By Daniel Hunter

The last quarter has seen pay intentions reach their highest level since spring 2009, according to newly released data from survey of more than 1,000 employers, commissioned by the Chartered Institute of Personnel and Development (CIPD).

The survey asked employers if they planned to increase, freeze or decrease pay in the 12 months to December 2012 and found that the expected mean basic pay settlement* was 1.7%, compared with 1.5% in the previous quarter and 1.3% at the same time last year.

In the private sector, 35% of employers predict a pay rise (unchanged from last quarter), with the average increase creeping up from 2.1% to 2.2%. Among those planning to increase pay, manufacturing and production firms are forecasting the highest rises (2.9%), followed by those in the service sector (2.7%).

The replacement of a pay freeze with a 1% pay cap in the public sector has seen the proportion of employers forecasting a pay increase in this sector jump from 12% to 30%, with average public sector pay increases jumping from 0.3% to 0.8%. On average, 16% of all employers predict a pay freeze for the coming year, but this ranges from 9% in the private sector to 40% in the public sector.

Despite the upward movement in pay predictions, the survey also revealed that a level of uncertainty prevails amongst many employers, particularly in the private and voluntary sectors, with 55% and 56% respectively feeling unable to predict the outcome of their pay decision, as it is too early to say.

“While the predicted increases in pay settlements reflects a cautious optimism among members in the private sector that the worst may now be over, uncertainty about how fast the economy will improve is acting to moderate pay forecasts and leading many employers to hedge their bets on the outcome of the final decision," Charles Cotton, CIPD rewards adviser, commented.

"As we move further into the pay round and as organisations get a better idea of how well they and the economy are likely to perform, we should see fewer feeling unable to predict the outcome of their annual pay decisions.

“Across all sectors, and whatever pay decisions are predicted, it’s vital that employers maintain an honest line of communication with employees in order to keep staff motivated and engaged; previous CIPD research has shown that employees are satisfied with their employer’s pay decision if their employer has taken the time to explain the rationale behind that decision.

"The same research also showed that even among those employers that do talk to employees about the basis of their pay rise, few took the opportunity to explain to staff what needed to happen in the next 12 months for staff to get another increase.”

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