Pay developments in 2009
Pay increases have dropped to record low levels, pay freezes have been implemented in about one-third of reviews in the first four months of the year and yet a considerable number of reviews have given rises of 2 or 3 per cent. Despite the recession and despite inflation effectively at zero per cent, a majority of private sector companies are awarding pay rises of 2 or more per cent. In the first three months of the year the median rise was 3 per cent. In the three months to April this median dropped back to 2 per cent with a lower quartile of 0 per cent and an upper quartile of 3 per cent.
One of the urban myths that has run around the media this year is that pay levels throughout the private sector have been frozen. The reality is that the impact of the recession has been uneven, and thus there is a spectrum with those worst affected at one end and those least affected at the other. Hence pay freezes in engineering and one end and rise of 3 per cent or more in the utilities and parts of retail.
A version of the urban myth doing the media rounds is that average earnings growth went negative in February and March because of the universality of pay freezes and pay cuts in the private sector. But a closer reading of the ONS statistics reveals that this was entirely a consequence of the huge drop in bonus payments in the finance sector this year, which was sufficiently large to knock the whole economy figure including bonuses down to -2.0 per cent in February. On the measure excluding bonuses, earning across the whole economy rose by 3 per cent in February and 2.7 per cent in March, consistent with the pay settlement movements monitored by IDSPay.co.uk.
Equality Bill - a new discrimination framework
The long-awaited Equality Bill, published on 27 April 2009, has been met with mixed reactions. Some maintain that the proposed employment aspects of the legislation do not go far enough to overhaul discrimination law, particularly in the realm of equal pay, while others claim it has gone too far in these recession-hit times. The Bill has two aims: to harmonise discrimination law, currently spread across dozens of Acts of Parliament and statutory instruments, into a single Act, and to strengthen the protection available. Harmonise, it does. The Bill houses a myriad of employment discrimination strands under one roof in a well-framed, clear structure. It also strengthens the law in many respects by creating a number of new rights and obligations and by applying the same level of protection across most of the strands. Some of the more significant changes include new approaches to disability-related discrimination, extended coverage of third-party harassment and a measure prohibiting pay secrecy clauses in employment contracts. In addition, a wider general definition of direct discrimination will enable people, such as carers of disabled people, to bring claims of associative discrimination.
While the Bill is due to take effect in 2010, its provisions are likely to come under close scrutiny. It had its Second Reading in the House of Commons on 11 May 2009 and the Equality Bill Committee is scheduled to have its first meeting to consider the Bill clause by clause on 2 June. At the end of the Bill's Second Reading the Commons agreed that the proceedings of the Committee 'shall be brought to a conclusion on 7 July 2009'. A majority of MPs voted in favour of the Bill on Second Reading, but their debate suggests that a number of areas will be the subject of attempted amendments, including those on the gender pay gap and positive action.
The impact of recession on the workplace
In a special report 'IDS Focus on Recession', which has just been published, each of the IDS research teams has contributed thoughtful insights on the impact of the recession on pay, on employment and on HR practices. It also looks at some of the urban myths that have emerged in this recession, such as the notion that the economy is entirely devastated and that here are no jobs to be found. It is still the case that 29.2 million people are in employment almost a year into recession. And people are finding jobs. While the flows onto the claimant unemployment count have risen, so too have the outflows. In April 2009, while 363,900 people joined the claimant count, some 290,900 left the count, largely into new jobs.
The report explores the unevenness of the recession. The media talk endlessly about the downturn as though it is a single homogenous phenomenon affecting the myriad different parts of the economy in like manner. But the reality is that the impact of the recession is uneven, with some parts very badly affected and some barely affected at all. Thus some parts have pay freezes while some sectors are relatively freeze free.
A major theme emerges from talking to senior HR managers and from our main areas of research. It is that in this recession there has been more collaboration than confrontation. There is a strong view in the HR community that the previous two recessions involved a lot of 'slash and burn', leading to animosity and resentment for those who lost their jobs and also those who retained them. This time round there has been more negotiation and a greater focus on seeking to retain people and skills through temporary short-time working or temporary pay freezes.
Managers hit hard by redundancy
Along with the rest of the workforce, many managers and professionals will lose their jobs over the coming year. A special survey conducted by the IDS Executive Compensation Review team in March 2009 found just how hard these two groups are being hit by the current recession. Altogether, the 53 employers responding to the survey indicated that the redundancy rate for managers and professionals over the last 12 months was running at just over 9 per cent, although looking ahead this may slow down slightly during the coming year.
Redundancy is not just about how many managers and professionals lose their jobs, however, but also about how much they receive in compensation once a decision has been made. For this reason, employers will need to look afresh at their redundancy terms and conditions in the light of current conditions. The good news from our survey for those losing their jobs is that in most cases the compensation packages being offered by employers are above statutory requirements.
For those wanting more detail on both the pattern of management redundancies and redundancy terms and conditions should see the May and June issues of the IDS Executive Compensation Review. The May edition features the redundancy packages in eight case study organisations, while the June edition includes full details of our special survey.