Management pay increases show steady decline

Average increases in management pay levels have shown a steady decline over the past five years; from 5% in 2003 to 3.9% in September 2007. The latest findings of the PwC Monks Management Pay UK Parent Board and Corporate Posts, and Divisions and Subsidiaries reports demonstrate that management pay has been undergoing a steady but slow period of structural change. The surveys represent the findings from over 500 respondents.

In recent times, the focus of the salary and bonus debate has concentrated on senior executives. This has been refl ected in terms of both press coverage, and the time and effort devoted by corporate reward teams to all aspects of senior executive compensation. But during this period it seems that some of the broader trends in management pay may have been neglected.

Whilst some may think that a decrease of 1.1% over a five year period is little cause for concern, it is the real (post-inflation) increases that are more worrying. Retail price inflation (RPI) has shown an upward trend over the same period, meaning that the real increases in management pay have decreased from 2.2% in 2003 to 0.4% in 2006 and only 0.1% in 2007.

What is baffling about the trend is that it seems to fly in the face of a relatively tight labour market and high demand for key specialist roles. The combination of these factors should, in theory, exert upward pressure on pay levels. So, why is this happening?

The answer is perhaps twofold:

• Firstly, HR departments are adopting a more robust approach in policing the annual salary review process, ensuring salary increases are within overall budgeted spend.
• Secondly, significant salary increases for high performers whose jobs are in demand reduces the pot of money available to the rest of the management population – robbing Peter to pay Paul. So, although high performers and those with sought after skills are receiving higher salary increases, it is important to remember that they are in the minority.

This downward movement in management salary increases presents a number of key challenges to HR departments, including how organisations address the issue of allocating salary review budgets that consider both performance and general market increases. The survey information demonstrates that companies are developing a number of different strategies to meet this challenge, which will be discussed in the next issue.

For further information on this topic please contact Giles Tulk.