Salary increase levels remain constant

Salary increase levels have stayed constant throughout the winter, according to research by Aon Hewitt.

The consultancy’s latest Salary survey, which polled more than 440 organisations in 39 countries across Europe in January and February 2012, found that salary increase levels in the UK have remained unchanged at 3.2% over the past six months.

Across Western Europe, salary increases remained relatively stable. Adjustments to salary-increase budgets were more marked in Central and Eastern Europe. Most notably, Greece showed a move from the 3.1% level in August 2011, to 2.3% in early 2012.

The research also found that, with the exception of the UK, salary-increase budgets were marginally higher than consumer prices indexation (CPI) inflation rates across Western Europe. In Germany, inflation fell from 2.6% in September 2011 to 2.1% in early 2012, with salary increase budgets at 3%. In France, inflation remained stable with a current rate of 2.3% and projected salary increases were at 2.8%. In Spain, inflation dropped from 3.1% to 2% against a salary-increase budget of 2.7%.

In the UK, the high inflation rates of 2011 have significantly dropped in recent months, from 5.2% in September 2011 to a current rate of 3.6%, meaning the real value of salary increases for UK employees will be higher.

Andrew MacLeod, leader of Aon Hewitt’s pay research practice in Europe, the Middle East and Africa (EMEA), said: “This is encouraging news for UK employees and employers alike.

“High UK price inflation was the running theme of 2011, which resulted in the erosion of employees’ disposable incomes and placed significant pressure on employers to increase pay budgets. We are now beginning to see salary increase budgets better aligned with – albeit slightly below – price inflation.”

Vincent Cornet, compensation leader for Aon Hewitt in EMEA, added: “Decreasing inflation rates could have been an opportunity for organisations to realign with lower salary increase budgets. However, with the prolonged period of economic downturn and continued austerity measures, organisations feel the need to show a positive sign to employees.

“There are efforts to maintain disposable income at all levels of organisations, with a small trend away from variable pay and back to general increases. With lower merit increases, the question for organisations will be how to reward performance and retain key talents.

“The challenges remain for organisations. Our experience and additional research would suggest we are likely to see a greater emphasis on effectively communicating the value of the total reward package to employees.”