Upturn in economy has yet to feed into pay settlements

Latest figures on the economy show output (gross domestic product, GDP) growing by 0.7% between the first and second quarter of this year. Figures due to be released as Workplace Report goes to press are expected to show a continuing improvement in the economy.

However, the new figures are unlikely to change the view of Mark Carney, the new governor of the Bank of England. In August, he said that the UK has “endured its weakest recovery on record,” He added that a “renewed recovery was taking hold” in the economy, but its pace will be “more measured than rapid”.

Meanwhile, the TUC has argued that the “share” of economic output going to wages has been declining in countries like the UK, while the Institute for Fiscal Studies (IFS) said that real wages have fallen since 2008 by more than in any comparable five-year period (see Workplace Report June 2013).

So it looks like falling living standards will be one of the key themes in the run up to the forthcoming 2015 general election.

It certainly will in the TUC’s eye’s. Earlier this year saw the launch of its Britain needs a pay rise campaign.

The TUC is campaigning for action that will bring more fairness to the economy with:

• a properly enforced minimum wage;

• higher minimum wages for employers who can afford to pay more;

• an increased commitment to the living wage; and

• a crackdown on excessive executive pay.

General secretary Frances O’Grady, commenting on the Social Mobility and Child Poverty Commission’s first annual State of the Nation report released earlier this month, said: “In-work poverty can only be tackled through higher wages and a decent safety net for those who fall on hard times. This means a higher minimum wage and encouraging employers to pay fairer wages through living wage agreements and new wage councils. It also means the government must stop its assault on social security that is hurting low-paid workers as well as those seeking jobs.

“Britain needs a pay rise to tackle child poverty and improve social mobility. Ministers must work with unions and employers to ensure that the benefits of our recovery are shared fairly throughout the workforce.”

2012-2013 pay round overview

Figures from Workplace Report’s survey of collective agreements back the call for fairness as the headline figure in the private sector is worse than last year.

The main finding of the survey was that, altough the overall result was the same as last year with a midpoint (median) rise of 2.5% , there has been a fall in the private sector midpoint from 2.91% in last year’s survey to 2.5% this year.

The broad sectoral figures were headed by production with a midpoint rise of 2.7% — the only broad sector to beat the overall rise of 2.5%.

The spread of settlements between the upper and lower quarter is generally narrower than last year, with less “action” at the top end of the range. Half of all pay deals (the inter-quartile range) were worth between 1.5% and 3.0%. In the private sector it was 2.0% to 3.0% (2.0% to 3.5% in 2011-12) and in the public sector 0% to 2.0% (exactly the same as in 2011-12).

Taking some account of the number of workers covered by different agreements, the weighted private sector inter-quartile range comes down to 2.0% to 2.5%, the public sector to a level 1.0% across the board.

Pay freezes applied to 10% of all pay settlements in 2012-13, including 5% of those in the private sector. In 2011-12 the private sector figure was 10%, so that’s a measure of progress but also shows how far we still have to go: Any level of pay freezes is abnormal.

However, among the broad swathe of collective agreements there appears to have been a significant level of bargaining on terms and conditions other than the basic pay rise.

The survey found improvements in allowances and on grading, sick pay, holidays, maternity leave, redundancy pay and the introduction of the Living Wage suggesting that employers are keen to keep their workers on side, in the expectation of better times ahead.

Back in August 2012 Retail Prices Index (RPI) inflation was running at 2.9%. It averaged 3.1% after that, reaching a high of 3.3% in January, March and June. The government’s preferred CPI figure averaged 2.6%, ranging from a low of 2.4% in April to 2.9% in June.

One in eight private sector groups in the survey got more than the RPI inflation high of 3.3% as their basic pay rise. Engineering, energy, finance and transport produced most of the best pay rises.

Pay settlements by industrial sector

A quarter of engineering deals gave pay rises of more than 3.3%. That included buoyant car companies like Jaguar LandRover (4.5%), Ford (3.45%), Nissan (4%) and Bentley (3.5%). Other examples in aerospace and rail transport manufacturing and repair include rises of 3.5% at GKN Aerospace in Filton and Luton, and Bombardier Derby.

