A Cautious Approach to Pay is the New Norm

The private sector jobs recovery is continuing, but small businesses are increasingly taking a cautious approach to pay as they look to stay competitive. That is according to a survey by the CBI and recruitment specialists Harvey Nash, out today (Thursday).

The Spring CBI/Harvey Nash Employment Trends Survey covered 319 companies, employing around two million people in the UK. The survey found that pay restraint remains the norm, with nearly half of all businesses planning a below-inflation pay award or targeted pay rises, and one-fifth planning a pay freeze in order to remain competitive.

CBI Director-General, John Cridland, said:

“Businesses have been creating jobs where they can over the past few months, and it looks as though that steady trend of employment growth in the private sector is set to continue.”

“But hiring plans are cautious, and pay awards in particular remain low as businesses look to make sure they stay competitive in tumultuous times. We have to accept this constraint as the new normal – we will only be able to afford to pay ourselves more in the long-term by improving productivity and competing more effectively around the world.”

“The Government and businesses must deliver on targeted action to help young people who are out of work, in order to increase employers’ appetite to hire them.”

“Half of employers expect to have opportunities available for unemployed youngsters, but taking them on is not without its challenges. 49% identify a lack of skills and 37% a lack of aptitude as real barriers that need to be overcome.”

“Encouragingly, around half of firms say that the Youth Contract would persuade them to take a chance on hiring a young person, although one-in-five remains unsure.”

On the outlook for recruitment, the survey shows that jobs are being created across the private sector. While 30% of employers predict their workforces will be larger in a year, 18% predict they will be smaller, giving a balance of +12%.
Albert Ellis, Chief Executive of Harvey Nash, said:

“Hiring in today’s new normal is clearly focused on growth opportunities. While the overall approach is prudent, some sectors are clearly more buoyant, with science, engineering and hi-tech leading the way.”

“Importantly, the roles that are being filled are in growth-generating jobs such as sales and customer service, while companies’ key recruitment targets for the next six months are those with professional and managerial experience. This confirms a story of employers seeking out new growth opportunities and seizing them as and when they arise.”

“Where companies can’t find the skills available, they’re searching for potential and looking to invest themselves. The graduate market remains competitive, but 22% of employers are looking to increase the numbers that they take on this year, with the figure increasing to 27% for apprentices. This kind of long-term planning suggests that companies know they’ll need to compete on their skills base if they are going to prosper."

On employment regulation, the survey shows that two-thirds (67%) of firms perceive it to be the biggest threat to labour market competitiveness.

Nearly half of firms have been affected by the introduction of the Agency Workers Directive in October 2011, and of these, nearly six in ten firms have reduced their use of agency workers, preferring to employ temporary workers on fixed-term contracts or to use other temp models.

Meanwhile, the employment tribunal system is the single biggest deterrent to firms looking to hire, with a 58% increase in claims over the past five years.

Katja Hall, CBI Chief Policy Director, said:

“Employment law is now seen as a brake on competitiveness by two-thirds of firms, and 52% expect new rules from Brussels to prove damaging in the next five years.”

“The Agency Workers Regulations are a case in point, with half of respondents indicating that they’ve been affected by their introduction, and with 57% reducing their use of agency temps as a result, hurting job creation in these tough times.”

“While some degree of flexibility has been maintained through other methods, the survey shows that the overall effect of these unwanted and unnecessary regulations is to reduce opportunities for people to find employment. Alleviating these damaging effects should be an issue of the highest priority for the Government, starting with working in Brussels to get rid of the directive entirely.”

“Employment regulations themselves can be a barrier for firms, particularly smaller ones, but the number one issue for businesses is how the rules are applied in tribunals.”

“While reforming collective redundancy and TUPE rules will help, a real game-changer for growth would be a radical reform of employment tribunals.”

“With an ever-growing backlog of claims, it’s clear that change is essential, and the Government’s laudable attempts to make progress on this front are being defeated by the inertia of an overly legalistic system. More radical reform has to come, to make the system quicker, cheaper, and more consistent for its users.”

“The CBI believes there is a case for taking tribunals out of the court system and re-establishing them as more informal, swifter hearings, with judges ensuring cases are heard quickly and effectively.”

For further information on awarding pay take a look at is4profit’s small business advice article on Remuneration.

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