CIPD-IRN Private Sector Pay Survey 2015

12 March 2015

March 2015

Pay set to rise again in 2015 but concerns over competitiveness

Almost half of private sector employers intend to pay an average increase this year of 2.8% while no company intends to cut pay, according to the second annual CIPD-IRN pay survey for 2015.

Introducing the survey at the IRN conference this month, CIPD Ireland’s Managing Director, Michael McDonnell, said that it is clear from the survey that pay has fallen out of line with expectations after almost six years of stagnation. This can undermine the recovery, he said, as people do not have enough disposable income to stimulate economic growth.

When looking at the reason for conceding pay increases, the survey showed that most gave it for normal ongoing change which, said McDonnell, is a euphemism for paying people in accordance with broad norms.

This is in contrast to those who conceded pay increases during the recession which were given for very clear productivity and performance.

But he warned that while pay increases are now returning to what one might call the norm to boost the recovery, increases conceded that are not linked to competitiveness will undermine that same recovery.

This, he said, is one of the most significant features coming out of the survey.

The CIPD-IRN survey, which included 421 responses across all sectors, showed that 45% of employers intend to increase pay in 2015 by an average of 2.8%. Over 27% intend to maintain pay at current levels and almost 28% have made no decision as yet while no employer intended to cut pay.

However, the average 2.8% increase for 2015 may be exceeded by the end of the year. According to the 2014 CIPD-IRN survey, employers planned to give an average increase of 2.5% but ended up giving an actual increase of 3.2%.

This headline figure of 2.8% for 2015 appears to be confirmed by the latest CSO earnings statistics which showed that average weekly earnings across all sectors, public and private, stood at €704.34 in the last quarter of 2014 - a 2.3% increase on the €688.78 recorded in the last quarter of 2013.

In the CIPD-IRN survey increases for 2015 varied across sectors with organisations in the recruitment/HR sector showing the largest intended increase of 6.9% and communications at 4.5%. The lowest increase was in retail/distribution at 1.8%.

Not a homogenous economy

While McDonnell said that the survey shows that the worst part of the recession 'is now behind us', he warned that the recovery is not evident throughout the economy.

'It's not a homogenous economy. There are firms that can afford to pay but there are also firms that are waiting to see how pay pans out and this will present a challenge', he said.

The CIPD Managing Director said that as a small open economy, Ireland needs foreign direct investment without which the economy would have to find some €40 billion from elsewhere.

But he said a feature emerging out of the survey is the criteria for pay increases of those companies that are exposed to international competition are not based on local factors but on what is happening in locations around the world.

'What we have learnt in Ireland is that in a world where we have to compete globally, our ability to act unilaterally is quite restrained. The cost base of those companies exposed to global competition is determined not just locally but by comparable plants in other jurisdictions', said McDonnell.

Non-pay benefits

On non-pay benefits in 2015, the survey shows that the vast majority (60%) of companies intend to maintain them at their current level while fewer than 10% say they will increase them.

This, said McDonnell, is something which organisations may need to look at.

Most people don't value non-pay benefits but, particularly in the context of changing demographics, benefits such as medical insurance and family leave can be of enormous benefit, he said.

Such benefits have huge costs but organisations do not appear to be getting real value out of them, he said.

'Employers need to find ways to articulate to individuals the total value of their packages rather than the pay element alone', said McDonnell.

45% to increase staff numbers

In a further sign that the country is moving out of recession, the survey showed that almost 45% of organisation said they intend to increase employee numbers in 2015 while over 40% said they will maintain them.

McDonnell observed, however, that around 10% of the organisations surveyed intend to both increase and decrease staff in the year ahead.

McDonnell said this phenomenon was best explained to him by one organisation who said 'we have an analogue structure in a digital society'.

We have new ways of work now and we need people who understand cloud computing. But how do we train people who don't meet the criteria for the jobs, he asked.

We can't train everybody, said McDonnell, and we could find ourselves with a permanently unemployable group of people and this represents a significant challenge.

Collective bargaining

Of the 421 companies which responded to the survey, two thirds do not recognise trade unions and one third do.

This breakdown is reflected in a question on collective bargaining which showed that 35% of organisations do engage with a union for the purpose of collective bargaining while 65% do not. The survey also shows that fewer of the larger corporations (with 250+ employees) engage with trade unions than those who do engage.

This is down on the 2014 survey which showed that 39% engaged in collective bargaining and 61% do not. This is interesting given the legislation on collective bargaining rights which is expected to be introduced by the government later in the year.

Commenting on this, McDonnell admitted that most employers 'don’t like collective bargaining'.

However, he said that during the recession some organisations played 'fast and loose' with employment contracts adopting a 'you’re lucky to have job' approach to contract negotiations at a time when employees were in a weak position.

As the economy recovers, this may present a challenge to those same organisations, McDonnell suggested.

While there is no desire from employers for a return to the old style partnership, McDonnell said that one of the features emerging from the survey as pay recovers is the desire for stability.

It is inevitable we will have wage drift in some sectors, he said, and organisations want to be able to factor in payroll costs for say two years at a time.

Reaction

Responding to the survey, Danny McCoy of Ibec said it was clear that the economy is on a point of return.

He said that Ibec pay surveys show that the norms developing are averaging around 2%.

But he warned that expectations of pay rises of up to 5% across the economy are unrealistic.

McCoy said that enterprise level bargaining should remain and added that there is no need for centralised wage bargaining. But he added that proposed dialogue between employers, unions and the government does have merit.

The new general secretary of ICTU, Patricia King, said that real wages have declined by 10% since 2009.

Confirming the headline figure of an average 2.8% pay increase for 2015 in the CIPD-IRN survey, King said that Gerry McCormack of SIPTU had secured around 300 pay deals in the manufacturing sector since 2012 which worked out at an average of 2.5% to 3%.

She said that the economy needs a pay rise and claimed that competiveness in Ireland is 'in a positive space'.