Unions look to new pay round for sustained improvements

A lot of the familiar post-recession landmarks changed during the 2014-15 pay round and that tide of change is continuing as the new pay round begins to unfold. The chart on page 16 tells part of the story.

The pay round began last summer with inflation, as measured by the Retail Prices Index (RPI), rising more than pay settlements; and pay settlements rising by more than the rate of growth in average weekly earnings. It’s the pattern which, as is now widely acknowledged, produced an unprecedented fall in the value of real wages after the 2008-09 financial crisis.

In 12 short months the tables seem to have reversed. Average regular earnings growth has climbed to almost 3%; RPI inflation has fallen to around 1%, and inflation, as measured by the Consumer Prices Index (CPI), has moved into negative territory.

Pay settlements, which have settled into a 2% norm, seem markedly unaffected by these trends, but the value of wage and salaries could finally be rising in real terms. Employers are increasingly reporting skill shortages, employment and hours worked have been rising, the voluntary Living Wage is spreading and a step-change in the value of the statutory minimum (the “National Living Wage” for 25-year-olds and above) comes into force next April.

But there is another side to these labour market conditions. The public sector which plays such a big part in the collectively bargained component of the UK economy is still shackled either by formal central government pay constraints or sheer lack of money. There are signs that some parts of manufacturing are facing a slow-down — most of all in the steel industry. And tax credit cuts in the pipeline will more than wipe out the expected gains from the National Living Wage, no doubt hitting some who earn more than £7.20 an hour too.

The proportion of workers paid below the voluntary Living Wage is rising, according to the Office for National Statistics. And the level of productivity shows little sign of improving: It is now well below its projected level, compared with the pre-recession trend, and below many other Western economies. Improvements in the trend in earnings could be influenced by changes in the composition of the workforce; but improving minimum wage levels on their own doesn’t guarantee that workers will be able to progress into the higher-paid, more productive work.

Fortunately, there are some signs that in 2014-15 negotiators were beginning to look further ahead, to ensure that pay systems and the overall employment package are delivering the sustained improvements in both earnings and productivity that many, including the TUC, are calling for.

2% increase

Pay deals in 2014-15 did not collapse in the face of ultra-low inflation, but with an annual rise of 2.0%, they are rising more slowly than at any time since 2009-10 pay round.

The 2.0% figure is the overall basic increase at the middle of the range (the median) in all the settlements monitored by Labour Research Department’s (LRD) Payline database effective between August 2014 and July 2015. The lowest quarter of those deals gave basic increases of 1.67% or less, the highest quarter increases of 2.7% or more.

Taking account of the numbers covered by each agreement (where known), the level of weighted basic increase in the 2014-15 pay round appears higher, 3.0% at the median. That was the value of the increase in the adult National Minimum Wage in October 2014, which the Low Pay Commission estimated would directly affect between 1.1 and 1.3 million workers aged 21 and over.

In LRD’s survey the weighted basic increase for the lowest quarter of settlements was 1.99%, and 5.6% for the highest quarter. A high weighted settlement figure can occur when the biggest bargaining groups are among those providing higher pay rises for their lowest-paid workers.

The influential Local Government Services NJC for England, Wales and Northern Ireland covering well over a million workers was a case in point. That three-stage, 24-month deal achieved, after national strike action and repeated pay freezes, affects most authorities up and down the country, (with the exception of Scotland where there was a separate deal), and some voluntary sector employers, such as homeless charity Thames Reach.

From January this year, the deal provided for increases worth up to 8.56% for staff on less than £14,880 a year. For all those local government staff all paid at or above point 11 on the pay spine (right up to point 49) the award was 2.2%; in LRD’s survey that is counted as the standard increase for this agreement.

Across the survey as a whole the standard increase was the same as the basic increase, 2.0% at median level. For the lowest quarter the increase was, 1.6% or less. However, for the top quarter of settlements the standard increase was worth 2.5% or more (less than the 2.7% basic increase).

