By Claire West

Overall, 58% of the 3,000 respondents to the 2010 Employee Attitudes to Pay survey from the Chartered Institute of Personnel and Development (CIPD) expect a pay rise next year, a significant worsening in outlook from last year when 67% envisaged an increase. The likelihood that employees will receive a pay freeze has also increased significantly with a third (33%) predicting no change to their salary compared to a quarter (25%) last year. Like last year, 2% of workers expect a pay cut.

Public sector employees, however, are more pessimistic about their future with half (49%) predicting a pay freeze in 2011 and 44% forecasting a pay rise, (compared to just 29% and 61% respectively in the private sector). Additionally, only 9% of public sector workers believe that next year’s pay rise will be higher than 2010, while a far greater percentage (29%) of private sector workers are predicting the same. For those expecting a pay rise in 2011, those in the private sector forecast a median increase worth 3% and those in the public sector believe that they will receive a 2% rise.

This muted forward-looking analysis from UK employees is matched by the reality of pay in 2010. Since 2008, there has been a significant decrease in the proportion of respondents who have received a pay increase, falling from two-thirds (67%) in 2008 to half (49%) in 2010. Likewise, the number of employees who have had a pay freeze has also gone up, with the figure increasing by 20 percentage points since 2008, from 24% to 44%. Although the proportion who have seen a pay cut increased significantly between 2008 and 2009 (3% to 5%), it has remained steady this year at 4%.

With many public sector employers trying to reduce their expenditure, respondents receiving a pay rise in this sector significantly reduced from 76% in 2009 to 42% in 2010. In contrast, respondents in the private sector were significantly more likely to receive a pay rise in 2010 than they were in 2009 (40% compared to 50% this year).

Charles Cotton, performance and reward adviser, CIPD, says: “While the proportion of employees who have seen their pay frozen has increased in 2010, we predict that this will fall next year as more private sector employees enjoy a pay rise and fewer of them receive a pay freeze on the back of the improving economy. Even in the public sector, many employees will still see their pay rise next year if they earn less than £21,000 or they are due an increase related to their length of service or their performance. It may be that workers are being very cautious in their pay outlook for 2011 after being disappointed by what happened to them in 2010.”

Satisfaction with pay decisions was also analysed in the survey in order to gauge its impact on employee motivation and engagement. Although the majority answered that they would carry on working as usual (57%), almost one in five said they would leave their organisation in a year (17%), with 7% saying that they would work less hard. Just 2% said that they would take part in industrial action.

Similar to last year, the main factor for dissatisfaction among those receiving a pay freeze continues to be that it does not keep pace with increases in the cost of living/inflation (53%), which was also the top reason for those who received a pay cut (29%). Respondents within the public sector undergoing a pay freeze continue to be less satisfied than their private sector counterparts, with a net score of -32, compared with -24*.

Charles Cotton continues: “Inflation is a key issue for many employees when evaluating the employer’s pay decision. With inflation predicted to remain around the 4% mark next year; many employees could be dissatisfied with the size of their 2011 pay rise. While many will carry on regardless, a significant proportion of employees in the private sector will leave within 12 months. In light of this, it is important for firms to communicate to employees the rationale behind their pay decisions so that they understand the context in which the decision has been made. It is also important for firms to identify high performers and to ensure that their reward reflects achievements, otherwise the danger is that talented individuals will vote with their feet if they are not satisfied with their pay rise.”

Similar to 2009, the most likely employer explanation for a change in pay (whether an increase, a freeze or a cut) is due to the state of the economy (47%), followed by how much money the organisation has to spend (41%) and individual performance (19%). And despite the worst recession since the Second World War, only 20% reported that their employers have made more of an effort to communicate the reasons behind their pay decisions. Forty-seven per cent said their employers had made the same effort, 18% had made no effort and 7% had made less of an effort.

*net satisfaction is calculated by subtracting the percentage of employees satisfied from the percentage who are dissatisfied.