Strong pay increases fail to materialise

InflationPay increases continue to be outstripped by retail price inflation, indicating that strong salary increases predicted earlier in the year have failed to materialise.

According to the Voca take home pay index, growth in employees’ take home pay eased to 3.6% in April, down slightly from 3.7% the previous month. The latest figure is more than a percentage point lower than the annual retail price inflation (RPI) rate which stood at 4.8% in March.

The widening of the gap between the two figures could place employers under increased pressures, particularly in industries which are currently experiencing skills shortages, and there is strong competition for key talent. The Report on jobs published this week by the Recruitment and Employment Confederation and KPMG, showed†that increasing demand for staff and a shortage of skilled candidates continued to drive salaries higher in February.†

Michael Carter, people services partner at consulting firm KPMG, said: “It will add further pressure in [terms of] costs for employees. There are real skills shortages in some industries. There is a lot of pressure on a lot of organisations over who their key [employees] are.”

However, he added that pay is not a significant pressure for all employers as salary levels are often not the primary reason behind employees’ decision to leave an employer. Instead, factors such as wanting to work for an organisation perceived as being an employer of choice in its industry, and taking on a more interesting or challenging position, are more likely to be behind an employee’s decision to move.

“Sometimes these softer issues are underplayed. Salary pressures are important but they are often not the reason people leave. While there will be added pressures [for employers], these won’t be huge,” said Carter.

The move towards performance-related or variable pay – in favour of simply offering pay increases linked to inflation – may also have lessened the pressure on some employers.