Employers want low pay rises and flexible employment

The UK Confederation of British Industry’s latest annual employment trends survey, published in December 2013, provides data on employers’ views and policies on a range of key industrial relations and employment law issues. The results highlight continued employer caution over pay increases, despite signs of economic recovery. However, employers remain committed to flexible employment arrangements, such as the use of agency workers and zero-hours contracts.

Background

The latest annual CBI/Accenture employment trends survey (343 KB PDF) was published on 17 December 2013 by the Confederation of British Industry (CBI).

The survey was conducted in September and October 2013 and had 325 respondents, all senior executives from businesses across a wide range of sectors. The largest single sector to which respondents belonged was manufacturing (25%), followed by construction (10%), professional services (10%) and public sector organisations (6%).

In terms of company size, 13% of respondents employed 5,000 or more staff; 36% employed 500–4,999 staff; 16% employed 250–499 staff; 21% employed 50–249 staff; and 14% employed fewer than 50.

The main findings of the report covered industrial relations and employment regulation, including pay, employment flexibility, the impact of EU directives and employee engagement.

Job prospects and pay

For the first time since the start of the recession, the CBI survey found that more than half the firms responding (51%) expected their workforce to be larger in 12 months’ time; just 12% expected it to be smaller and 37% expected no change. This suggests that there will be employment growth in virtually all parts of the private sector, in businesses of all sizes and in all parts of the UK, with recruitment to permanent posts increasing more rapidly than to temporary positions.

The survey also found that the proportion of firms planning to freeze pay at their next pay review had dropped to 8%, half the level of a year ago. However, businesses continue to take a ‘cautious approach’ to pay rises. More than one-fifth (23%) of businesses said they were planning a general increase below Retail Price Index (RPI) inflation. A further 16% intended to target pay rises at specific employees only and two-fifths (42%) expected to match RPI inflation. Only 7% intended to increase their employees’ pay by more than RPI inflation.

Flexible employment

Almost all firms (97%) saw flexible employment arrangements, such as the use of agency workers and zero-hours contracts (UK1401029I), as either ‘vital’ or ‘important’ to the competitiveness of the UK economy. Almost nine out of 10 businesses (87%) said that having a flexible workforce increased their ability to cope with fluctuating demand, while 81% said it increased their ability to respond rapidly to growth opportunities. In terms of wider benefits, two-thirds of respondents (65%) saw flexible employment patterns as creating work opportunities for people who are unable or unwilling to work full time; 58% said they provided a stepping-stone into the labour market for groups such as young people and the long-term unemployed who were finding it difficult to enter the labour market. Apart from different types of employment contract, other forms of flexibility were defined by respondents, including:

  • flexible working outside the office (for example, remote or home working) (87%);
  • working non-standard hours (86%);
  • multi-skilling of staff (85%);
  • use of temporary workers, freelancers and contractors and so on (82%);
  • flexible working within the office (for example, hot-desking) (70%);
  • outsourcing/offshoring (37%).

Respondents said that the biggest current threats to flexibility and UK labour market competitiveness were the burden of employment regulation (68%), low employee skill levels (65%) and the impact of EU regulation (39%). The same issues were seen by many businesses as longer-term problems. The burden of employment regulation was seen as a likely threat to UK labour market competitiveness in five years’ time (62% of respondents), as was regulation emanating from the EU (54%).

EU regulatory framework

When asked about the potential impact of losing the UK’s Working Time Directive opt-out (UK0901039I), nearly four-fifths of businesses (79%) said this would have a negative impact, with over half (51%) stating that the impact would be ‘severe’ or ‘significant’. The most frequently cited outcome of losing the opt-out was a ‘negative effect on employee relations as a result of restricting employees’ choice of working pattern’ (68%), while 58% believed it would reduce their capacity to respond to growth opportunities. Two-fifths (40%) said removal of the opt-out would have a negative impact on the attractiveness of the UK as a place to invest. Less than one-quarter (23%) of respondents envisaged recruiting new permanent staff to compensate for the reduced hours of previously ‘opted-out’ workers, while 27% expected they would increasingly rely on temporary workers.