As the chart above shows, on a month by month basis, the median among pay settlements monitored by LRD hovered between 1.8% and 2.5%. However, in January and April, when the bulk of pay deals come into force the median rise was 2.0%.

Newly-negotiated deals (short-term, one-year and first-stage long-term deals) were arguably the ones most likely to be affected falling inflation, but there was little sign of a collapse when the rate of inflation dropped: They were a tad lower than the general trend in August, November and March, but a tad higher in July 2015.

Despite that resilience, there have been pay freezes affecting just over 3% of settlements. Some of these are public sector organisations where imposition of the 1% pay cap has left pay scales unchanged, but it also includes some familiar private sector names: Vauxhall Motors, Weetabix, and BP Oil (Greenfleet drivers).

Sectors

Clear blue water has opened up between the public and private sectors that can only spell trouble for future recruitment into the public sector. Over the 12 months of the pay round, the annual increase in Average Weekly Earnings (“regular pay” excluding bonus payments) averaged 1.0% in the public sector compared with 2.6% in the private sector.

In LRD’s Pay Survey, which is based mainly on collectively-agreed wage increases, the public sector (including higher and further education) accounts for 18% of deals, but around 73% of workers covered. The median public sector basic pay rise was 1.87%. The weighted basic figure was higher at 5.6%, boosted by settlements like NHS Agenda for Change England which deleted the lowest point on its pay spine.

However the weighted standard increase was much lower, just 1.0% compared with 2.8% in the private sector.

Basic pay awards ranged from frozen scale minima at number of central government and other bodies to 8.61% for administrative assistants at the Maritime and Coastguard Agency. Here, as in many other public sector deals, the increase for other staff was 1.0%.

That reflects the continuation of the Westminster government’s 1% pay cap, although a number of employers have been given leeway to go beyond that. Examples include UK Export Finance, the British Library, the Intellectual Property Office and the Planning Inspectorate.

In the private and voluntary sectors, the median pay rise was 2.25%. The sector accounts for 82% of survey deals — providing the best clue to pay trends out in the wider labour market — but only around 27% of workers covered.

At company level, the median was 2.2%, including the now-privatised Royal Mail Letters (2.8%).

Where multi-employer deals still operate the median was 2.53% (3.0% weighted) and the largest — the Construction Industry Joint Council — was 3%. The highest multi-employer basic increase was 4.62% in Environmental Engineering due to a larger rise for lowest grade.

The box provides a roundup of the different industrial sectors. It shows that manufacturing and construction sectors fared best with settlements concentrated around 2.5% while the lowest median rises were in public administration 1.21% and education 1.33%.

Long-term deals

One sign that negotiators may be looking further ahead is that the proportion of long-term deals (about two out of five) has almost returned to its pre-recession level.

The average length of these deals is just under 29 months, with 63% running for exactly two years and 25% for exactly three, but there are five-year deals in the survey, including a new one at ferry company Wightlink, and one 10-year deal.

These deals still offer something of a premium. At the median level, the lowest basic increase was 2.32%, compared with 2.0% for short-term staged and one-year deals (see table on page 18).

The top quarter rise was 2.75% compared with 2.5% for short-term staged and one-year deals; and the bottom quarter 2.0% compared with 1.5% for short-term staged and one-year deals. That can be the result of inflation-linked clauses that are sometimes built into a minority of long-term deals.

However, there was very little difference in the outcome among the 18% of inflation-linked, long-term deals in the 2014-15 pay round, compared with the survey as a whole (see table 1 on page 18). In most cases, these deals are linked to the Retail Prices Index, but the minority that follow the usually-lower Consumer Prices Index (CPI) may be increasing.

Lower-paid workers

There is no denying the high level of interest in negotiating deals focussed on the low paid, although the trend in 2014-15 appears to be a continuation of existing patterns rather than a revolution.

One in nine agreements (11%) included measures aimed at the lower paid, while 7% of settlements delivered a basic increase that was higher than the standard increase. These were concentrated mainly in three sectors: Transport and communications, public administration and “other services”.

