British companies will increase salaries at a rate marginally above inflation in 2012, a new survey by Towers Watson Data Services has found. The latest Salary Budget Planning Report for Europe, the Middle East and Africa found that salaries for UK employees were predicted to increase by 3%, against a prevailing inflation increase of 2.9%.

Salary increases are set to be consistent across Europe’s largest economies – Germany, France, UK, Spain and Italy – at or around 3%. However, due to lower rates of inflation in Germany, France and Spain, these increases will feel more significant than in the UK and Italy where inflation is currently running at a higher rate.

Outside Western Europe, salary increases are likely to be more significant in 2012. Russian companies expect to grant salary increases of 10% on average, against an inflation rate for 2012 of 5.9%. Among middle-eastern respondents, Saudi Arabian companies are increasing salaries slightly above this rate, while South African employees will see pay increase by an average of 7.5%.

Paul Richards of Towers Watson’s Data Services Practice said: “The results of Towers Watson’s Salary Budget Planning Report clearly show that UK employers are still cautious when it comes to pay increases, with rises only fractionally above inflation, after a period of negative growth in real salaries. Employees in other European countries such as Germany, Spain and France are going to feel better off than their British counterparts with lower levels of inflation making a 3% increase feel more substantial. We are also continuing to see many of the developing nations increase pay by double or even triple the rate of European economies. This trend is likely to continue where inflation is high and/or where the developing economies grow and living standards rise.”

The survey also shows that this year high performers can expect to do best when it comes to salary increases. Around four-fifths of UK, German and French companies report that high performing employees will receive a larger proportion of salary increase budgets than their colleagues. A fifth of Spanish high-tech companies will give their entire budgeted salary increase to high performers while a similar proportion of Irish financial services companies will do the same. A tenth of French high-tech companies also plan the same favourable treatment for high performers in 2012.

Arvinder Dhesi, Towers Watson’s Director of Talent and Organisation in the UK said: “It’s good to see that companies are targeting their resources where they feel this will generate most value and also incentivise desired behaviour. However, pay is just one of a complex interplay of factors that help to motivate and retain employees. Our research indicates that companies still have a long way to go towards measuring individual performance in a robust way that then links to the overall performance of teams, departments and the organisation as a whole over time.”

Towers Watson’s Salary Budget Planning Report for Europe, the Middle East and Asia, published in March 2012, incorporates pay data from 4,200 companies across 60 countries and was submitted for the twelve-month period ending 30 January 2012.