Private-sector pay awards take a dive

An increase in the proportion of pay freezes has seen the XpertHR headline pay award drop to a 10-year low in the three months to the end of July 2020.

The headline pay award has fallen to 0.5% in the three months to 31 July 2020, down from the 2.2% seen in each of the three previous rolling quarters, according to provisional analysis from pay analysts XpertHR. This means that pay awards are now at the lowest level since the three months to the end of February 2010, when the median pay award stood at 0.3%.

We have now entered a quieter time of the year in the pay calendar: pay awards with effective dates in April have fallen out of the quarterly analysis, and three-quarters of pay settlements collected by XpertHR each year take effect between January and April.

XpertHR pay researchers have found that many employers are deferring decisions on their 2020 pay award, and have currently recorded around 20% fewer basic pay settlements effective between 1 January and 31 July than at the equivalent stage last year. The smaller sample in the three months to the end of July 2020 means the median is finely balanced, sitting just above a tranche of pay freezes, so the addition of a couple more pay settlements could see the median move down to zero, or above 1%.

However, looking at the year so far, the picture of pay settlements appears more stable, with the whole-economy median basic pay settlement worth 2.2%. This compares with a median of 2.5% over the year to December 2019.

Latest pay award findings

Based on a sample of 48 basic pay awards effective between 1 May and 30 June 2020, we find the following:

• Median pay award plummets. The median basic pay award in the three months to the end of July 2020 has fallen to 0.5%, two percentage points lower than the median of 2.5% recorded in the same period a year ago and the lowest figure for more than a decade.
• Interquartile range widens. The interquartile range spans three percentage points, with the lower quartile having dropped to zero while the upper quartile remains at 3%.
• More than half of pay deals lower. In a matched sample of pay awards, more than half (56%) are lower than the same group of employees received a year ago. Around three in 10 (28%) are the same as last year, while just one in six (16%) is higher.
• Pay freezes dominate. Pay freezes account for more than four in 10 (43.8%) of the total sample of pay settlements (both basic and performance-based).

Public-sector pay awards ahead. . . for now

There was a flurry of activity on public-sector pay when on 21 July 2020 the Westminster Government published a number of the independent public-sector pay review body reports and announced the pay awards that the groups within their remits would receive in 2020. Several of these groups have 1 April review dates, and the pay awards announced will be backdated to this date, meaning that they do not appear in our current headline figures. They include:

• a 2% increase for members of the armed forces, including the senior military;
• an increase of 2.5% on national pay bands for operational prison manager, officer and support grades in the prison service in England and Wales, and on the pay points for closed grades; and
• a 2.8% increase on the pay scales for most NHS doctors and dentists in England.

Other groups covered by the announcement have review dates later in the year, including school teachers in England and police officers in England and Wales, whose pay review dates are in September.

However, there were warning signs that public-sector pay awards next year will not be so generous, with the chancellor Rishi Sunak stating: “In the interest of fairness we must exercise restraint in future public-sector pay awards, ensuring that across this year and the spending review period, public-sector pay levels retain parity with the private sector.”

Analysis of pay settlements over the 12 months to the end of July 2020 shows that pay awards in the public sector are worth 2.5% at the median, with the middle half of awards worth between 2% and 3%. Pay awards in the private sector in the year to the end of July 2020 have dipped to 2.2% from 2.3% in the previous rolling year, while the whole economy median has also fallen, down from 2.4% to 2.3%.

XpertHR pay and benefits editor Sheila Attwood said:

“The drop in the value of pay awards comes as no surprise, as the number of pay freezes made by organisations begins to creep up. We also expect many of the pay reviews currently on hold to ultimately result in a pay freeze for staff, making 2020 the worst year for pay awards since 2009.”