Tuesday, November 17, 2009

Searching for the Silver Lining

According to a recent CBI survey 50% of UK firms are NOT planning to give pay rises in the near future.

You might not think that's a big deal when inflation is nearer zero than it's been for a long, long time. The RPI in September was actually negative, at -1.5%, while the CPI, or Consumer Price Index, was at 1.1%. A crude average of them both puts inflation at more or less nil.

Of the 50% of firms indicating they might give pay rises, over 90% don't plan on giving a rise above inflation. Which means any increase they do give is going to be minute. Really, really small. Around 1% or less.

If you're an employee and the above is already more bad news than you want to hear in one day, look away now. Because it only gets worse.

Today saw the announcement of the October inflation figures - and the bad news is that they've moved upwards for the first time in months. Not by a lot - the RPI is still negative at -0.8% (but it's the biggest one month jump since 1990) and CPI is 1.5%.

But isn't that good news? Doesn't higher inflation means a higher potential pay rise? At least in the 50% of firms who may give one?

Remember - over 90% of businesses are planning pay rises of zero or less than inflation. The vast majority of employees are going to be worse off in the coming months.

The Bank of England expects inflation to keep rising. If rising costs, particularly fuel, are squeezing you now, just wait until 2010. And don't forget VAT is back up to 17.5% on 1 January.

As the grey clouds continue to thicken it's hard to see the silver lining. But if you're an employer and you want to motivate your staff, why not buck the trend and give your people an inflation-busting pay rise in the near future? Or at least restore some of the cuts you may have made.

This isn't just an opportunity to buy some cheap goodwill (1.75% will beat inflation comfortably) because most of your staff will see through that. It's an opportunity to show commitment to hard-working employees who've put up with a lot in the last 12 months, and who don't have much to look forward to at the moment.

Only you know whether you can afford to increase your salary bill. But I encourage you to put investing in your people at the top of your agenda in the coming weeks and months.


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