Pay awards have been falling, with the median basic pay award worth 2.2% over the past 12 months, down from 2.5% this time last year. Looking at the year ahead, against the background of the coronavirus pandemic, many employers in the private sector are proceeding with caution and told us that they expect to make a median 1% pay award during 2021.

XpertHR’s survey of forecast pay awards for the year running to 31 August 2021 covers the private sector only (due to the central nature of pay award decisions in large parts of the public sector). With so many employee groups expected to receive a lower pay award in the coming year – or no increase at all – it is not surprising that the forecast pay rise for the 2020/2021 bargaining year is just 1% at the median. This is less than half the 2.2% recorded in the private sector over the 2019/2020 bargaining year and – if borne out over the next 12 months – will be the lowest annual figure for more than a decade (the last time that pay awards in the private sector were worth 1% was in the year to the end of June 2010).

Key survey findings include:

• Median forecast award worth 1%. The median forecast pay award for private-sector employee groups for the year to the end of August 2021 is 1%, down from the 2.2% median increase recorded over the past year.
• Interquartile range falls. Half of employee groups are expected to receive a pay award worth between nil (the lower quartile) and 2% (the upper quartile). This compares with an interquartile range between 1.5% and 2.9% for basic pay awards in the private sector in the year to the end of August 2020.
• Pay freeze most common outcome. A pay freeze is the most commonly cited outcome, accounting for 44.8% of employee groups for which a pay forecast figure was provided (see chart). Where employers are planning to award a pay increase, 2% is the most common figure (the case for 20.7% of employee groups).
• Sector variation is stark. Manufacturing-and-production employers are predicting higher pay awards than the private sector overall, at a median 1.5%. The middle half of awards in the sector are expected to be worth between nil and 2.3%. In private-sector services the median predicted award is a pay freeze, although the interquartile range is in line with the private sector as a whole, between nil and 2%.

Pay award forecasts, 12 months to 31 August 2021

Labour market issues – including retention factors, pay levels in the same industry and pay levels in the same occupational group – dominate the factors that are expected to exert upward pressure on pay awards over the coming year; while company performance, the ability/inability to raise prices of products/services, and uncertainty due to Brexit are among the biggest downward pressures on settlement levels.

Latest pay award findings

In the three months to the end of September 2020 XpertHR has recorded a median basic pay award of nil across the economy. Based on a sample of 79 basic pay awards effective between 1 July and 30 September 2020, we find that:

• Headline pay award at nil. The median basic pay award in the three months to the end of September 2020 is nil, the same as for the previous two rolling quarters.
• Wide interquartile range. The middle half of pay deals is worth between nil (lower quartile) and 2% (upper quartile).
• More than two-thirds of awards lower. In a matched sample analysis, 68.8% of pay awards made are lower than the same employee group received in the previous year. More than one in four (27.1%) are at the same level, while just two deals among our sample are higher.
• Pay freezes common. Among the total sample of pay settlements recorded, 51.7% are pay freezes.

Over the 12 months to the end of September 2020, the median pay award in the private sector is 2.1%, compared with 2.5% in the public sector.

XpertHR pay and benefits editor Sheila Attwood said:

“The devastating impact of the coronavirus pandemic on company finances has seen the value of pay rises fall to the floor over the past few months. Many employers are not optimistic that they will be in a position to award a pay rise in 2021, with a pay freeze easily the most expected outcome of any pay review next year.”