How useful are predictions about pay awards?

IDR’s regular monitoring of pay deals provides up-to-date analysis of the latest economy-wide trends in pay. Our research is based on already-agreed outcomes and it therefore provides a valuable resource to HR professionals who are seeking guidance on what their organisation’s pay award should be. From our contact with employers we know that they also sometimes require predictions, or forecasts, on pay ahead of time.

We conduct additional research at least once a year regarding employers’ intentions for pay awards. The results of this reveal that employers tend to underestimate the level of pay rise that will be awarded and often take a cautious approach in their predictions. IDR’s research at the end of last year found that employers predicted a downward trend in pay for 2024, when compared with 2023. Our latest analysis of already-agreed pay deals for 2024 bears out this prediction in general terms; however, the actual outcomes are not as low as employers had predicted. Given the contested nature of pay setting it seems sensible that employers give themselves room for manoeuvre.

Pay trends in 2024

Our poll of 158 mostly medium and large private sector employers in November 2023 asked employers about their plans for pay awards in 2024. The results found that over three-quarters (78%) of employers had yet to decide their precise pay rise for 2024 at that time. This sample provided predictions about their organisations’ pay awards and the results revealed that less than one-in-ten expected the level of pay to be higher this year. In detail:

• 66% anticipated awarding lower increases to staff this year compared with 2023
• 27% said that the level of pay rise in 2024 is likely to be the same as the level of increase awarded in 2023
• 7% of employers in the sample expected that pay awards in 2024 would be higher when compared to 2023’s outcomes.

Our latest analysis of already-agreed pay deals for 2024 reveals that pay awards are indeed trending down when compared to last year. The median pay award for 2024 is 5%, which is lower than for 2023 when the median was 5.6%. However, the level of actual pay outcomes are not as low as predicted (see below).

Distribution of pay in 2024

We had asked poll participants who were yet to decide their 2024 award what the level of pay rise is likely to be. Some 46% anticipated awarding a pay rise worth between 4% and 4.99% in 2024 and nearly a quarter (24%) said that the main pay rise for staff in 2024 was likely to be worth 5% or more. In reality however, a much larger proportion – 52% – of pay awards are worth at least 5% in 2024.

There is a heightened need for employers to have access to information on employers’ predictions for pay outcomes, as well as data on agreed pay outcomes, in order that they can make informed decisions on what their pay rise should be, since the influencing factors, such as affordability, inflation and the labour market, can change in the meantime.  Employers may not wish to make predictions that are too high and understandably tend to err on the side of caution.

The median pay award of 5.0% is above CPI inflation (currently 3.4% for February 2024) but this will not persist as long as inflation continues to come down as predicted. Pay awards tend to lag behind inflation, as explored in our article on the relationship between inflation and pay, and will soon follow the same trend. But other factors may come into play this year, in particular the National Living Wage (NLW), which rises by 9.8% in April and this will apply upward pressure on pay, especially in the low-paying sectors. Continued tight labour markets may also play a role in maintaining pay awards at comparatively high levels for longer. But equally, economic difficulties could produce pressures in the opposite direction. As ever, we will monitor outcomes, analyse them and summarise the overall position for subscribers.

Want to know more?

Incomes Data Research monitors pay reviews across the economy throughout the year. Take part in our research and receive a free copy of our next article on pay trends to keep up-to-date. Click below to access the survey:

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