Few firms plan to give pay rises above inflation next year

But just 37 per cent of companies have a recruitment freeze in place
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The Independent Online

Workers hoping that they might be in line for pay rises if the UK finally escapes recession at the end of the year, as economists expect, are likely to be disappointed, research published by the CBI today suggests.

The employers' organisation says just 4 per cent of companies plan to offer their staff a pay rise worth more than inflation for 2010, while half of all employees plan to freeze salary levels.

However, the CBI said some employers were thinking about recruiting more staff, with only 37 per cent of companies now insisting that they still had a recruitment freeze in place, down from 61 per cent in the spring.

The CBI also said that some of the most serious measures adopted by employers earlier this year, such as moving staff on to part-time work, or insisting that they take unpaid leave, were now much rarer.

The business organisation said it thought the flexibility shown by employers and employees during the recession would stand Britain in good stead as it moves into economic recovery. The willingness of workers to accept pay freezes and other cut-backs has been widely seen as the key factor in unemployment not rising as quickly as many analysts expected it would during the recession.

Joblessness figures released last week suggest that rises in unemployment have slowed considerably over the past three months and that the number of people out of work may actually have fallen during October.

Nevertheless, John Cridland, deputy director of the CBI, warned that the business sector was not out of the woods yet. "The worst of the recession may be over but firms remain ultra-cautious about increasing pay – market conditions continue to be very tough, and growth in 2010 will be feeble, so pay is going to be squeezed for some time to come," he said. "As unemployment has risen, businesses and staff across the country have had to adapt to new economic realities. Pay cuts to preserve jobs are part of that reality. Given the alarming state of the public finances we must see similar pay restraint in the public sector."

Albert Ellis, chief executive of Harvey Nash, the recruitment consultancy that sponsored the CBI's research, said: "This downturn has required tough decisions and strong leadership from managers at every level of every organisation, but there have been many examples of employers and employees working together to minimise the impact of the recession on jobs, skills and pay."

However, Mr Ellis warned that the most senior employees of businesses needed to be careful about the example they set. "Worryingly, however, there have been some isolated cases recently where executive pay is out of sync with the economic reality and the public mood," Mr Ellis said. "In light of the thaw in the recruitment freeze we urge continued restraint on executive remuneration, ensuring that a return to sustainable economic growth is not put at risk."

But a separate report indicated that the pay of chief executives has continued to soar, defying rising unemployment and widespread pay freezes during the recession. The average five-year remuneration package of a FTSE 100 chief executive is now £9.6m and is rising at 7.9 per cent a year, or seven times the rate of inflation, found Patterson Associates, a remuneration adviser. The packages include salary, bonus and long-term incentives.