Many of those deals were influenced by the voluntary Living Wage, which for most of the pay round was £7.85 an hour outside of London and £9.15 an hour in London. Almost as frequently, some other more conventional negotiating ploy was involved, like an underpinning cash increase. By comparison the number of agreements directly affected by last October’s 3% rise in the adult National Minimum Wage to £6.50 an hour to was more limited.

The largest number of low-pay boosting agreements — 47 in total — were those where the Living Wage had some impact. Here, the rises ranged in value from 1% to 40%, with a median of 2.69%. The biggest concentrations were in the “other services” sector, finance, public administration and transport.

Up to now, manufacturing has not been as influenced by the Living Wage as other sectors, but it had an impact on a few settlements in the 2014-15 pay round, including pharmaceutical firm Actavis which has given a firm commitment to achieve accreditation

The largest overall rises by value, worth a median basic rate increase of 4.4%, were those affected by some measure other than the NMW or Living Wage. Getting on for half of these (15) were in the public administration sector where industrial action against the effects austerity pay restraint may have helped pave the way for more creative bargaining, including over pay structures.

In other cases, significant rises have been achieved by underpinning cash increases, the removal of a new starter rates (IKEA Doncaster), a rise in the benchmark salary levels (Thales Telecom Services) or simply a bigger percentage rise for the lowest or lower grades, such as at seafood manufacturer Caladero where the starter rate of pay increased by 7.2% from £6.53 to £7.00 an hour.

Higher percentages for lower-paid staff were also negotiated at charity CAFOD; Wilts & Dorset Bus Co (within a 2.3% increase, year one drivers received a 2.41% increase and year three drivers 2.17%); and at insurer Legal & General there was a 2.55% increase for the collective bargaining unit but 2.3% for managers, who are not in the bargaining unit.

Where employers pay the statutory minimum or little more, negotiators will be left with fewer choices about what they can do when the statutory minimum rises substantially, as it will next April for those aged 25 or over (see Workplace Report, July 2015).

Targeted increases

While the focus of current initiatives including the forthcoming National Living Wage is on raising the wages floor, it can’t be the only consideration.

Under the two-year pay deal at recycling services company Kier May Gurney (North Somerset), the general increase was 1.6%, but additional percentage increases have been applied to close the pay gap between Recycling and Collection operatives.

There were varying pay rises at Ladbrokes Northern Ireland, from 4.3% for a Customer Service Advisor to 1.2% for a Customer Service Manager and 3% for a Marketplace Manager.

Babcock Rail saw a 2.25% increase for members covered by its Procedure Agreement 1 (General Collective Bargaining), but 2.75% for specific grades including Infrastructure Assistant and Technician, some Clerical Officer and Professional & Technical grades and apprentices.

A pay award at St Merryn Meats provided rises of 8.21% for security head guards and 8.07% for line leaders, compared with a 1% rise for most other grades (see also page 5).

Lower paid staff at the Co-operative Banking Group gained as the bank adopted Living Wage Employer status, but, within the performance-based pay award, there were higher increases for Grade G staff, for example 5.75% for an “achieved” rating compared with 4.75% at Level F and 4% at Level E.

Cash-based settlements

Defining what a pay rise means in cash terms can be part of a forward-looking approach designed to move pay levels towards a desired outcome, unless it is simply a lump-sum substitute for an actual pay rise.

Altogether 13% of settlements in the survey were based partly or wholly on a cash increase or involved some cash element rather than simply a percentage rise. Most of these settlements were partially cash-based rather than being purely flat-rate.

Overall, these settlements produced a slightly higher median increase on lowest basic rates of 2.5% while the standard median for this group of settlements remained at 2.0%, suggesting that in some cases at least they benefit the lowest-paid. Taken together almost a quarter of settlements (23.4% or 194 settlements) were either cash-based to some degree or contained measures aimed at boosting the lowest paid.

The cash-based approach was most widely used in finance and business services, public administration and health where at least a quarter or more of deals had a cash element. Retail, wholesale, hotels and catering was not far behind with almost a fifth. There were very few examples in the engineering sector and none in construction.

