Employee morale falls as businesses keep a tight rein on pay due to faltering confidence, according to Hay Group.

The majority of companies stated that they intend to increase remuneration, although at a rate below inflation. However, the Reward in 2012 report highlights that 43 per cent of organisations are being pressured to reduce pay as a way of controlling costs.

The findings showed that the median wage increase will be 2.8 per cent, still 1.4 per cent behind the consumer prices index. As a result, more than half of respondents agreed that the prolonged uncertainty around salaries had resulted in a reduction in employee engagement.

The private sector is expecting to see a drop in the number of pay freezes. Of the fifth of organisations who implemented a stop on wage increments in 2011, more than half expect to lift these.

Adam Burden, Reward Information Consultants at Hay Group, commented: “Organisations must take an open and transparent approach to pay to ensure that productivity doesn’t suffer. Engaging employees and communicating reward policy will be key to maintaining motivation during the difficult year ahead.”