U.K. employers budgeting for 3 per cent pay increase: Survey

Wage inflation in Western Europe less than inflation for second year

Employees in the United Kingdom will experience another year of below-inflation pay rises in 2012, according to Mercer’s latest pan-European pay data. U.K. companies are anticipating employee base pay rises of three per cent while companies across Western Europe are predicting employees will be given pay rises averaging 2.7 per cent in 2012. This represents the lowest increase across the whole of the EMEA (Europe, Middle East and Africa) region.

“Salary increases in the U.K. are not keeping pace with the rising cost of living and employees are finding it difficult,” said Mark Quinn, a principal at Mercer. “But the economic situation is still volatile so organizations 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.”

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, Mercer’s TRS Quarterly Pulse Survey which analyzes the pay plans of 329 multinational organizations operating across 69 countries in Europe, the Middle East and Africa.

Western Europe
The average budgeted increase in Western Europe is 2.7 per cent. Employees in Norway are set to get the highest pay rises of 3.1 per cent. Austria, Sweden, Belgium, Luxembourg, Italy and Germany are all anticipating pay rises of three per cent. Employers in Finland, Netherlands and France are anticipating passing on rises of between 2.8 to three per cent.

Employers in Greece, Spain and Malta are anticipating 2.5-per-cent pay increases for the majority of position categories followed by Switzerland (2.1 to 2.2 per cent). Portugal (2.1 to 2.2 per cent) and Ireland (two to 2.3 per cent) 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 Portugal, Italy, Greece and Spain get more conservative salary increases for 2012, said Mercer.

“In countries such as Spain, the U.K. and Portugal, inflation is outpacing wage increases and this is eroding livings standards,” says 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 per cent. 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 per cent across the region. At the lower end of the scale, Latvian employees are predicted a three to 3.1 per cent pay increase with employees in Cyprus and the Czech Republic predicted to get 2.9 to 3.4 per cent.

Lithuanian companies are budgeting for 3.1 to 3.5 per cent while Hungarian and Polish employers are anticipating four per cent. In Bosnia-Herzegovina and Croatia, too, pay rises of between 3.5 to four per cent are expected with slightly higher rises expected in Bulgaria (five per cent). Companies in Turkey, Russia and the Ukraine are predicting 7.8 to eight per cent, 9.6 to 10 per cent, and 10 per cent respectively, although this is more reflective of the small sample groups rather than a regional trend.

“There is a notable difference in the three Baltic states in Q1 2011 compared to Q3 2011,” said Johan Ericsson, a 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, said Mercer. Companies in Algeria are forecasting an increase of 6.9 to 7.3 per cent, surpassed by forecasts from South Africa (7.4 to 7.8 per cent), Kenya (eight to 8.8 per cent), Nigeria (10 per cent) and Uganda 10 to 11 per cent.

Employees across the Middle East are forecasting pay increases averaging 7.6 per cent. There are dramatic increases in countries such as Pakistan (15 per cent) and the Yemen (10 to 13 per cent). The reality is employees in the Middle East are set to receive relatively modest increases, found Mercer. Companies in Israel (three to 3.5 per cent) are forecasting the lowest increases in the region followed by Bahrain (4.5 to five per cent), Saudi Arabia (six per cent), Qatar (5.5 to six per cent) and Kuwait (six per cent).

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