Thursday 03 December 2020 10:58 am  |  Updated:  Thursday 03 December 2020 10:59 am

Salaries to increase next year as companies move to lift pay freezes

By: Michiel Willems

UK private sector workers are set to receive average pay rises of 2.4 per cent in 2021, according to data released by Willis Towers Watson this morning.

The number of UK companies expecting to freeze pay is expected to fall sharply next year, in a further sign of cautious optimism for 2021.

The more upbeat findings come as this year saw a third of private sector companies freeze pay increases as they were curtailing costs. Next year, this is expected to fall to just over 3 per cent.

“After a difficult year for employers and employees, battling lockdowns, employee safety issues, working from home and declining revenues, many employers are finding ways to manage their employees with a more focused work and reward strategy,” said Keith Coull, a senior director in Willis Towers Watson’s Global data services business.

As the Covid-19 pandemic swept through the country in March, companies were forced to revise down their pay rise plans, leading to average increases of 2.2 per cent this year, he added.

“Many companies are looking ahead to 2021 with cautious optimism, which is reflected in slightly higher pay rise budgets than we saw this year,” Coull noted.

Leisure and hospitality

Different industries have experienced differing fortunes during the pandemic, and that is reflected in anticipated pay rises for 2021, with some expecting to take longer to recover that others.

The most pessimistic industries in the UK are leisure and hospitality, offering just 1.4 per cent average wage increases in 2021, followed by construction, property and engineering (1.8 per cent) and Aatomotive (1.9 per cent).

Insurance and fintech

This contrasts with the industries that are most optimist about next year’s prospects including insurance (2.9 per cent), fintech (2.8 per cent) and business and technical Consulting (2.8 per cent).

Coull called it “perhaps surprisingly” that retail is among the industries expecting the highest pay rises in 2021, at 2.9 per cent, which may be a reflection on buoyant sales for some online retailers, and a reaction to the high number of pay freezes (48 per cent) taking place this year at others, he said.

“Not all industries have been impacted in the same way. While many technology and banking firms have been successful due to their ability to aid digital acceleration and financial liquidity, companies in the hospitality, leisure and airline industries have suffered,” Coull said.

“The differences in how companies were impacted by the pandemic are likely to be heavily reflected in pay rise levels too,” he added.

Across Europe

A similar picture is emerging across Western Europe, with most organisations in the major economies anticipating higher pay rises in 2021 than this year.

The largest increases are expected in The Netherlands, 2.5 per cent, and Germany, 2.4 per cent, followed by Italy (2.1 per cent), France and Spain (2%).

“We are also expecting many companies to be differentiating their allocation of pay rises, so that they can provide meaningful salary increases to their best and most valuable talent and prioritise spending on jobs that are likely to contribute the most to success or survival next year, Coull concluded.