What happened to wages in 2016?

Charles Cotton, CIPD Performance and Reward adviser

Despite economic growth in 2016, only slightly more employees got a wage increase in 2016 (53%) than did in 2015 (51%), according to the CIPD’s latest Employee Outlook focus on pay and pensions.

While the proportion of private sector staff enjoying a pay rise has remained stable between December 2015 and December 2016 at 52%, the percentage of public sector workers reporting a salary increase has jumped from 45% to 58%. This makes December 2016 the first time since 2009 that public sector workers have been more likely to get a pay rise than their private sector colleagues.

Those workers aged between 25 and 34 years are most likely to have had a pay rise (58%), while those aged 55 or older have been less likely (51%) to get a salary increase last year. Those working for a larger organisation (250+ staff) are most likely to have had a wage rise in 2016 (63%) than those working for a micro (30%), small (39%) or medium-sized (55%) employers.

When comparing pay predictions for 2016 made by employees questioned in 2015 with actual pay outcomes reported in 2016, there’s a significant difference between the proportions forecasting a pay rise in 2016 (67%) and the proportions actually getting one (43%). While 70% of those working in the private sector had expected a pay rise, only 52% have got one. However, in the public sector, 60% of staff thought that their salaries would increase in 2016 and 58% did get a rise.

One of the big stories in 2016 was Brexit, so is there a difference in pay rise terms between those who are more or less optimistic about the future because of Brexit? Given that those workers aged 55 and over are most optimistic about Brexit but least likely to have had a pay rise one might have assumed that those who are positive about Brexit may have been less likely to have received a pay rise

However, this assumption is not borne out by our survey. While 53% of those who are pessimistic about the future because of Brexit (typically younger workers) have received a pay rise, almost the same proportion (51%) of staff who are optimistic about the future because of Brexit have had a salary increase. If we focus just on the private sector, 53% of those who are negative about Brexit got a salary rise, while 50% of those who are positive about Brexit got an increase as well.

Among those workers who have enjoyed a pay rise, the increase as measured by the median is worth 2%, higher among the young (3%) and those working in micro organisations (4%).
The Retail Prices Index for December 2016 stood at 2.5%. Based on this threshold, 17% of all workers have enjoyed a pay rise that matched or exceeded this level (20% of all private sector workers and 1% of all public sector staff). A further 35% have had a pay rise, but it was below 2.5% (30% of all private sector workers, 51% of all public sector staff). Of those who got a pay rise of 2.5% or more, 89% were satisfied with the pay decision compared with 56% who got a pay rise less than this percentage.

Are people happy with their pay increases? Of those who have received a pay rise, the net satisfaction score is +37 in 2016, down on the +42 recorded in 2015, but similar to the +37 recorded in 2014 and the +39 in 2013. The main explanations given by employees for satisfaction with their salary increase are: it reflects the state of the economy (19%), it has kept pace with the cost of living (17%) and their pay is above what they could get elsewhere for doing the same job (18%).

By sector, the most common explanation for satisfaction among those employed in the private sector is that their pay increase has kept pace with the cost of living (18%); by contrast, among public sector staff it’s because the increase reflects the state of the economy (30%), while among voluntary sector workers it’s because it didn’t discriminate against them (25%).

The main explanations given for dissatisfaction with salary increase are: it has not kept pace with the cost of living (56%), it didn’t reflect how well they had performed at work (23%) and their pay is below what they could get elsewhere for doing the same job (19%).

Previous surveys have shown the impact that employee communication can have on employee perceptions of their pay rises. Typically, those employees that report that their employer communicated to them about the rationale behind the pay decisions are more satisfied with their pay rise than those employers who do not. Similar findings occur when we ask employees whether their organisation communicated to them about the decision to freeze or cut pay in their workplace.

Fail to communicate and you could achieve a negative reward on your investment in an employee salary rise, our research suggests. Get the communication wrong and you could fail to reap the benefits from an employee salary rise. It’s important, that employers don’t assume that a pay rise communicate itself, you need to craft a narrative explaining why the decision was made as well as how.

For more information about this research visit https://www.cipd.co.uk/knowledge/fundamentals/people/pay/outlook-pay-pensions-report 

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