part to play in the team and there should not be an overreliance on any one aspect.

The full survey results can be viewed here.

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