Energy also had better than average results. RWE npower Generation & Renewables had a one-year extension to its 2012 agreement with a 3.6% increase in pay (3.7% on unsocial hours and personal allowances). And at the Water Research Centre, there was a performance-based award funded through a pay bill increase of 4% but pay band minima and maxima increased as well by 3.5% (along with pay-related allowances).

In finance and business services, the PCS union agreement at Fujitsu involved an overall budget of 3.13% with bigger increases for those in lower salary bands. As a result, nine out of 10 PCS members received an increase of at least 3%.

In transport and communication, there were inflation-busting rises in road haulage on the Wincanton B&Q Warehouse contract at Burton-on-Trent with a 5.1% rise. And at the train operating company Virgin West Coast there was a 3.3% increase or a minimum of £700 whichever was greater, worth 5% to the lowest paid.

But in the public sector, where most groups had to contend with pay restraint under the 1% cap or earlier “£250 under £21,000” limit, only one in eight of the public sector bargaining groups in the survey managed to match the private sector mid-point of 2.5%.

Topping the public sector rises was Sellafield SLC with a 2.9% or £872 increase worth almost 7% to the lowest paid.

Elsewhere in the sector, Carmarthenshire County Council paid 1% (in advance of the national agreement), but its low pay policy was worth up to 5% for some staff, with the lowest salaries raised to £6.70 an hour and the lowest two spinal points in the pay scales removed, taking them to 44p above the over-20 national minimum wage.

The Scottish publicly-owned ferry company Caledonian MacBrayne had rises of 4.25% for groups covered by its long-term deals.

Last year’s Post Office settlements for Supply Chain and Admin Functions paid £14 a week, worth up to 4%, with other sections of the postal business settling for between 3.1% and 3.5% last year. But the service is now embroiled in disputes.

Commonwealth War Graves managed a 2% consolidated increase to salaries in April, including progession,underpinned by a minimum rise of £700, raising some pay minimums by up to 4.17%. The National Nuclear Laboratory (NNL) had a 3% rise.

The publicly-owned Magnox Electric (Magnox North & Magnox South) business agreed a 2.6% increases on pay and allowances from 1 July that runs for 15 months. Belfast City Airport firefighters got 2.5%. And, while adhering to the 1% limit, the school inspection body OFSTED managed to get more than 2.5% for those on its lowest basic rate.

Elswehere workers in the public sector experienced direct cuts not only in service conditions but also in pay, like the reduction in starting salaries for police constables.

There was mounting pressure on pay progression arrangements, an unfolding process of localisation in school teachers’ pay, and an unsuccessful attempt to break up the Agenda for Change NHS national agreement.

In further education, while many English colleges applied the deal agreed by the Association of Colleges (a £200 consolidated increase for staff below £15,000, 0.7% above and a new minimum hourly rate of £7.30, equivalent to 1.45% for the lowest paid) many local colleges did something different.

Local settlements ranged from pay freezes, to incremental progression only, non-consolidated payments, rises only for those below £15,000, or minimum rate uplifts only, to those offering better pay rises, like Mid-Kent College (2.7%).

Inflation linked deals

Long-term deals often produce higher increases. While their usage dipped after the recession, it seems to on the rise again. They accounted for 28% to 30% of settlements in our survey this year after hitting a low point of 27% last year.

The median increase in long-term deals was 3.0% as against 2.0% for short-term and one-year deals.

In a few cases a long-term deal was “front-loaded”, as at AstraZeneca UK where SA91 grades had a 4.8% increase to pay and associated allowances for a two-year period, running from 1 April 2013 to 31 March 2015.

Many of these long-term deals were among the 8% of settlements linked directly to some measure of inflation (three-quarters of them were rises under an existing long-term deal).

Only two public-sector deals used an inflation link, London Underground (February RPI plus 0.5%, a rise of 3.7% in the third year of a four-year deal) and Guernsey Post Office.

