By Daniel Hunter

Despite improved economic conditions, organisations still aren’t positioning employee pay competitively at the top of the market, according to new research published today by the CIPD, the professional body for HR and people development.

The CIPD’s annual Reward Management Survey found that even though the UK’s economy grew by 2.6% in 2014, the fastest pace since 2007, the number of organisations who said they were positioning pay in the upper quartile or top 10% of their sector actually fell by 7 percentage points, from 35% recorded in 2011 to 28% in 2014.

Correspondingly, the proportion of employers who said they were positioning pay in the bottom 10% or lower quartile of the market has increased to 17%, from a low of 13% in 2012.

The report found that manufacturing, production and private sector services are more likely to position pay in the upper part of the market than other sectors. 37% of respondents in the manufacturing and production sectors, and 30% of those in private sector services said they position pay in the upper quartile or top 10% bracket. Organisations in the voluntary, community and not-for-profit sector on the other hand, are generally much less competitive with 84% positioning pay in the median, lower quartile or bottom 10% brackets and just 17% in the upper quartile or top 10%. In a landscape currently experiencing the impact of pay freezes and ongoing budget cuts, nearly 1 in 5 (19%) of public services and voluntary, community and not-for-profit organisations still position pay in the lower quartile or bottom 10% bracket of the market, a higher proportion than other sectors.

Charles Cotton, Performance and Reward Adviser at the CIPD, said: “With continuing economic growth and recovery of the labour market, we might have expected organisations to be aiming for competitive salaries to attract and retain employees. However, this survey shows that so far this isn’t the case. Ongoing productivity challenges are one reason meaning that many employers simply can’t afford to increase salaries significantly across-the-board. On the other hand, where employers have enjoyed access to a steady supply of labour in the market, they simply haven’t been under pressure to raise starting salaries and in turn, this has seen little movement across salary levels in general.

“A number of external factors mean that it’s not as simple as increasing pay for most sectors. For example, an organisation’s ability to pay has overtaken market rates in importance for organisations determining pay increases. However, what’s important is that businesses ensure they’re regularly monitoring, evaluating and comparing pay, in order to respond to a tightening labour market. They also need to make sure they’re effectively communicating pay decisions to their employees, and it’s here that HR needs to step in and help write the organisational story to put earnings into context, particularly where they might not be increasing.”

The CIPD’s survey also found competencies (the defined behaviours that enable the individual to do their job properly) and skills (the learned ability to carry out tasks within their job well) being increasingly recognised in pay decisions. Although the use of individual performance and market rates in deciding pay progression has remained largely steady, the importance of competencies and skills to determine pay progression has been on the rise for the last three years. Almost two-thirds (64%) of employers now use competencies as pay progression criteria, compared to 50% in 2011. Likewise, the use of skills in determining pay progression has increased from 44% to 60% over the same time period.