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UK — Tough pay restrain ahead

16 November 2009

Employers are keeping a tight rein on pay, but recruitment freezes are starting to thaw and some of the dramatic changes made to working patterns during the recession are now being eased.

Research by the CBI and recruitment experts Harvey Nash revealed that half of all employers are planning to freeze pay altogether, and that only 4% plan to make an inflation-beating rise.


The number of firms operating a recruitment freeze has dropped from 61% in the spring to 37%. This was largely due to firms unfreezing parts of their organisation, and there was far less of a drop in the number of firms who have blocked new hires across the whole business.

The survey also showed that fewer employers see the need for some of the more extreme measures required to control costs earlier in the year, such as extended shut-downs, cuts in overtime, and bringing forward holidays.
 
However, the CBI believes the spirit of collaboration that forged these changes remains strong and marks a permanent change that will benefit the UK's labour market flexibility beyond the recession.

John Cridland, CBI Deputy Director-General, said "the worst of the recession may be over but firms remain ultra cautious about increasing pay. Market conditions continue to be very tough and growth in 2010 will be feeble, so pay is going to be squeezed for some time to come."

"As unemployment has risen, businesses and staff across the country have had to adapt to new economic realities. Pay cuts to preserve jobs are part of that reality. Given the alarming state of the public finances we must see similar pay restraint in the public sector."

Albert Ellis, Chief Executive Officer of Harvey Nash, said "this downturn has required tough decisions and strong leadership from managers at every level of every organisation. On a positive note, there have been many examples of employers and employees working together to minimise the impact of the recession on jobs, skills and pay."

"Worryingly, however, there have been some isolated cases recently where executive pay is out of sync with the economic reality and the public mood. In light of the thaw in the recruitment freeze we urge continued restraint on executive remuneration ensuring that a return to sustainable economic growth is not put at risk."

In the spring, 62% of employers said they had made or were considering changes to working patterns to cope with the recession, such as cutting shifts or agency staff. That has now eased back to 36%.

The use of flexible working has risen, with half of employers reporting encouraging more flexibility in the recession. In particular, teleworking, or working from home, has soared in popularity, with two thirds (66%) of firms making use of it, 20% higher than the 46% recorded just last year. The rate of change is emphasised by the fact that only 11% of employers made use of this flexibility in 2004.

The statutory right for individuals to request flexible working continues to work well. Nearly all requests by parents (93%) and carers (94%) are being granted.

Many firms have just completed their annual graduate recruitment round, against a backdrop of great concern about the job prospects of the class of 2009. The survey showed that half (50%) of firms said that they had trimmed graduate opportunities. Encouragingly, a third (31%) continued to take their usual numbers and a fifth (19%) increased hiring.

Almost half (49%) of firms think the UK is a less attractive place to do business than it was five years ago, and only 16% think it has improved. But business leaders are notably more optimistic about the future, with a third (34%) expecting the UK to be more attractive in five years' time. Employers remain especially worried about the excessive burden of employment regulation and poor skills levels among staff, both of which hit competitiveness and labour market flexibility.

John Cridland, CBI Deputy Director-General, said "employers remain deeply frustrated by the amount of paperwork and regulation they have to deal with. Ongoing skills shortages and damaging employment legislation also diminish the UK's competitiveness. The risk is that in a global marketplace companies simply choose to create jobs elsewhere."

Over two thirds (70%) of employers think the new Agency Workers Directive, due to be implemented in October 2011, will lead to a decline in the use of temporary staff, which will further damage the job prospects of many school leavers, graduates and unemployed people.

An increasing number of employment tribunal claims is diverting costs and managerial resources away from getting through the downturn. A quarter (26%) of employers have chosen to settle claims outside of court, despite legal advice that the organisation would probably have won at tribunal. 37% of respondents said the number of weak and vexatious claims has risen in the past year.

The survey also showed that firms fully recognise the value of a diverse workforce, with almost nine out of ten (87%) of employers committed to taking action on diversity, and 77% having a formal diversity policy or equality practices.

To read the full CBI/Harvey Nash report please click here

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