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The Actuary The magazine of the Institute & Faculty of Actuaries

Salaries suffer with fragile economic recovery

Publishing the findings from its European Salary Increase Survey 2011, which incorporates responses from over 230 UK companies representing a cross section of industry sectors, the human resource consulting and outsourcing business of Aon Corporation found that salaries rose 2.5% in 2010 and 3.1% in 2011, while price inflation stood at 4.4% in July 2011. Projected salary increases for 2012 are 3.2%.

Duncan Brown, Aon Hewitt, said: "The pattern of pay increases revealed by this survey shows how difficult the current economic climate is for many organisations planning and making their pay awards in the UK at the moment. A number of crucial macro-economic factors are significantly impacting employers' decisions and a big squeeze is underway. After two years of salary freezes and cuts, pay awards are up to an average of over 3%, which is still far behind the pre-recession levels of 4.6% in 2007.

"Employees are feeling this pressure. While salary packages are seeing little increase, the standards of living continue to be eroded by higher rates of price inflation which is adding to the complexities of the current socio-economic crisis. After three years of very low salary increases, savings are running out and the knock-on effect of reduced consumer spending and slower economic recovery seems highly likely."

Salary freezes and reductions were not reported by any participating organisation in 2011 compared to 12% who reported a salary freeze in 2010.

The survey highlights that retention of high performers is at the top of the agenda for most UK organisations. When it comes to setting pay increase, 63% now operate merit-based increases, compared to an increasingly smaller proportion (14%) awarding across the board general increases.

Similar to 2009 and 2010, organisations have awarded the highest increases at the middle management and professional levels (3.1%) rather than the top executives (2.8%) who usually recovered the highest increases prior to the recession.

Brown continued: "Not surprisingly, these survey findings clearly highlight the need for effective reward management including benefits and communications. Employers often can't pass on price increases to their customers so are trying to restrain pay awards, but they are also worried about retaining their best people. A total rewards approach, making clear all of the rewards in working for an employer, is ever more essential".