Pay freezes could end in 2010

Pay freezes could come to an end next year as employers sense renewed optimism about the state of the economy, according to Mercer’s Salary Indicator (MSI) report, which monitors the remuneration of major UK blue chip organisations on a quarterly basis.

The survey began in the first quarter (Q1) of 2009 in order to track the remuneration plans of major blue chip organisations during the recession. In Q3 of 2009, 76% of MSI respondents stated that their firm was not considering a pay freeze in 2010.

This is a marked change from data from the previous quarters which showed that employers were reacting to the downturn by either reducing or freezing staff pay.

Furthermore, no organisations surveyed in Q3 are planning a promotion freeze in 2010. However, respondents did highlight that, as a result of the recession, in 2010 there would be less emphasis on the cash element when rewarding staff and more on career development and elements of work/life balance.

Hannah Perera, a principal in Mercer’s human capital business and a specialist in executive remuneration, commented: “Cash, tarnished by the role of bonuses in the economic slump, is no longer king in the eyes of employers. It’s being usurped by an emphasis on employee engagement and a focus on motivating specific high value employees. Whether this ‘new normal’ approach continues when the economy gathers pace again remains to be seen.”

Other key findings include:

  • Most organisations considered or instituted some form of salary freeze in 2009 with 22% introducing a blanket freeze and 32% applying a freeze to specific employee groups such as executives.
  • Only 7% of organisations had already instituted a blanket salary freeze for the next year, while 5% were considering it and 12% were considering a freeze for specific employee groups. 76% were not considering a salary freeze at all in 2010.
  • Forecasts for salary increases amongst the respondents ranged from 2.8% to 2.57% depending on employee group.
  • Over 27% of respondents believe that their reward strategy will change permanently as a result of the recession.
  • The main driver of human capital decision-making for 2010 is continuing to contain or reduce costs (44%) and responding to non-cost critical business needs (33%).

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