By Claire West

Employers are gearing up for the recovery by targeting recruitment in areas that will maximise growth, according to a survey by the CBI and Harvey Nash out today (Monday). But firms are concerned about maintaining morale, as employees face another year of pay restraint.

Gearing up for Growth, the CBI/Harvey Nash Employment Trends Survey covers 330 UK employers, which employ nearly two million people. It reveals the number of businesses operating a recruitment freeze has fallen from a peak of 61% in Spring 2009 to 7% this autumn, with these concentrated in the public sector and construction.

Firms are taking a cautious approach to hiring in the year ahead. A quarter (23%) are planning targeted recruitment in areas including management, technical and sales, while a fifth (21%) plan to add staff in some parts of the business and reduce numbers elsewhere.

Pay freezes have thawed, falling from a peak of 55% of employers last Spring to 14%. But pay restraint remains the norm as firms try to control costs. A fifth (22%) are planning targeted pay rises for key staff, while 42% are planning a below-inflation award for all employees. One in ten employers is planning an award in line with or above inflation, based on the Retail Prices Index.

While most firms (67%) describe the current employee relations climate as co-operative or better, many businesses are concerned that relationships will become more difficult next year.

The survey also reveals that the recruitment and pay freezes seen by the private sector during the recession are starting to migrate to the public sector, as the Government takes the necessary steps to reduce the deficit. In the next six months, a fifth (21%) of public sector employers are planning a recruitment freeze, and 58% a pay freeze.

John Cridland, CBI Deputy Director-General, said:

“During the recession, private sector employees adopted a can-do attitude, accepting that measures such as pay and recruitment freezes were the alternative to companies going under, and further job losses.

“Sustaining that spirit of co-operation will be more challenging now the immediate threat appears to have passed.

“Firms are cautious about recruitment and pay, given the fragility of the economy. But they know they can’t afford to take staff for granted, and must redouble efforts to keep employees on board as they gear up for growth.

“This will be especially true in the public sector which, for the first time, is facing pay and recruitment freezes to reduce the deficit.”

Albert Ellis, CEO of Harvey Nash, added:

“While business confidence in the sustainability of the recovery remains fragile, employers will not be recruiting on a broad scale. However, many organisations are taking a targeted approach to hiring talent to support their growth strategy, and exploit opportunities where market conditions are supportive.

“Comparing the UK’s labour market with others around the world, it is its flexibility and agility, that has protected the country from the very worst possible outcomes during the recession. It has also provided a robust platform for an increase in demand for recruitment, even though it may be very selective at this stage.”

As well as recruitment and pay, the report examines strategies for engaging with employees, the impact of removing the national default retirement age (DRA), and the growth in flexible working.

On employee engagement
Employers believe strong staff engagement is essential for maximising opportunities during the recovery, as employees that are consulted are more likely to accept the need for change.

But firms are finding it harder to maintain engagement and morale. Nearly a third (32%) report high levels of engagement, while morale is not getting better, with just a third
(38%) reporting high levels.

The majority of employers recognise they need to do more, with 63% citing achieving high levels of engagement as one of their top priorities for the year ahead.

Key findings include:
Almost all employers (95%) regularly communicate the state of business to employees using a variety of methods, including face-to-face meetings
85% say staff understand the need to contain costs and make changes in working patterns
Half (54%) believe staff are flexible in responding to changes, with those working for small businesses the most adaptable.

On the rise in tribunal claims and the DRA
The number of employment tribunals rose 56% to 236,100 claims in 2008/09, according to the Tribunals Service. Employers are concerned about this trend, and nearly half (45%) report a rise in the number of weak and vexatious tribunal claims in the past year.

Against this more litigious background, nearly half of employers (48%) are worried about an increase in age-related claims after the removal of the national default retirement age (DRA) of 65 in April.

With only six months to prepare, two thirds of employers (69%) are concerned that removing the DRA will lead to greater uncertainty around workforce planning.

John Cridland commented:

“In most cases, employers want to keep on staff beyond 65, because they value their skills and experience.

“The DRA is a dignified way to manage cases where performance isn’t up to scratch or people are no longer physically up to the job. Abolishing it leaves a huge void, and has the potential to open the floodgates on age-based litigation.

“Given that some employers are unaware of these changes, the Government needs to give businesses more time to prepare, and provide clear guidance on how to operate without a DRA.”

Key findings include:
Four out of five (79%) employers use the DRA of 65, and only 16% have no set retirement age
60% think removing the DRA will have a negative impact on younger staff with fewer promotion opportunities
Nearly two-thirds (63%) are concerned about the readiness of managers to deal with declining performance in the absence of the DRA.

On flexible working
Nearly all employers (97%) offer at least one form of flexible working, including part-time; flexi-time; term-time hours; job sharing and working from home. Acceptance rates continue to run at more than 90% for parents and carers.

However, employers are concerned about the Government’s plans to extend the right to request flexible working to everyone, warning that there is a limit to what they can offer without it having a negative effect on the business or other staff. The CBI is calling on the Government to provide clear guidance to employers on how to prioritise requests.