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Skills and competencies increasingly recognised in pay decisions

Despite improving at its fastest rate in seven years, the UK’s economic recovery has so far failed to trigger an increase in pay rises, research from the CIPD has found.

While the economy grew by 2.6 per cent in 2014, just 28 per cent of organisations said they aimed to be the top payers in their sector. This marks a 7 per cent fall on 2011 figures.

The proportion of employers who said they were positioning pay in the bottom 10 per cent or lower quartile of the market has increased from 13 per cent in 2012, to 17 per cent two years later.

The CIPD’s annual Reward Management Survey found that the manufacturing and production (37 per cent) and private sector services (30 per cent) were more likely to position employee pay competitively at the top of the market.

Ongoing pay freezes and budget cuts could explain why nearly one fifth (19 per cent) of public services and voluntary, community and not-for-profit organisations still position pay in the lower quartile, and are generally much less competitive when it comes to pay than other sectors.

Charles Cotton, performance and reward adviser at the CIPD, said: “With continuing economic growth and recovery of the labour market, we might have expected organisations to be aiming for competitive salaries to attract and retain employees. However, this survey shows that so far this isn’t the case.

“Ongoing productivity challenges are one reason meaning that many employers simply can’t afford to increase salaries significantly across-the-board. On the other hand, where employers have enjoyed access to a steady supply of labour in the market, they simply haven’t been under pressure to raise starting salaries and in turn, this has seen little movement across salary levels in general,” he said.

According to the research, an organisation’s ability to pay is the most important factor in determining pay increases, with 78 per cent of the 525 senior reward and HR practitioners stating this.

It also found almost two-thirds (64 per cent) of employers now use competencies as pay progression criteria, compared to 50 per cent in 2011 and the use of skills in determining pay progression has increased from 44 per cent to 60 per cent over the same time period.

Cotton said this increasing recognition could be a reflection of the structural changes towards a knowledge-based economy in the UK.

“If organisations continue to reward the ‘how’ as well as the ‘what’, it may well attract and retain more desired talent into the organisation and add value to the business in the longer term,” he said.

“What’s important is that businesses ensure they’re regularly monitoring, evaluating and comparing pay, in order to respond to a tightening labour market. They also need to make sure they’re effectively communicating pay decisions to their employees, and it’s here that HR needs to step in and help write the organisational story to put earnings into context, particularly where they might not be increasing,” he added.

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