Gearing towards the lower paid was achieved by “underpinning” cash increases ensuring the value of the pay settlement. Examples included Northern Rail where the 2.5% rise or £400 whichever was the greater was worth up to 2.64%, and the £300 consolidated payment for all staff earning less than £21,000 a year at Historic Scotland and Royal Commission on the Ancient and Historical Monuments of Scotland — worth 2.04% on the lowest pay point — with 1% for those earning more.

A consolidated increase of 2.3% on base salary under the Fujitsu PCS agreement had a minimum value of £400 and a maximum salary of £1,000 for all employees who were below a certain salary level.

Substantial cash top-ups applied in a number of settlements: £1,000 for eligible employees at Cummins Turbo Technologies (Huddersfield) alongside a 2.5% pay rise; and at Eggborough Power Station there was a £2,000 unconsolidated loyalty bonus alongside a 2.5% inflation-based rise.

However, payments of this kind can also be much more limited, such as the £150 additional consolidated payment at BBC Studios and Post Production.

Cash top-ups can augment a performance-based pay award, as at insurance firm Atradius (a one-off non-pensionable payment of 0.75% of 2014 salary or £300 minimum). They can address historic issues, such as at DHL (Argos) where a lump sum of 10 weeks’ back pay was payable, along with the 2% increase. They can address particular circumstances like the £500 unconsolidated payment, alongside a 2% rise, for staff TUPE-transferred to Care UK Doncaster. And they can also facilitate more comprehensive pay structure changes.

Pay and grading structures

There was plenty of activity in 2014-15 around changes to pay structures, including instances where pay progression was reinstated. That too may be part of a more forward-looking approach.

Around 100 agreements in the survey (12%) addressed some aspect of their pay structure. In about a quarter of these cases the settlement merely “maintained” specific pay structure arrangements, but there were also changes for the better (or for the worse depending on your point of view).

Pay structures were most frequently addressed in the public administration sector, transport and communications, finance and business services and “other services”.

The narrowing or broadening of pay bands or pay ranges is a modest pay structure change that can nevertheless be significant both for effective salary levels and for equal pay principles.

At City & Guilds of London Institute, staff earning less than 90% of the market rate for their role were due to be brought up to that level by September 2015 at the latest, effectively reducing the pay spread, while the Health and Safety Executive is shortening its pay bands.

However, for HSBC clerical staff the maximums of notional salaries increased by 5% up to 125% to take into account consolidation of pay increases.

In Higher Education, it was jointly agreed to exploring the use of the bottom pay points across the sector.

A specific commitment to address equal pay through an audit process was part of the deal at Prudential UK Insurance Operations and at business services group Sopra Steria (HM Passport Office Contract).

And pay structure changes also included the abolition of youth rates at Scottish Midland Co-op Society.

However, in other cases, pay structure changes were much more comprehensive. The Bank of England has a new grading structure. The Civil Aviation Authority has introduced new pay zones at a significantly higher level than the previous grades and levels.

The Centre for Health and Disability Assessments (Maximus) is making a lot of changes including rebasing of salaries for TUPE transferred staff from Atos Healthcare. Transport for London has introduced a new pay structure covering Pay Bands 1, 2 and 3. And at Co-operative Pharmacy the proposal was to create one pay scale for both Pharmacy Assistants and Pharmacy Technicians, ranging from £7.33 to £9.48 an hour.

In media, journalists at Burton Mail secured a new pay deal and the first formal pay structure with some salaries increasing by up to 13.5% after rejecting a 2% across the board increase. The new structure allows trainees to progress by £1,500 to £17,000 a year within 18 months and a newly qualified senior to increase to £21,500 from £20,300 with at least three years’ experience

Change is afoot in finance too. During the third quarter of 2015 approximately 9,000 members of staff at the Lloyds Banking Group (across Grades A to E) will have their London Allowance consolidated into their base pay. In the same quarter, pay ranges will be significantly simplified, while the number of pay ranges is expected to be reduced from more than 130 to fewer than 15.

