UK employees will experience one of the lowest base salary increases in the world this year and are likely to see their bonuses decrease as employers continue to make cut backs during the recession.
According to research by Hay Group, the 1.46% average pay rise falls well short of the global mean of 3.8% and lags behind all but six of the 88 countries in the global study, including other troubled Western economies such as France (2.2 per cent), the USA (1.78%) and Germany (1.48%).
The Global Reward Survey also revealed that UK employees have also seen their bonuses significantly reduced this year. Over two thirds (70%) of UK organisations reported that their short-term variable pay programmes such as bonuses, incentives and profit sharing paid out less than target in 2008.
Though the proportion of UK employers freezing pay (38%) is broadly on a par with the rest of the world (36%), the scale of cutbacks on staffing levels is higher: 36% compared to 27% globally.
Colin Evans, UK head of reward services at Hay Group, said: “While senior executives’ salaries and incentives are being hardest hit, employees further down the organisation are bearing the brunt of restructuring and job losses.”
One third of companies with defined benefit (DB) pension schemes are considering changes, with 36% closing to new members, 28% planning to move members to a defined contribution scheme and 26% decreasing benefit levels.
Short-term variable pay
Looking ahead, more than a third (36%) of employers are making or considering changes to the design of their short-term variable pay programmes in 2009. In most cases, these employers are increasing the performance thresholds required to qualify for a bonus.
HR and reward professionals fear the impact on their organisations of such short-term actions in the face of the economic climate. Almost all (90%) of employers expressed concerns about employee morale. The same number are also worried about their ability to retain critical skills and talent.
“There is huge pressure on organisations to cut staffing costs quickly. But the focus on short-term measures, particularly reducing headcount, may jeopardise the UK’s ability to bounce back come the eventual upturn,” said Evans.