More than nine out of 10 inflation-linked deals were based on the Retail Prices Index (RPI), which generally shows higher inflation rates than the government’s preferred option the Consumer Prices Index (CPI).

EasyJet Cabin Crew and the Boeing Defence UK (ex-MOD staff) agreement both used the CPI.

Meanwhile, Tyne and Wear Metro (DB Regio/Nexus) and Foreland Shipping used growth in the average weekly earnings figures produced by the Office for National Statistics as a yardstick.

RPI-linked deals mainly used the RPI figure for a specific month (although one in 10 used an averaged figure) with an RPI-plus formula as likely to be used as a straight match.

Lump sums, underpins and differential awards

Around one in six agreements this year did something other than apply a simple percentage increase (or pay freeze).

Options included the use of lump-sum payments, an under-pinning cash rise, different rises for different groups, a change in the settlement anniversary date or the introduction of a low-pay measure, such as payment of the Living Wage, which is currently set at 8.55 an hour in London and 7.45 elsewhere.

Some employers have taken to paying pay rises as large lump-sum payments, instead of a percentage rise, although they are more likely to be used to top up the value of a percentage-based deal. Caterpillar Building Construction Products concentrated its pay rise on a £1,500 lump sum, while at Babcock International Marine and Technology (Devonport) it was £900.

Lump sums that were additional to a percentage rise tended to be smaller (£200 to £500), but Bombardier (Chart Leacon) paid £1,000 on top of its 2.4% pay rise in recognition of changes to terms and conditions.

A percentage rise can be underpinned by a minimum cash increase, often somewhere between £200 and £600. It’s an approach that continued to be used in 2012-13, as at Hull Trains, where it was 2.5% or £500, whichever was the greater, and Unipart Rail Doncaster where it was a 2.25% increase or £530.

Rather than an across the board increase, some negotiators singled out specific groups for a particular pay award, perhaps to pay more to lower-paid staff, or address HR objectives in different parts of the same business.

Sainsbury’s Retail applied a 2.5% increase to standard base rates covering a majority of staff, but less for those on historically on higher rates, reducing the gap for staff in similar roles. Invista Textiles (UK) paid 3% to “roles-based” employees and 2.5% to General Operators.

Living Wage

The usual focus on the low paid members was in evidence again in 2012-13, but this time the voluntary Living Wage came to the fore, referred to directly just over 3% of deals. But it was used in a number of different ways.

There was a Living Wage “guarantee” at Wincanton — B&Q Warehouse (Burton-on-Trent) and a commitment to maintain the minimum at the National Living Wage level at HSBC Bank.

Other big financial institutions and a variety of other employers made commitments of some sort on this too: East Thames Housing Association, Sita Kirklees, Thurrock Council, Newcastle College, the National Library of Scotland.

Some employers are already positioning themselves above the Living Wage, another indication that it is gaining a real purchase. The London Borough of Barking and Dagenham has a minimum wage of £9 an hour, 45 pence above the London Living Wage, while Oxford City Council paid £8.30 and Seevic College £7.60 an hour.

The lower statutory National Minimum Wage is still a powerful point of reference too. Fox’s Biscuits (Northern Foods) introduced a new training rate paid at the minimum wage (with no premiums for six months), but with a reassurance that agency workers will not be used to fill permanent core roles.

And, following industrial action, food manufacturer Greencore (Hull) agreed to look at all the pay grades, including those on national minimum wage (as well as restoring premium rates for shift pay and overtime, and paying a staged 2% increase).

Some other employers made a point of maintaining a differential above the minimum wage, including cash and carry wholesaler Booker. A 2.21% pay deal for Branch Assistants increased its £0.25 an hour differential with the National Minimum Wage to £0.28 an hour, raising the basic rate by 14p from £6.33 to £6.47 an hour.

Flat rate increases

There are usually a few flat rate deals in annual LRD Pay Surveys but this year there were a few more (see table 3). Examples range from 16p an hour under the Flat Glass Council agreement to £9 a week at Crane Process Flow Technologies and £1,000 a year at Highlands and Islands Airports (Security).

