UK’s poor productivity needs to improve before wages can increase, says CIPD

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The CIPD, the professional body for HR and people development, has released a report analysing the most sustained and severe fall in real wages since at least the Second World War, and warns that the decline will not be reversed until there is a substantial improvement in the UK’s poor productivity record. The report is accompanied by new survey data showing many employees expect pay rises in 2014 to be below inflation – a repeat of their experience in 2013.

Have we seen the end of the pay rise?’, which is the third in a series of four Megatrends surveys exploring the future of work and the economic challenges which lie ahead, examines the effects of average weekly earnings that are now between 7.8% and 10.2% lower in real terms (depending on the measure of inflation used) than they were five years ago, in January 2009, leading to a sustained squeeze on household finances.

The survey also points to the US experience as evidence that a return to real terms increases cannot be taken for granted, even if economic growth does continue. For the median full-time worker in the US, real earnings are no higher now than they were in 1979. According to the report, this is a trend that could take hold in the UK, and indeed in other developed economies.

Data from the CIPD’s ‘Employee Outlook: Focus on employee attitudes to pay and pensions survey, released to accompany the Megatrends report, reveals that a third of employees expect no pay increase in 2014, with a further third expecting the same rise in 2014 as in 2013, when the median rise was a below-inflation 2%. Looking back, the survey found 54% of private sector employees had a pay ‘rise’ in 2013, and the same was true for 51% in the voluntary sector and 43% in the public sector. However, only a minority (36%) received a real-terms rise to improve standards of living.

This signals a period of further challenges for managers, who will need to find other ways of motivating improved performance amongst their employees without the promise of increased pay. Communication is vital. Employees are much more likely to be satisfied with their pay rise if the reasons behind it are explained to them. Managers will need to communicate effectively with their direct reports to manage their expectations and talk about the benefits of a wider reward package, such as pensions or investment in learning and development. Here, however, the ‘Employee Outlook: Focus on employee attitudes to pay and pensions’survey is not encouraging, with many employees stating that their employer is not giving them the training that will allow them to progress to more senior and better paid roles.

Mark Beatson, Chief Economist at CIPD, said: “The politically charged debate about wages and the cost of living won’t be solved by politicians trading blows over statistical analyses. Instead, we need to recognise as a nation that real increases in pay will only be delivered through increases in productivity – and that for this to happen we need employers, employees and policy makers to come together in a combined effort to improve UK productivity.

“We need a shared agenda to produce the long-term improvement in productivity needed to make higher pay affordable and sustainable without pushing up unemployment. And government has a part to play too, with a more concerted effort needed to provide an improved supply of higher level skills and just as importantly encourage greater demand for and utilisation of these skills. This needs to be driven through integrated industrial and skills policies designed to equip the UK with the capability to compete more effectively through innovation, efficiency and quality, as compared to an approach that sees us attempting to compete excessively on low cost.”

Lawrence Jones, CEO at UKFast comments: “The findings of the report suggest that the UK will only see real growth in earnings if we see a rise in productivity. Whilst this seems like a bit of a vicious cycle, it’s not just money that motivates people, and this is something that businesses and the government need to do more about. I’ve long said that there should be tax breaks and deductions for things related to employee engagement. It would make it much easier for employers to make their teams feel valued and boosts a sense of togetherness and company loyalty. Research shows time and again the benefits of an engaged workforce on the bottom line.

“In a business sense, I think companies with a strong sense of culture and community are most likely to drive productivity. It stands to reason that if your team isn’t enthusiastic and motivated, you will only get mediocre results at best, so it’s a business owner’s job to provide as much inspiration as they can. It doesn’t have to cost the world. UKFast has an outwards bounds training centre where we take new recruits to climb Mount Snowdon and spend time having fun with peers, but long before we could afford to invest in this facility, we used to take tents up the mountain and camp.

“As an employer, it’s all too easy to think staff responsibilities stop at salary but it’s not all about money. It’s about creating bonds with the people you work with and empowering them to take responsibility and ownership over their role within the company. Whether this is taking part in a charity sports event, getting together with friends and family for a BBQ outside of work or simply encouraging better communication across all levels of the company, it all makes a huge difference to levels of productivity.”

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