Salaries will increase on average by 2.5% in 2011, driven primarily by cautious private sector recovery, according to the Hay Group’s PayNet UK Salary Tracker.
This optimism also assumes that UK economic performance continues to improve and does not enter a “double dip” as some commentators have suggested could be the case.
However, the report found that pay in real terms is decreasing and this trend is likely to remain in place for the foreseeable future.
The quarterly report looks at how employees’ pay compares with a range of key economic indicators to reveal the true picture. It is based on data from Hay Group’s PayNet UK database, which includes reward information for more than one million employees across all industries.
The report says that the marked increases in both the retail prices index (RPI) and more notably the consumer prices index (CPI) in the last 12 months have eclipsed the cautious progress in salary inflation driven primarily by the private sector recovery, to the point where there is a genuine concern that a wage/price spiral could become a reality further driving up inflation in the UK.
Employee engagement was identified as a key priority for organisations in the UK in the coming year, which the report anticipates will be the case throughout 2011.
The challenge for organisations, particularly in the private sector, will be to effectively balance the need to reward employees competitively and equitably in the context of improving business performance without fuelling the very inflation that is driving increased salary demands that could ultimately threaten recovery.
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