A continuing role for pay progression is made explicit in some of these agreements, which is significant after a period when many employers (in the public sector at least) have been pushing for more variable, performance-related pay systems. Following the threat of strike action Abellio Byfleet Surrey withdrew its plan to impose a new lower starter rate with no pay progression, agreeing instead to pay a significantly higher starter rate (£11.11 an hour) with progression to the normal pay rate of (£11.90) after 18 months’ service.

Pay settlements at TM Travel and Transdev (Yorkshire Coastliner) also confirmed pay progression arrangements for drivers. And, at Ocado Service Delivery, where base rates for all hourly paid employees except LGV drivers and Shunters increased by 10p employees will continue to receive the existing service premiums paid from their appropriate anniversary date.

Performance-related awards of up to 3% applied at the National Trust, but staff below the grade target point received an additional 1% progression increase over and above the performance award; and all staff with five full years’ service at the same grade with at least a Good performance assessment were moved to the target point of their grade.

Monmouthshire Building Society staff had an increase of 2% on all salaries from the 1 April 2015, with an additional 1.65% paid in service increments. The pay deal at Fujitsu Services included a percentage for progression awards. At Remploy, now 70% owned by US firm Maximus and 30% by an employee trust, the reintroduction of progression payments was due from October 2015.

At Commonwealth War Graves, normal incremental progression applies to Bands A to D (Band E employees to receive a performance based consolidated increase with a minimum of 1% and maximum not to exceed 1.5%). And at the Imperial War Museum contractual progression awards are still being paid (providing for a move to the Established Rate after 12 months or to the Rate for the Job after three years’ service).

As part of this year’s settlement at the arts development body Creative Scotland there was a 2.5% consolidated performance-related progression increase in each year for staff who achieve a fully effective or above performance rating.

Also in Scotland, the existing arrangements at the Scottish Government regarding progression towards pay range maximum for staff in Bands A, B and C will continue — staff with satisfactory performance progress by one step.

It would be misleading to suggest that the shift towards more performance-based pay awards and reduced certainty about pay levels is not continuing to advance in some companies and organisations. In the finance sector performance pay arrangements provided the framework for over half of the settlements monitored in 2014-15.

Most of the other examples, within the 9% of settlements that had a performance pay angle, were in public administration, education and health.

At the Royal Parks Agency, pay progression has been suspended as this is included in the overall 1% pay cap. And at North Yorkshire Moors Railway, a 1.5% increase to pay rates was conditional in that new entrants or subsequent vacancies would no longer receive Service Increments going forward.

At the Department for Communities and Local Government, the 2014 pay offer introduced a new pay system and removed the right to automatic progression. Although rejected by the trade unions it was offered individual staff and most are now on the new terms.

Additions

Pay additions (such as allowances or premiums) featured in 18% of settlements although as well improvements they included deals where they were simply maintained or even diminished relative to wages. That’s about the same level as in the 2013-14 pay round.

Bonuses and incentive payments featured in 13% of settlements, slightly more than last year, although again that includes instances where they were reduced or consolidated as well as maintained or renewed.

Additions can also involve extra payments, like the extra 10p an hour to 75p on the section leader premium at Asda (Northern Ireland), whereas the general increase was 2%.

A 5% increase on the allowance was paid to Technical Professionals in recognition of technical excellence at car component manufacturer Halla Visteon UK, where the base pay increase was 2%.

And there were additional payments for Internal Auditors, Authorising Person and Crane & Truck Trainers at Alcoa Europe (Kitts Green) alongside a 2% pay deal.

Broader aspects of the employment package were addressed in 10% of settlements, and working time issues in 13%. That included reduced hours, improved premia, better sick pay entitlement, extra leave and improved holiday pay.

So although the level of pay settlements in 2014-15 came out at a comparatively low level, there has clearly been a lot of thought and bargaining not just over improvements for the lowest paid, but over changes to wider pay structures, as well as other terms and conditions of employment.

The LRD Pay Survey is available at www.lrd.org.uk/?pagid=102