Majority of employers award 2%-3% pay increases

The majority of employers continue to award pay increases between 2% and 3%, according to data recorded in at Incomes Data Services (IDS).

The analysis is based on 69 pay settlements effective in the three months to the end of September, covering 1,446,445 employees.

The proportion of pay freezes remains relatively low at around 19%, and in some of these cases other elements of pay, such as bonuses or progression, have continued to be paid.

The largest number of private sector awards (34) are in the services sector, with a median pay award of 2.2%. This is in line with the national minimum wage uplift, reflecting the fact that around a third of these deals are in retail, where many employers have awarded increases at this level.

Around a third of all deals recorded in the latest three-month period are in the manufacturing sector, which has a lower median increase at 2%.

Public sector settlements recorded so far in 2010 have predominantly been under the final stages of long-term deals, agreed before the announcement of the public sector pay freeze.

These include a 2.3% increase for school teachers in England and Wales, and a 2.55% increase for police officers, both in the last year of long-term deals.

The median for the public sector is 2%, but this is likely to come down because the groups covered by the pay freeze policy this year are included in the analysis. For example, a number of civil service groups are in negotiations over pay reviews. These are likely to result in freezes for staff earning above £21,000 and flat-rate increases of at least £250 for those below, in line with government policy.

Ken Mulkearn, editor of the IDS Pay Report, said: “The modest loosening of pay policies we have seen across the private sector during 2010 continues.

“The level of settlements reflects the broad recovery in profitability, and higher inflation to some extent as well. If these indicators remain on track, in 2011 we might see 3% emerge as the central figure for pay budgets.

“However, affordability still weighs heavily in the balance, and the outlook for both the economy and the labour market is key. In line with this, reward managers as well as economists will be watching closely to see whether the Spending Review has any wider effects.”

Read more articles on pay increases and pay freezes