At the Atomic Weapons Establishment (AWE) there were outstanding issues from an equal pay audit and on appraisal system which the parties agreed to resolve as part of the pay deal. And BT once again set cash aside for equal pay in its pay agreement for managers, professionals and salespeople.

Changes to other conditions

There were clearly a lot more issues that negotiators wanted to talk about in 2012-13. There were changes to pay additions, salary structures, policies for working parents, working time and workforce issues but some employers were ready for a more comprehensive approach.

At advertising firm CBS Outdoors, the deal provided for a skills payment, valued at 0.2%, for Warehouse Operatives required to operate a forklift truck in order to carry out their duties; a one-off unconditional payment of £250 for Multi Media and Warehouse Technicians; one extra day’s paid leave on or around the employee’s birthday; one additional day’s leave for 2013 only (again valued at 0.4%); and a reduction in the working week/working cycle for all staff of 30 minutes, valued by the company at 0.7%.

Elsewhere, Fox’s Biscuits agreed changes to sick pay waiting days, the overtime rate, a new training rate for new starters; severance terms; and holidays. And Ocado (Customer Fulfilment Centre) was reviewing its terms and conditions including holiday arrangements and the option to consolidate premiums.

Pay additions

Three out of 10 agreements made some adjustment to pay additions as part of their deal. Bonuses, overtime and weekend premia, shift and unsocial hours payments and attendance allowances were some of the most frequently occurring pay additions.

Bonus and incentive payments

Variable bonuses have been a popular bargaining element this year. Unilever Home & Personal Care UK (Leeds) had a 1.5% pay rise, but also an overall 25% increase in bonus potential over the two years. And at London & Quadrant Housing Association a 5% bonus was to be paid if an overall resident satisfaction rating target is achieved.

A handful of companies chose to issue shares as an incentive to employees, including Howdens Kitchens — a 3% cash pay award plus 100 free shares in the company — and Tesco Distribution, where shares worth 1.5% of earnings in the previous year were made awarded at a number of sites, up to a maximum value of £1,625.

Performance-related pay

Around one in eight pay deals featured some form of performance-related pay as part of their 2012-13 settlement. These arrangements tend to focus on the individual, whereas bonus and incentive schemes are often (but not always) collective.

At Tesco’s Dundee Call Centre, for grades on performance-related pay, the increases ranged from 2.5% at the top end (Blue) to 2% (Green); 1.5% (Amber) or 0% (Red). It was agreed to review Amber performers at the half year and, if performance had improved to Green, an additional backdated 0.5% was awarded.

Insurance company AXA used a pay matrix to deliver a pay “spend” of 2.75% — this takes account of an individual’s position in the pay range, as well as their performance to determine the pay award. However, that was underpinned by a 5% increase in pay ranges; and a 3% increase in the minimum salary to £14,320 a year. There was also due to be a joint company-union review of the existing performance management system.

Overtime and shift premia

Where overtime premia were addressed in pay deals the main result was to maintain their value (“flow through”). However there were some improvements and introductions, as well as instances of provision being worsened.

The Co-operative Pharmacy National Distribution Centre (Stoke) deal included an agreement to award time and a half for hours worked on a Saturday and for any non-contracted hours worked after 10pm; and double time after the first five contracted hours on a Sunday. Bank holiday arrangements were also dealt with.

Shift premia changes were a little more likely to be improved than simply maintaining current entitlement. The hourly paid agreement at SKF UK, which increased base pay by 1.6%, raised the double day shift premium from 15% to 16%, increasing its value.

Regional allowances

Regional allowances, like the South East allowance at Island Line (up by 2.5%) were likely to be increased in line with basic pay. However, the City of London Corporation pay deal of 1% on basic rates included a 3% increase in London Weighting.

Regional payments often have a recruitment and retention purpose, and at the Department of Energy and Climate Change a market-related recruitment and retention bonus was introduced for staff in designated posts dealing with the oil and gas industry.

