Forecasts suggest UK employers budgeting for three percent pay increase across employee groups, with wage inflation in Western Europe less than inflation for second year in a row.

Employees in the UK will experience another year of below inflation pay rises in 2012, according to Mercer’s latest pan-European pay data. UK companies are anticipating employee base pay rises of three percent while companies across Western European are predicting their employees will be given pay rises averaging 2.7 percent in 2012. This represents the lowest increase across the whole of the EMEA region (Europe, Middle East and Africa). The data comes from the September edition of Mercer’s TRS Quarterly Pulse Survey which analyses the pay plans of 329 multinational organisations operating across 69 countries in Europe, the Middle East and Africa. The survey provides information from multinationals on median base pay increases across all employee groups including ‘blue’ and ‘white collar’ workers up to management level.

UK employees are slightly better placed than many of their Western European peers, with companies in the country budgeting for a median three percent pay increase for staff across all employee groups. This is higher than is being forecast for many other Western European countries but far lower than is anticipated for staff in some regions of Africa, the Middle East and Central and Eastern Europe. Inflation in the UK is running at five percent so despite the salary increases, with high travel, petrol and food costs, employees will continue to feel under financial pressure. This picture is similar for many local markets. “Salary increases in the UK are not keeping pace with the rising cost of living, and employees are finding it difficult,” said Mark Quinn, Principal at Mercer. “But the economic situation is still volatile so organisations are being cautious with their fixed costs, such as salaries.

“Committing to higher salary increases reduces a company’s flexibility and maneuverability if the economy does drop again. While restraint is painful for everyone in the short term, it is also prudent, and if it ensures the survival of the company it is in the longer term interests of employer and employee.”

A previous quarterly report issued by Mercer in June 2011 showed that companies were segmenting their pay rises in 2011; the largest base pay increases were focused on ‘rainmaker’ staff in an attempt to ‘kick start’ company recovery plans following the financial crisis. Employees in managerial roles were receiving higher pay rises than those in executive positions, for example. By contrast, the latest data suggests that this has finished and that a ‘levelling out’ is taking place, by which base pay increases are largely being equally applied across all employee groups.

“The data only deals with base pay not variable pay,” said Mark Quinn. “In the recent past, organisations with a very limited budget have focused on improving the base pay of their top performers to ensure their organisation’s survival. They are now trying to address the needs of their employees by implementing broader increases, but are increasingly using variable pay to retain and encourage their top performers – although we note that many are also still using their salary increase budget to reward their highest performers.” According to Mercer, 2012 salary increases in fast-moving consumer goods (FMCG), durable, hi-tech, non-durable and services are forecast to be in line with the general market while, on average, forecasted salary increases are typically higher in the finance/banking and energy sectors.

Western Europe
Predicted increases in this region are broadly comparable, with small variations between countries outside the Euro zone. The average budgeted increase in Western Europe is 2.7 percent. Employees in Norway are set to get the highest pay rises of 3.1 percent. Austria, Sweden, UK, Belgium, Luxembourg, Italy and Germany are all anticipating pay rises of 3 percent. Employers in Finland, Netherlands and France are anticipating passing on rises of between 2.8-3 percent.

Employers in Greece, Spain and Malta are anticipating 2.5 percent pay increases for the majority of position categories followed by Switzerland (2.1-2.2 percent). Portugal (2.1-2.2 percent) and Ireland (2-2.3 percent) have the lowest anticipated pay increases. Typically pay increases are higher in the northern states of the EU compared to those in the south so it is unsurprising that the PIGS countries (Portugal, Italy, Greece and Spain) get more conservative salary increases for 2012.

“In countries such as Spain, the UK and Portugal, inflation is outpacing wage increases and this is eroding livings standards,” says Mark Quinn. “In others like Germany, Italy and France, wage increases are above the rate of inflation, although in the case of France and Germany by less than 0.5 percent. The 2009 to 2011 trend, however, is that inflation is exceeding wage increases across Western Europe.”

Central and Eastern Europe
By comparison, the picture is more positive for employees in Eastern and Central Europe with much higher pay rises, averaging 5.7 percent across the region.

At the lower end of the scale, Latvian employees are predicted a 3-3.1 percent pay increase with employees in Cyprus and the Czech Republic predicted to get 2.9-3.4 percent. Lithuanian companies are budgeting for 3.1-3.5 percent while Hungarian and Polish employers are anticipating 4 percent. In Bosnia-Herzegovina and Croatia, too, pay rises of between 3.5-4 percent are expected with slightly higher rises expected in Bulgaria (5 percent). Companies in Turkey, Russia and the Ukraine are predicting 7.8-8 percent, 9.6-10 percent, and ten percent respectively although this is more reflective of the small sample groups rather than a regional trend. The lowest increase is set to be Montenegro with 1.3-2.5 percent. Companies may have smaller operations in these locations and currency considerations may mean that higher increases may not actually translate into a large cost for multinationals. However, inflation is still a factor here.

“There is a notable difference in the three Baltic states in Q1 2011 compared to Q3 2011,” said Johan Ericsson, Principal at Mercer. “These countries were severely hit by the global financial crisis but have bounced back, highlighted by less conservative salary increase predictions. By contrast, salary increases in Belarus, Kazakhstan and Georgia have been scaled back and are now lower than previously predicted, reflecting the economic nervousness in these states.” 

Middle East and Africa
This area has the largest variation in forecast pay increases due to the diverse nature of the region and the limited number of multinationals. Companies in Algeria are forecasting an increase of 6.9-7.3 percent, surpassed by forecasts from South Africa (7.4-7.8 percent), Kenya (8-8.8 percent), Nigeria (ten percent) and Uganda ten-11 percent. Employees across the Middle East are forecasting pay increases averaging 7.6 percent. There are dramatic increases in countries like Pakistan (15 percent) and the Yemen (10-13 percent). The reality is that employees in the Middle East are set to receive relatively modest increases. Companies in Israel (3.0-3.5 percent) are forecasting the lowest increases in the region followed by Bahrain (4.5-5 percent), Saudi Arabia ( six percent), Qatar (5.5-6 percent) and Kuwait 6 percent.

The figures provided are the median figures which Compensation and Human Resource Managers – those responsible for planning salary increases – are forecasting in each country. These forecasts, of course, have to be approved by company management and depend on numerous economic factors as well as an individual’s good performance. Given the economic uncertainty, there is a high possibility that the actual increases will be less. A comprehensive table of salary increases by job class in each country is attached below. Companies were from the following sectors; Consumer goods (29 percent), Durable (18 percent), Energy (seven percent), Finance and Banking (four percent), High Tech (12 percent), Insurance (two percent), Non-durable (six percent) Retail/Wholesale Trade (6 percent), Services ( seven percent), Other (ten percent).