In the UK, salary increases have remained unchanged at 3.2% over the past six months despite the high degree of economic uncertainty across the region during this period.
Data for the latest survey, collected in January and February 2012, came from more than 440 organisations across Europe, in all industry sectors and submitting salary data for 39 countries.
In the UK, data was received from 164 companies, which confirmed the salary increases awarded in 2011 and provided an updated projected figure for 2012. The data also shows the overall trends in salary budget planning, as well as the proportion of companies planning pay freezes.
Data collected by Aon Hewitt in the summer of 2011 showed that although budget increases remained below those seen prior to the financial crisis, provisional salary budgets were slightly up on 2010, indicating a return to cautious optimism. The updated figures in this winter survey indicate a growing feeling of stability, with salary budgets adjusted by no more than 0.3% up or down. Employers seem to be giving a positive sign despite continued uncertainty around a return to economic growth.
Overall across Western Europe, the figures tell a story of relative stability with increasing consistency in salary increases, converging towards an increase budget of around 3%. Higher or lower variations around this figure and trends towards pay freezes tend to be determined by industry or country-specific situations.
Andrew MacLeod, leader of Aon Hewitt’s pay research practice in Europe, Middle East and Africa said: “This is encouraging news for UK employees and employers alike. High UK price inflation was the running theme of 2011 which resulted in the erosion of employees’ disposable incomes and placed significant pressure on employers to increase pay budgets. We are now beginning to see salary increase budgets better aligned with - albeit slightly below - price inflation.”
Adjustments to salary budgets are more marked in Central and Eastern Europe with - most notably - Greece showing a move from the 3.1% budget announced in August 2011, down to 2.3% in early 2012.
This stability is good news for employees given the recent decrease in inflation rates. Given that on average, employees across Europe have not received significant salary increases since the beginning of the downturn in 2009, this has had an impact on disposable income in real terms when set against a backdrop of strong inflation.
These figures show that with the exception of the UK, salary increase budgets are marginally higher than Consumer Price Inflation (CPI) rates across Western Europe. In Germany, inflation has fallen from 2.6% in September 2011 to 2.1% while salary increase budgets show 3.0%; in France, inflation remains stable with a current rate of 2.3% and projected salary increases at 2.8%; and in Spain inflation has dropped from 3.1% to 2% against a salary increase budget of 2.7%.
Even in the UK, the high inflation rates of 2011 have significantly dropped in recent months (from 5.2% in Sept 2011 to a current rate of 3.6%) meaning that the real value of salary increases for UK employees will be higher.
Cornet said: “Decreasing inflation rates could have been an opportunity for companies to realign with lower salary increase budgets. However, with the prolonged period of economic downturn and continued austerity measures, companies feel the need to show a positive sign to employees.
“The fact that employers overall have not reviewed their budgets to align with decreasing inflation rates, indicates an attempt to remain socially responsible which reflects the continued uncertainty in the European.
“There are efforts to maintain disposable income at all levels of organisations, with a small trend away from variable pay and back to general increases. With lower merit increases, the question for companies will be how to reward performance and retain key talents.
“The challenges remain for organisations. Our experience and additional research would suggest that we are likely to see a greater emphasis on effectively communicating the value of total reward packages to employees. This might include highlighting the worth of employee share plans, healthcare programmes and other benefits.”
Aon Hewitt explores strategic compensation practices in Europe in ‘Reward Fundamentals’, a research report due for release Spring 2012.
