Reading Time | 2 mins

A quarter of employers looking to freeze pay

Share this article

One in four employers are planning to offer no wage rises this year, a new study has revealed. Others have changes to their pension arrangements in the pipeline.

The latest Reward Survey from the Chartered Institute of Personnel and Development (CIPD) found that 26 per cent of the respondents to its poll intend either to maintain or to impose a pay freeze.

Some 65 per cent aim to increase base pay in 2011, while 9 per cent are delaying their annual pay review.

However, the overwhelming majority (99 per cent) have no plans for a reduction in wages.

The survey covered some 280 employers.

Market rates were cited as the most important element in setting pay levels by 60 per cent of firms, while the ability to pay counted as most important for 26 per cent.

When it comes to managing pay progression among employees, there was a strong bias towards performance-related settlements, with 61 per cent saying this was the favoured approach, either on its own or in combination with another factor, such as competencies.

Two-thirds (67 per cent) of employers were operating performance-related reward schemes, for whom merit pay rises (56 per cent) and individual bonuses (54 per cent) made up the most common forms of reward.

The study examined pensions too. According to its results, almost all organisations provided employees with some form of pension scheme that included an employer contribution.

Of these schemes, 69 per cent were defined contribution and 25 per cent defined benefit.

But two out of five employers (41 per cent) are planning to amend their pension arrangements in the coming year. For 28 per cent that will involve a shift to salary sacrifice, for 26 per cent an increase in employee defined benefit contributions, and for 21 per cent a move from the RPI measure of inflation to the CPI as a means of gauging pension payments.

On the scrapping of the default retirement age, the majority (52 per cent) appeared relaxed about the change, saying they would allow employees to work as long as they are able so that they have the opportunity to build up savings for their retirements. Four out of 10 (42 per cent) thought it was too early to say what their response would be, 25 per cent said they would improve their performance management system, while 12 per cent will objectively justify a retirement age.

Commenting on the survey, Charles Cotton, the CIPD’s performance and reward adviser, said: “In the context of public sector spending cuts and cautious economic growth in parts of the private sector, it’s not surprising that not all organisations have been in a position to make a pay award this year.

“The findings also show that this competitive environment is having the effect of encouraging employers to focus on linking pay rises and bonuses to employee and organisational performance.

“We expect that there will not be much change to the proportion of organisations making a pay award in 2012. Some private sector organisations will also find it hard to increase pay if their part of the economy does not grow as quickly as anticipated.”