Workers associating news of a more buoyant economy with long-awaited pay rises, team size increases and job moves could be disappointed in 2014, according to a new report from CMI (Chartered Management Institute). While the UK’s managers are generally optimistic about economic prospects for the year ahead, the research conducted with more than 750 UK managers warns that controlling costs is set to be bosses’ number one priority in 2014, with budgets for outgoings like employee pay and headcounts forecast to hold steady, or face cuts.

Managers are much more positive about how their organisation will fare in 2014 than they were this time in 2012; 63% are optimistic about their organisation’s prospects for the next year, a 10% increase on last year and 20% up on the year before. However, the annual ‘Future Forecast’ research indicates this optimism won’t give rise to a wholesale increase in investment in the coming year. As in 2013, controlling costs continues to be the highest priority business challenge for more than three quarters of managers when looking ahead to the new year (77%).

When asked about different spending priorities, managers indicated that just three out of 11 budget areas were more likely to see investment increase compared to last year – 47% intend to increase investment in business development and sales, 42% in IT and 41% in marketing. Investment in training and development remains at 42%, showing no growth from 2012. With little additional growth in business investment, 67% of organisations will also hold employee pay steady or cut it and 66% will freeze or reduce headcount.

Ann Francke, Chief Executive of CMI, comments: “With growth to date largely driven by consumer spending, hopes for a sustainable recovery depend on business investment following suit. Today’s research suggests this isn’t on the cards. Yes, business confidence has had a much-needed boost, but managers remain cautious about finances.

“This raises a question about how strong economic optimism really is, and if organisations are not investing in developing their teams to build that growth, such optimism could be short-lived. The challenge for employers in 2014 will be how to reward and retain staff when pay rises and bolstering teams through recruitment aren’t options.”

Managers also expressed doubts about whether they have the right people in place to achieve anticipated growth. Just 55% report having the right people in post to achieve their organisation’s objectives and two thirds (66%) have had difficulty recruiting people with the skills and talents they need. Reflecting this finding, employers highlighted up-skilling staff and increasing productivity as their top priorities after controlling costs. Managing performance was cited by 68% as a priority, followed by increasing turnover (51%) and developing people (50%).

Despite 2013 being a more successful year for many organisations compared to the year before – 41% reported growth compared with 32% in last year’s report – the  findings suggest the upturn is yet to produce happier, more secure employees, and may not do so in the immediate future. Managers are more pessimistic than this time last year about staff morale in their organisation in the coming year (up 5% from 2012 to 36%) and feel less secure in their own jobs than they did 12 months ago – 35% feel insecure, up 4%.

Francke continues: “After years of pay freezes and redundancies, many workers will be hoping to see the economic upswing improve their pay packets, but this is unlikely to be the case.  Instead, employers need to look at other ways to invest in their staff.  Motivation is about more than money – development opportunities and sought-after benefits like flexible working are much prized.”

The report details CMI’s recommendations for how managers can engage teams in the year ahead including:

  • Develop the skills of staff – if budgets are to remain tight, organisations should focus on developing the skills of existing staff through coaching and supporting career development. Design more challenging roles and consider different routes for broadening managers’ experiences and skills, through job rotations, shadowing and secondments.
  • Build agile teams – an organisation will be better able to cope with external factors if its internal systems are sound, dynamic and adaptable. Being agile has become increasingly important when staying competitive in business. It is about being able to adapt quickly to change and to juggle people, processes and technology innovatively and creatively, to get the most out of them.
  • Focus on your people – workplaces with high levels of employee engagement score higher on productivity, creativity and ultimately, perform better. In an environment where controlling costs and having to make do with existing resources is still key, organisations have to offer staff training, development and a range of other non-financial benefits to keep employees motivated.