The recession varied widely across the economy but, overall, earnings growth for most people was very modest. So what is the outlook for 2010?
Alastair Hatchett, head of pay and HR services, Incomes Data Services
Publication date: 14 January 2010
Source:
People Management magazine
The impact of the recession in 2009 varied widely across the economy. The recession in manufacturing and construction was severe and there were widespread pay freezes. At the other end of the spectrum, though, sectors that were much less affected, such as energy supply, food retailing and pharmaceuticals, saw continued pay rises – as did, oddly, the finance sector. While around one-third of private-sector companies asked for pay freezes, largely to safeguard jobs, around two-thirds of firms awarded increases, with the bulk in the 2 to 3 per cent range. Overall, earnings growth for most people was very modest. So what is the outlook for 2010?
1 Inflation returns after a year off. Pay freezes were more palatable in 2009 because retail price inflation was in unprecedented negative territory. From January 2010, RPI inflation will move sharply back to a more usual 2.5 or 3 per cent level. Private-sector pay rises of 2 to 3 per cent are anticipated as economic recovery takes root.
2 Pay freezes are thawing out. Some pay freezes last year were seen as deferring decisions, while others were emergency reactions to a critical collapse in demand. Some involved an implicit suggestion that discussions would resume when things got better. Many of those employers that chose to freeze pay in 2009 now hope to award increases in 2010, while others that did not freeze pay last year will seek to keep increases in 2010 to a modest level.
3 Recessions create anomalies. Some companies froze salary scales last year but chose to pay progression increments. Some chose to pay bonuses but freeze basic pay, while others increased basic pay but decided to freeze bonuses. Many firms went down the route of freezing recruitment and promotions. As the economy begins to open up again there will be all sorts of pay anomalies to deal with.
4 Pay benchmarking. This will be used to re-establish market-related salary levels and to adjust all salaries and benefits that have gone out of line during the recession. Market adjustments will help to sort out anomalies and may well take place outside of annual pay reviews.
5 Bonuses make a return. Huge bonuses for executives in the banking sector were cut back in the first months of 2009, while regular bonuses for retail staff in banking were paid. Elsewhere, bonuses in manufacturing were not triggered, whereas they were in retailing. The idea that bonuses are essentially a form of “variable pay” has taken a knock, as many people are now arguing that they should be guaranteed.
6 Career development. This may have been set back or put on hold by employers looking to curb their pay bills and put a freeze on roles changing. Reward managers need to review their employees’ career development plans in 2010 to avoid a scenario whereby talented staff decide to pursue their careers elsewhere.
7 A public-sector pay clampdown. Politician and pundits have been clamouring for pay limits or freezes in the public services. The detail remains to be decided about what will be frozen and what will not. Will progression payments still be paid? Will pay review bodies stand up to the politicians?
8 Rewards for failure. It is a strange logic that concludes that a financial crisis that started in banking should be resolved by freezing the pay of nurses, teachers and classroom assistants. Prior to the recession, many leading people in HR pointed to reward systems in the banks as the most sophisticated on offer. Meanwhile, it was noteworthy in 2009 that many companies choose to freeze executive pay and make modest pay awards to staff in lower grades.
9 Employment relations. So far, employment has remained remarkably resilient throughout the economic downturn. The dire predictions that unemployment would reach 3 million by Christmas have not been realised. This has been attributed largely to Britain’s flexible labour market. But, in reality, was it not achieved by HR managers and union representatives in tough negotiations to save jobs, freeze pay and use short-time working to retain skills? Does this mean that the recovery can be built on firmer employee relations foundations?
10 Talent. Total reward and talent management may have taken a bit of a knock in the recession, which has seen recruitment freezes and redundancy as dominant themes. A culture of disengagement may have taken hold. As economic recovery comes this year, can total reward work in a period of austerity? The recession may have challenged existing reward systems and some new thinking might be essential in 2010.
What are your hopes and expectations for HR in 2010?
David Fairhurst, chief people officer, McDonald’s UK and Northern Europe-
For young people looking to take their first steps in the world of work, 2009 will be a year many will want to forget. In 2010, employers should redouble their efforts to invest in Britain’s young people – young people who are simply looking for the opportunity to prove themselves.
We provide thousands of young people with their first taste of work each year, but we’ve been asking ourselves what we can do to support those who don’t get a job with us. We’ve concluded that work experience has a crucial role to play as an alternative way of building their employability.
As a result, we have been working closely with employers and charitable organisations in the Work Inspiration movement, to try to improve the first experience of work for more than 500,000 young people every year. Although 2010 may not turn out to be a great year for employment, it can still be a great year for employability – given the support of organisations across the UK.
Ann Pickering, HR director, O2 UK
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The past 18 months have left businesses across the world with a different perspective and modified ambitions, and many employees have undergone significant personal journeys. In 2010, employers need to ensure they understand how individual employees’ goals and ambitions have changed.
As a nation, we are shifting our focus towards personal rewards rather than consumerism and money. Personal happiness and contentment are a priority for many of us and it is essential that HR professionals take note of this. Regardless of whether you are designing a new rewards scheme or a flexible working policy, it is crucial to think carefully about what drives and motivates your people. Helping employees to stay connected with their personal and professional goals will continue to be a key focus for O2 in 2010.
Ed Sweeney, chairman, Acas-
Hopefully we have seen the worst of the downturn, but the impact on businesses will be felt far into the future – particularly in the public sector, where the effects will be longer-lasting. Businesses and managers alike need to prepare for the repercussions of the recession and implement policies and procedures to help manage health and well-being in the workplace efficiently.
The wider health, work and well-being agenda will be even more relevant this year, with the introduction of the “fit note”. There is already an increased focus on issues such as mental health in the workplace. Healthy workplaces are key to good employment relations and productive organisations, and this will become increasingly important.
Paul McMahon, managing director, AXA Corporate Benefits
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The past year has seen an increasing number of high-profile companies announce the closure of their final salary or defined benefit pension schemes. There are very real commercial reasons prompting these decisions and they are entirely understandable, but they do nothing to ease my concern about the lack of long-term savings provision in the UK. I suspect we will see more announcements that have potentially serious consequences for future pensioners’ wealth and well-being. A major issue for responsible employers (ones that are keen for their investment on behalf of staff to bring appropriate benefit) remains helping employees to understand and value what provision is available to them in the workplace.
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