Attendance allowances

Attendance allowances featured in a smaller number of deals. Alcoa Howmet introduced an attendance prize draw, along with other terms and conditions changes and a 1.75% increase in basic rates.

Travel discounts

Travel concessions are a popular benefit, especially in transport companies, and a number of the agreements in the survey improved or adjusted them. Virgin West Coast introduced a carer’s travel pass for members who are registered disabled, enabling their carer to travel with them. The introduction of a cycle scheme featured at Northern Powergrid (Technical), while other employers agreed, for example, to pay for parking levies and bus passes.

Staff discounts and facilities

At Cerestar (Cargill), the 2.8% pay deal came with £75 in shop vouchers and provision for a full medical for individuals. At NAAFI, the 10% staff discount previously available in retail shops was extended to food sold in NAAFI restaurants. Tesco Distribution drivers were supplied with store vending cards, but Heathrow Express withdrew free vending services.

Consolidating pay additions

While many negotiators concentrated on agreeing on how to increase or apply pay additions some were more interested in consolidating them to boost the value of a pay deal. Polypipe (Pipes & Fittings) Glasgow had a 1.5% increase in basic rates, and adjusted some of its bonuses, but also offered to consolidate 2p an hour from the efficiency bonus into the basic rate for Despatch Operatives.

Working parents

Rights to paid and unpaid time off for parents and carers are sometimes improved on in pay negotiations and there were a score of deals of that kind in this year’s survey, although many of these were connected in some way to retail giant Tesco.

The company improved maternity pay for customer assistants, team leaders and section managers, with one additional week’s pay (increasing entitlement to nine weeks). There’ll be a further two weeks’ pay next April, and one week more from next October.

At the Greater Anglia train operating company, maternity pay increased from six weeks’ full pay, 20 weeks’ half pay and 13 weeks’ Statutory Maternity Pay (SMP) to 12 weeks’ full pay, 14 week’s half pay and 13 weeks’ SMP. Paternity pay also increased from one week full pay and one week Statutory Paternity Pay to two weeks’ full pay.

The existing two-year agreement at Rolls-Royce Motors provided for £50 a day in child care for early return from maternity leave.

Working hours and holidays

The survey saw a significant level of activity on working time issues which featured in almost one in 10 deals. There was extra basic leave at finance group Allianz (20 days at the start of employment rising to 22 days from next January); additional service-related leave after 5 years at Centrebus (Waterloo Depot); and an extra day for one year only at drugs multinational Sanofi-Aventis (Fawdon).

There were shorter hours at Cereal Partners UK (Staverton) with the removal of 12 contracted hours, while CBS Outdoor had a 30-minute reduction in the working week/working cycle. Bereavement leave was improved at a range of companies including Golden Wonder.

Earnings only grew by 0.6%

There are two ways to assess what’s going on with pay from month to month. Firstly, there are the pay settlement trends and deals published in Workplace Report.

Secondly, there are the average weekly earnings (AWE) figures published monthly by the Office for National Statistics (ONS).

The earnings fgures are different from negotiated rates as they reflect changes in employment and the total pay bill at around 9,000 businesses across the economy. But like pay settlements, earnings growth has been showing little sign of a recovery

The latest ONS figures for August show that annual growth in AWE earnings for regular pay excluding bonus payments has recently dropped the very low level of 0.6%. That’s very much weaker than more typical rates of around 4%.

Breaking the latest figures down by sector, regular earnings were up 1.1% in the private sector, but actually shrinking in the public sector (-1.0%), having fallen from 1.9% at the start of the year to 0.3% in July. There was more strength in manufacturing (1.6% growth), construction (1.8% growth) and in wholesaling, retailing, hotels and restaurants (3.0%). However, there was just 0.4% growth in services, while there was negative growth of 1.1% in finance and business services.

Forecasts compiled by the Treasury suggest a small recovery in 2014, but only to the extent of 2.5% growth in the fourth quarter.