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In a year that’s seen unimaginable change and with whole sectors unable to open for vast periods of time, the pay picture is understandably varied.

Here we outline the key trends witnessed and the factors that will continue to shape pay over 2021.

Public sector pay

The clap for carers and unprecedented challenge facing those on the front line highlighted the societal value and importance of key roles such as nurses and doctors. This meant that the corresponding one per cent pay rise was met with widespread criticism and contrasted to the four per cent pay rise given to NHS workers in Scotland. A one-off ‘thank you’ payment has also been more officially formalised by the Scottish government for health and social care staff in recognition of the role they played throughout the pandemic.

Inflation

For certain sectors, this is becoming a cumulative pay cut, with Prospect, which represents professionals such as engineers and scientists at government departments and agencies, estimating that since 2010, pay for the average civil servant will have been cut in real terms by almost £7,000.

The Retail Price Index inflation is projected to be 2.9 per cent, which means a real terms pay cut to those who are experiencing a pay freeze this year. Pay freezes are operating throughout the public sector, for both teachers and civil servants too, as the government tries to limit the impact on the economy through the recovery. For certain sectors, this is becoming a cumulative pay cut, with Prospect, which represents professionals such as engineers and scientists at government departments and agencies, estimating that since 2010, pay for the average civil servant will have been cut in real terms by almost £7,000.

Weathering the storm

According to our UK Reward Management Survey autumn 2020, 24 per cent of respondents are operating a pay freeze to weather the recovery. 39 per cent had made redundancies or restructured. The majority had tried to learn from the last recession and retain their employees as far as possible. Measures that employers put into place to retain talent included 41 per cent of respondents redeploying employees to other areas of the business and 56 per cent using the financial lifeline offered by the Coronavirus Job Retention Scheme.

Position of trust

The level of uncertainty at the outset of the pandemic as to the duration of the restrictions meant that many wanted to retain their trusted workforce in the hope that things would pick up again as soon as possible. We also captured that employers at the outset of the pandemic were very conscious about maintaining that trusted relationship with employees, acting as transparently and equitably as possible. Employers recognised that their response would shape the long-term view of them, impacting not only staff morale, but ultimately their employer brand and how people viewed them as a place to work.

Pay freezes

Due to the timing of Covid-19 and the first national lockdown announced in March 2020, this coincided with when the majority of employers carry out their pay reviews. For 56 per cent of respondents in our UK Reward Management Survey, they had already made their pay awards for 2020. For the remainder, many put in place pay freezes to respond to the turbulent conditions businesses faced in the Covid-19 uncertainty.

In April 2020 pay awards were quite generous and on the upward trend but for pay reviews carried out post-April/May there were no increases. Employers were ahead of the curve if they granted an increase last April. Most people believe if they can afford to do something this year, they should do. This year, there’s more certainty and employers want to reward people for their role in working over the pandemic.

Bonuses

Predictions by Robert Walters in January reflected the impact of the third lockdown – just five per cent of the employees polled expected to get their bonus this year. 71 per cent of employers planned to determine their bonuses based on company profit and revenue.

For many who faced having their bonus cancelled over 2020, this was another income stream cancelled for the year. Even for those employees who still achieved the set criteria and targets to qualify for a bonus based on their 2019 performance, to be paid in 2020, they faced widespread cancellation. Predictions by Robert Walters in January reflected the impact of the third lockdown – just five per cent of the employees polled expected to get their bonus this year. 71 per cent of employers planned to determine their bonuses based on company profit and revenue.

For others, they are trying to identify how best to reward employees in sectors that have thrived over the pandemic. Ernst & Young are giving thousands of UK-based staff a share of its £20m bonus pot after its revenues rose during the pandemic and in recognition of the emotional toll on people during this period. Glencore has become a recent example of how pay packages must be equitable across the whole organisation, as it suffered a significant shareholder revolt over the pay and bonus package for its new chief executive. Critics have said it is excessive and over a quarter of shareholders voted against the remuneration policy.

Factors that will shape pay over 2021

1. Sector variations

The picture of pay will certainly be defined by the type of sector the organisation operates in. Some sectors have thrived whilst others have been relegated altogether in the cycles of lockdowns, particularly the hospitality and aviation sectors.

This will be a key factor shaping awards for this year. For those who received an award last year, these would have been on the upward trend and quite generous for some. For those who operated a pay freeze, employers will have to make the call as to whether they are happy to have two years of no increases being awarded. Where it is affordable, we expect employers will continue to recognise the economic uncertainty and tough conditions employees have faced over the past year of lockdowns.

2. Diversity and inclusion

With single parents more likely to have been furloughed than parents in couples (according to the Gingerbread charity), it is critical that diversity, equality and inclusion is at the forefront of priorities in the anticipated buoyant labour market as restrictions start to ease. The disproportionate impact on women during the pandemic has exacerbated the gender pay gap so the resumption of reporting due by October 2021 will help to refocus efforts on closing the gap.

3. Hybrid working

The remote working shift means that location may no longer be a key factor for certain roles. New technology and established virtual ways of working is benefitting workers who do not have to pay for their costly commute, enabling a greater work life balance. This may lead to long-term impacts on pay whereby pay premiums demanded by City-based roles are no longer required. An equilibrium between costs may be eventually reached between employers and employees which shapes pay awards.

4. Bridging the gap

Over the last couple of years, out of cycle pay awards are an average 1.5 per cent on top of pay review figures. Some organisations use these to supplement flat wage growth. Last year, out of cycle awards dipped to 0.5 per cent, the lowest average out of cycle pay figure recorded in recent years. Some of this is because employees have been less confident to negotiate with employers during the pandemic, in light of job security and widespread redundancies. Figures emerging from our spring UK Reward Management Survey , show that these figures have started to rebound, amounting to a one per cent additional increase for employees. This may well increase over the next six months, coinciding with an economic recovery.

Read more about the full pay outlook and labour statistics captured in our PAYstats May 2021 edition.

Get in touch

Call us to discuss any challenges you’re facing when it comes to setting the right level of remuneration and incentives across your business as the restrictions start to ease. How are you balancing pay between those who remain working from home and those in the workplce or is there no differentiation? We would love to hear your experience and how you are leading your workforce through the gradual easing of lockdown.

You could also contribute your views to our UK Reward Management Survey which is live until the end of the month. In return for 10-15 minutes of your time, we will send you a copy of the full report setting out the results and trends for HR in 2021.


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