Following the abolition of the UK’s default retirement age in 2011 (UK1102039I), nearly two-thirds of respondents (61%) reported that their businesses saw no need to retire employees at a fixed age. A small proportion (5%) were continuing to retire employees using an employer-justified retirement age, but over one-third of businesses (34%) said they needed ‘to retire employees but feel unable to do so because of the surrounding risks and uncertainty over the legal position’.

The survey also asked about the impact on UK regulations of the implementation of the EU Directive on temporary agency work (59 KB PDF) (UK1108019I). Less than half (46%) reported that the regulations have had an impact and, among these, over half (59%) reported a reduced use of agency workers, and around one-third (36%) said they had increased their use of fixed-term contracts as an alternative to using agency staff.

Employment tribunal cases

The survey found that four in 10 businesses (39%) had faced an employment tribunal claim (UK1308019I) in the last year. In over one-third of cases (35%), the claim was subsequently withdrawn by the applicant, and nearly one-fifth (17%) of cases were settled ‘out of court’ in the light of legal advice that the employer was unlikely to win the case at a tribunal hearing. However, the survey found that a further 27% of cases were settled out of court despite legal advice that the tribunal would rule in the company’s favour. The report suggests that firms opt to settle cases in this way ‘to avoid distraction, time loss and the reputational damage of being accused’. In 20% of cases, companies fought claims at a tribunal hearing and won, while they fought and lost only 1% of cases.

Workforce diversity

According to the survey, a majority of firms (59%) report that there are obstacles to developing a more diverse workforce. These are:

  • not enough people from diverse backgrounds in the sector or profession (69%);
  • working culture (29%);
  • stereotyping (27%);
  • working practices (25%);
  • loss of people in mid-career (for example, to take on caring responsibilities) (21%);
  • lack of progression/opportunities (18%);
  • other (10%).

The survey asked firms what action they were taking to improve gender diversity among the next generation of business leaders. Over two-thirds (67%) said they operated family-friendly policies for returners from parental leave, and a further 9% said they were considering these. One-third of respondents said their businesses operated mentoring schemes to develop future leaders. These were under consideration at a further 12% of companies. One-quarter (25%) had networking schemes in place to aid gender diversity, and a further 13% were considering introducing them. One-fifth of respondents (21%) reported using positive action in the recruitment process, while this was reportedly being considered in a further 8% of companies.

Employee engagement

The final area explored by the survey is ‘employee engagement’, a term which was defined in the 2009 government-commissioned report Engaging for Success (937 KB PDF) as

a workplace approach designed to ensure that employees are committed to their organisation’s goals and values, motivated to contribute to organisational success, and are able at the same time to enhance their own sense of well-being.

The CBI survey found that 29% of respondents assessed the current employee-relations climate in their business as ‘very cooperative’; 43% assessed it as ‘cooperative’; 23% as ‘balanced’; 5% as ‘adversarial’; and 1% as ‘very adversarial’. According to the report, these figures represent ‘a new high’ in terms of overall levels of workplace cooperation. Respondents’ expectations for the following year were similarly positive.

Among the 33% of organisations responding to the survey that recognise trade unions for collective bargaining purposes, a lower proportion (18%) assessed their employee-relations climate as ‘very cooperative’, while 43% said it was ‘cooperative’; 29% ‘balanced’; 10% ‘adversarial’ and none ‘very adversarial’. Furthermore, respondents assessed ‘employee morale’ as high or very high in nearly half (49%) of firms.

Asked about the business benefits of higher levels of employee engagement, 87% of respondents identified ‘improved productivity and performance’ while 66% cited ‘increases in customer and client satisfaction’. Other benefits identified included ‘reduced absence and higher levels of employee well-being’ (cited by 45% of respondents) and increased staff retention (40%).

Businesses identified the key drivers of employee engagement as:

  • ‘shared, company-wide values’ (cited by 41% of respondents);
  • the availability of career progression opportunities (40%);
  • employees developing a personal interest in their work (37%);
  • effective line management (35%);
  • having the right skills and resources to do the job (26%);
  • pay (24%);
  • training and development opportunities (24%).

‘High levels of employee engagement’ ranked second in survey participants’ ‘workplace priorities for the coming year’, cited by 54% of respondents. At the top was the priority of ‘improving leadership skills and capabilities’ (60%).

Mark Hall, IRRU, Warwick Business School

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