By Max Clarke

Workers’ pay continues to be squeezed as firms in ‘austerity Britain’ are reluctant to boost remuneration.

Public sector cutbacks and only marginal private sector growth continue to impact organisations’ ability to reward employees, resulting in pay freezes for 1 in 4 employees.

These are the top line findings of the Chartered Institute of Personnel and Development’s (CIPD) annual Reward Survey, produced in partnership with Benefex.

Market rates are considered the most important factor in determining pay levels for well over half of all respondents while ability to pay is the most important factor for a quarter of organisations. For managing pay progression, the most common approach is to link pay to a measure of individual performance, either on its own or in combination with another factor, such as competencies.

“In the context of public sector spending cuts and cautious economic growth in parts of the private sector,” commented Charles Cotton, performance and reward adviser at the CIPD, “it’s not surprising that not all organisations have been in a position to make a pay award this year. The findings also show that this competitive environment is having the effect of encouraging employers to focus on linking pay rises and bonuses to employee and organisational performance.”

The survey of 280 respondents, intended as a benchmarking and information resource in respect to current and emerging practice in UK reward management, also finds that two-thirds of organisations are operating performance-related reward schemes. Merit pay rises and individual bonuses are the most common forms of performance-related reward. One in three organisations also operates individual non-monetary recognition awards for clerical and manual employees.

Continued Cotton, “We expect that there will not be much change to the proportion of organisations making a pay award in 2012. This is again due to a public sector that doesn’t have much money to play around with as employers freeze pay, scrap bonus schemes and ask employees to pay more towards their pensions. Some private sector organisations will also find it hard to increase pay if their part of the economy does not grow as quickly as anticipated.”

The survey also reveals latest pension practice, with nearly every respondent organisation offering a pension scheme to its employees with an employer contribution. Over two-thirds of open pension schemes offered are defined contribution schemes, while a quarter are defined benefit. Around two-fifths of employers are intending to make changes to their pension arrangements within the next year, with the most common being a shift to salary sacrifice (28% of all those making a change), to increase employee defined benefit contributions and switch from RPI to CPI.