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Predictions for pay and bonuses reflect HR directors' cautious optimism


HR staff are confident an upturn in the economy is imminent in the next 12 months - but they agree the worst of the recession is not yet over.

According to Hay Group's Reward in 2010 report, two thirds (65%) of HR professionals anticipate an upturn in business over the next 12 months. Nearly three fifths (57%) expect business results to be on or above targeted levels for 2010. The upbeat outlook is also reflected in improving predictions for pay and bonuses.

But 94% of organisations agree the worst is not yet over.
Almost four fifths (79%) intend to increase salaries over the next 12 months - compared with 57% that increased salaries in 2009. The median increase forecast is 2% - an improvement on predictions of 1% in March 2009.

There are also signs that the big pay freeze is beginning to thaw. Three quarters of organisations that implemented salary freezes in 2009 plan to lift them within the next year. But of those organisations that froze salaries in 2009, 23% are considering a second freeze.

Nearly four fifths (79%) of organisations are intending to pay bonuses over the next 12 months, half of which are expected to be on or above target.

The majority of fast-moving consumer goods (FMCG) and retail organisations plan to pay full bonuses in 2010, while the worst hit sectors, such as financial services and manufacturing, are anticipating below-target bonuses.

While the majority of sectors are cautiously optimistic about 2010 - FMCG and retail in particular - the manufacturing and public sectors continue to face challenging times.

Over two thirds (69%) of manufacturers expect to fall short of business targets in 2010, while 40% believe it will take between 12 and 18 months to feel the benefits of the upturn - compared with just 20% overall.

Public and not-for-profit organisations are more pessimistic, with nearly three quarters (73%) not expecting to benefit from the upturn for more than 18 months.

Median public-sector salary increases are forecast to be just 1% in 2010, in contrast to 2% in April 2009. This compares with 2% median increases forecast for the private sector.

With substantial cuts in public funding to reduce the Budget deficit expected, certain departments will feel the pressure of cost constraints. In contrast, those with multi-year pay increase deals in place (such as the uniformed services) are likely to see those contracts honoured.

But almost all FMCG companies (95%) and of retailers (92%) will provide a salary increase. And nearly three fifths (57%) of FMCG firms that implemented pay freezes in 2009 expect to lift them within the next six months.

Short-term incentives will continue to be a hot topic for the financial services sector. Rather unsurprisingly, these are forecast to be below target by nearly two thirds (63%) of respondents. But only 6% respondents expect above-target incentives, as opposed to 13% of organisations across all sectors.

Looking ahead, employee engagement and talent management are seen by HR and reward professionals as the most significant priorities for 2010 - both are cited by almost 70% of respondents as a key challenge.  
In addition, over two thirds (69%) of organisations are concerned about the retention of high performers as the economy picks up.
Over two thirds (68%) of reward professionals say they have changed the way they manage reward as a result of the recession. Although most have retained overall policy, they have taken the opportunity to implement efficiencies and revisit existing HR programmes.
Claudia Canavesio, a reward expert at Hay Group, said: "With tighter reward budgets, paying and motivating employees, particularly high performers, is a difficult task.

"It is important for organisations to explore the full breadth of the reward spectrum - offering a competitive total reward package, with a focus on non-financial elements such as career development, work-life balance and job security, is likely to maintain engagement and talent."