At 5 .3% and 5.1% respectively the April and May 2010 Retail Price Index measurements of inflation were the highest since July 1991 (5.5%).  This was the background against which PAYdata’s latest UK Reward Management Survey looked to establish trends in recent pay settlements.

Responses from 64 participants covering a range of sectors showed that the overall pay budget is being managed tightly through a combination of headcount and pay review management.  Whilst permanent headcount for front line delivery roles is under the least pressure, the availability of agency, contract and temporary roles is likely to continue to decrease for the foreseeable future. 

But it is what is happening on pay that is of the most interest.  Our UK Reward Management Surveys had tracked pay review budgets since the recession really took hold in late 2008.  What we have seen is the tightening of belts as the recession developed during 2009 such that by September 2009 the “going rate” had moved down a full percentage point to 1% - 2%.  This headline position remained largely unchanged in January 2010 but we are now starting to see early signs that pay review practice is beginning to shift.

Close analysis of the results shows that expected pay review settlement levels for the second half of 2010 are higher than actual pay reviews concluded earlier in the year.  The proportion of expected pay freezes drops significantly as the year progresses with the typical increase moving into the 1.5% - 2.5% range.  Significantly, the proportion of increases expected to be 3% or more shifts from 12% of organisations to 46% of organisations.

At this stage the expected move in settlement levels is a tentative sign that the pay market may be responding to a combination of higher inflation and pent up pressure resulting from a eighteen months of pay restraint, delayed reviews and pay freezes.  This is one to watch as the year unfolds and we are looking forward to reviewing the results of the next issue of our UK Reward Management Survey in September 2010.