Aon Hewitt research: Salary increases to rise but still below inflation

Salary increases are projected to rise in 2012 but will still be below inflation, according to the UK findings of Aon Hewitt’s 2011-2012 European salary increase survey.

The survey, which incorporates responses from over 230 UK organisations, found that salaries rose 2.5% in 2010, 3.1% in 2011 and are projected to increase 3.2% in 2012.

However, the salary increases are still below inflation, which stood at 4.4% in July 2011.

Salary freezes and reductions were not reported by any respondents in 2011 compared to 12% which reported a salary freeze in 2010.

Retention of high performers is at the top of the agenda for most UK organisations. When it comes to setting pay increases, 63% operate merit-based increases, compared to an increasingly smaller proportion (14%) awarding across the board general increases.

Similar to 2009 and 2010, organisations have awarded the highest increases at the middle management and professional levels (3.1%) rather than the top executives (2.8%), who received the highest increases prior to the recession.

Duncan Brown, principal for talent and reward at Aon Hewitt, said: “The pattern of pay increases revealed by this survey shows how difficult the current economic climate is for many organisations planning and making their pay awards in the UK at the moment.

“A number of crucial macro-economic factors are significantly impacting employers’ decisions and a big squeeze is underway.

“After two years of salary freezes and cuts, pay awards are up to an average of over 3%, which is still far behind the pre-recession levels of 4.6% in 2007.†

“Employees are feeling this pressure. While salary packages are seeing little increase, the standards of living continue to be eroded by higher rates of price inflation, which is adding to the complexities of the current socio-economic crisis.

“After three years of very low salary increases, savings are running out and the knock-on effect of reduced consumer spending and slower economic recovery seems highly likely.

“Not surprisingly, these survey findings clearly highlight the need for effective reward management including benefits and communications. Employers often cannot pass on price increases to their customers so are trying to restrain pay awards, but they are also worried about retaining their best people.

“A total rewards approach, making clear all of the rewards in working for an employer, is ever more essential.”

Read the Employee Benefit Salary Survey 2010

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