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Greater economic confidence makes salary increases more likely in 2010

Pay increases for staff are looking more likely in 2010 as the economic uncertainty that resulted in pay freezes, cuts and job losses at UK companies in 2009 has been replaced by greater confidence in the outlook for next year.

According to Towers Perrin, one in 10 UK companies (11%) are planning to freeze employees' pay in 2010, down from 44% in 2009.  

Those planning to increase pay in 2010 will opt for a median salary rise of 3%, compared with the average of 1% seen in 2009.  And 12 % of companies are not planning to pay any bonus for 2009 performance and a quarter of respondents expect bonuses for 2009 performance to be lower than 2008 levels.

More than a third (34%) of companies expect bonuses to be at similar level to those paid in 2008 and 12% are expecting to pay higher bonuses.

Employers are still cautious about the outlook for the year. More than four in 10 companies (44%) are considering reducing their workforce in 2010. But employers are also nervous of losing their top talent in 2010, with 37% extremely concerned about their ability to retain good employees as the economy picks up and competitors begin to hire.

But the report also shows employers are growing more concerned with rewarding talented employees who add value to the business in the long term. More than half (51%) will differentiate pay increases in their review of salaries in 2010, singling out the performance of high performers and also rewarding those with pivotal roles within the organisation.

With many companies planning to maintain or increase their hiring next year, retention of talent is a real concern as competing organisations look to target each other's workforce to meet their recruitment needs. Half of companies (48%) are expecting salary increases to be a powerful retention tool next year, a marked increase from only 8% of companies when same survey was conducted in November 2008. Over two-third of companies (69%) are planning to use enhanced talent management programmes to retain key talent, showing retention is not just about cash.


Jim Crawley, principal at Towers Perrin, said: "Organisations looking to recover quickly and service an increased order book will not be able to do so without the right workforce in place.  By differentiating annual and long-term rewards and by managing the profile of the workforce strategically - through both job losses and key hires - companies hope to ensure they have the workforce they need to match their business requirements in 2010. Alongside compensation, wider-ranging, strategic investments in people will be required in order to safeguard the most valued cadre of the workforce."