Employers are predicting that pay awards in 2018 will be at their highest level in almost four years. Contributor Sheila Attwood, Pay and Benefits Editor – XpertHR.

Survey results show that private-sector employers expect to give employees a 2.5 percent pay rise over the coming year. This compares with the 2 percent median increase given over the past 12 months, and is more optimistic than employers were predicting six months ago.

Key findings include the following: Employers in both the manufacturing and production, and services arms of the private sector foresee 2.5 percent as their benchmark pay award this year. Overall the middle half of all pay awards are expected to be worth between 2 percent and 3 percent.

The most common pay award prediction remains 2 percent, with almost three in 10 (28.9 percent) forecasts at this level. At the top end of the scale, more than one pay award in 10 is forecast to be worth 4 percent or more. Further evidence of an upturn in fortunes for employees is that one-third (32.5 percent) are expected to receive a higher pay award that they did last year – the highest proportion recorded by XpertHR since 2011.

Pressure to make higher pay awards is coming from familiar places – what other organisations are paying, recruitment and retention issues, and inflation. Meanwhile downward pressures stem from the organisation’s inability to pay, their inability to raise their prices and from pensions costs.

More broadly, employers report that they are looking for a more stable economy before making higher pay awards, with some specifying the need for more confidence in the economy and for higher economic growth. Brexit inevitably gets a mention because of its effect on market confidence and, therefore, the level of pay rises that could be awarded while there is uncertainty in the outlook for business growth.

Latest pay award findings
Looking back, in the three months to the end of February 2018 XpertHR has recorded a 2.5 percent median basic pay award across the economy. Based on a sample of 169 basic pay awards effective between 1 December 2017 and 28 February 2018, we find that:

The median pay award across the whole economy is 2 percent, with the middle half of pay awards (the interquartile range) worth between 2 percent and 3 percent. While only a quarter (26 percent) of pay awards were the same as the award received by the same group of employees last year, the majority (57.3 percent) were higher. Just 16.8 percent of awards were lower than the employee’s previous increase.

Within the private sector, the 2.5 percent figure is also recorded for pay awards in private-sector services firms, while manufacturers reported a median 2.6 percent increase. Over the 12 months to the end of February 2018, the median pay award in the private sector is 2 percent, compared with 1 percent in the public sector.

XpertHR pay and benefits editor Sheila Attwood said: “It is several years since employers have been so optimistic about prospects for pay rises. If private-sector pay awards stick at 2.5 percent over the course of the year, this will mark the first time since 2012 that increases have been consistently above 2 percent.”