Pay the Price.

(From Financial Director)

Byline: Richard Willsher.

Government official rates of annualised inflation for October were 3.3% on a retail prices index (RPI) basis and 1.3% using a consumer price index (CPI) measure. Pay increases at either of these levels is unlikely to be tenable.

Research by KPMG at the end of September showed that the average rise in pay for a FTSE-100 chief executive was 8%, and 7% for the average executive. Our own 2004 FD Salary Review (December 2004, page 29) found that the basic pay of FTSE-100 FDs rose by 6.5% for the year and 6% for FTSE-250 FDs. In addition, remuneration specialists Watson Wyatt have found that when it comes to total remuneration: "Top managers have soared ahead of other employees, primarily because of great increases in the size of annual bonuses and long-term incentives."

So, if you are offered an inflation-pegged pay increase at the end of the year, how attractive will it be? Not very. And this may be borne out by Watson's findings that 40% of employees are "actively considering leaving their current employer within the next 12 months".(1)

This is supported by the July National Management Salary Survey from the Chartered Management Institute and Remuneration Economics, which found that "managers are increasingly likely to resign because their salaries are not rising quickly enough".

Against this background, the CBI is advocating a freeze on minimum wage rates, regarded as "mean" by the TUC. Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD), responded: "While it is true that any dramatic increase in the minimum wage risk is damaging business and the economy, the reality is that modest increases are unlikely to be the biggest motivator behind pay pressures. Sectors such as social care, retail and hospitality are traditionally seen as likely to find the minimum wage onerous, but with all experiencing difficulties recruiting and retaining staff, the minimum wage is unlikely to be the main upwards pressure on wages."