The 2018 Private sector pay survey from CIPD and IRN found that organisations will continue to flex their approach to pay and benefits this year to respond to the dynamics of a challenging labour market. While 56% of those surveyed plan to increase basic pay in 2018, forecasting an average increase of 2.8%, there is also evidence of a willingness to consider additional compensation to deal with talent retention and sourcing.
Pay and benefits
Against the backdrop of persistent skills shortage in the growing Irish economy, over half of private sector employers surveyed will increase pay this year. The 2018 CIPD/IRN Private sector pay survey found that 56% of 350 organisations surveyed will increase basic pay in 2018 while 21% are going to maintain current rates. This is less than the number who increased pay in 2017 (68%), though for 2018, 23% have yet to decide. The trend from previous surveys is that the majority of those undecided in January eventually increase basic pay.
For most organisations surveyed, increases in basic pay are contingent on either normal on-going change (45%) or company performance/profit (43%) while only 12% had no conditions attached. Individual and company performance are considered in determining basic pay increases.
The average basic pay increase which companies plan to make in 2018 is 2.8%. This is slightly larger in small companies (3.5%) and non-union companies (3.1%), though fewer of these confirmed an increase for the year ahead. In relation to sector, the services sector is predicting a 3% increase, which manufacturing companies are planning a 2.3% basic pay increase this year.
Looking at pay movement in 2017, the basic pay increase reported was 3.1%, significantly above the inflation rate of less than 1%. Interestingly in January 2017, employers had projected a basic pay increase of 2.5% for 2017, so have shown a willingness to use pay in response to labour market pressures during the year.
In addressing employee rewards, almost half of the respondents (43%) agreed that there could be further pay increases in 2018 though this is lower among those that do not plan to give any basic pay increase (31%) and those that have not made a decision (25%). In terms of bonus payments, eight out of every ten organisations (80%) plan to make bonus payment this year, with 37% making it available to all employees and 43% making it available to only some employees.
Labour market pressures
Sourcing suitable employees is the biggest external influence on pay setting in 2018, with 62% of organisations in the survey highlighting this, a much stronger influence than Brexit at 15% and the housing/rental market at 14%. This signifies that organisations are responding to the tightening labour market in order to attract the right employees.
As voluntary employee turnover is increasing, the survey asked about offering a pay increase or retention payment as a ‘counter offer’ to retain employees. In 2017, one-third (35%) of organisations made a counter offer to retain employee as against (56%) of employers that had not.
The separate CIPD HR practices in Ireland 2018 survey found that 81% of organisations experienced skills shortage in the past twelve months, corroborating the private sector pay survey finding suitable employees is influencing pay setting. However with almost two-thirds of organisations planning to increase pay to attract suitable employees and only one-third having made a counter offer to retain employees, the findings suggest that organisations may offer pay increase to source talent externally rather than make retention payments to retain exiting employees. As a result, this could further drive mobility and higher pay budgets in the long run. This also relates to the HR practices in Ireland finding that more organisations used external methods (65%) than internal methods (35%) to source talent. It further reinforces the HR practices in Ireland finding that one of the key factors driving employee turnover is reward.
The majority of organisations in the survey that engaged with trade unions for collective bargaining had over 250 employees, 73% of large employers compared to only 5% of organisations with less than 50 employees. More manufacturing (56%) than services (43%) companies were unionised.
In 2018, a significant number (71%) of unionised organisations plan to increase basic rates of pay compared to 49% of non-union organisations. However, in terms of the likelihood of offering further pay increase, non-union organisations are twice as likely as unionised companies to do this.
While this suggests that there is a higher likelihood of increases in basic rates of pay in unionised organisations in 2018, the average increase is expected to be of the order of 2.5% compared to 3.1% in non-union companies.
Most organisations (87%) reported having a performance management process in place. The most common features of performance management were annual appraisal (80%), goal setting and future-focused conversations (57%), annual rating of employees (52%) and line managers giving and receiving feedback ‘in the moment’ (43%). In the last eighteen months, half of the organisations maintained their performance management process and 40% said they would maintain it over the next eighteen months. While few organisations (19%) made a significant shift to a new way of managing performance in the last eighteen months, there is a 7% increase in the number of organisations (26%) planning this in the next eighteen months.
It is generally accepted that Ireland’s national pension coverage is unsustainable and is due an overhaul. In recent months, CIPD and various stakeholders have made the call for pension reform. In line with this, most organisations in this CIPD/IRN survey believed that the pension system should be reformed. An over whelming 80% supported the introduction of a pension auto enrolment system, while 81% and 77% support employee and employer contributions respectively. Four in five, 81%, of the organisations surveyed already made a contribution to employee pensions, and among those that do not, 44% believed that introducing auto-enrolment will affect the level of pay increase in their organisation.
Three quarters, 74%, of respondents have a retirement policy, with most policies having a retirement age of 65 or 66. In Ireland employees are no longer required to retire at a specified age except where the employer can objectively and reasonably justify this with a legitimate aim and where the means of achieving it are appropriate and necessary. Thus, it is important that organisations that have a retirement age can demonstrate sufficient grounds in compliance with equality legislation. Three quarters of those that have a policy are not considering any change to their existing policy while 82% of those that do not have a policy are not planning to introduce one.
Workplace Relations Commission (WRC)
More organisations perceive the Workplace Relations Commission (WRC) to be neutral (41%) or pro-employee (40%) rather than being pro-employer (5%). In terms of WRC services, almost two-third of organisations would avail of the mediation service while more than half would use the WRC’s advisory service. Among the organisations that availed of the WRC’s services, most were either positive or neutral in terms of satisfaction: on conciliation 45% were satisfied and 41% neutral; on mediation 43% were satisfied and 42% neutral; and on adjudication 40% were satisfied and 42% neutral. Overall, less than one-fifth were dissatisfied across any of the services. Perhaps this reflects the WRC’s own statistics for 2017 which show that 2,234 conciliation and dispute meetings were held, 85% of collective disputes were resolved and 92% of adjudication complaints were processed in less than six months.
The 2018 private sector pay survey shows that organisations will continue to flex their approach to pay and additional benefits to respond to the dynamics of a tightening labour market. This will in no doubt increase the ‘war for talent’ as organisations continue to seek ways to retain and attract the skill and talent they need for the future.
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