The latest Salary Survey from Aon Hewitt shows that salary increase levels have stayed constant through the winter, promising some stability for companies across Europe. 

Return to stability
Overall across Western Europe, the figures tell a story of relative stability with increasing consistency in salary increases, converging towards an increase budget of around 3%.  Higher or lower variations around this figure and trends towards pay freezes tend to be determined by industry or country-specific situations.

Data collected by Aon Hewitt in the summer of 2011 showed that although budget increases remained below those seen prior to the financial crisis, provisional salary budgets were slightly up on 2010, indicating a return to cautious optimism. The updated figures in this winter survey indicate a growing feeling of stability, with salary budgets adjusted by no more than 0.3% up or down. Employers seem to be giving a positive sign despite continued uncertainty around a return to economic growth.

Country variations
Adjustments to salary budgets are more marked in Central and Eastern Europe with - most notably - Greece showing a move from the 3.1% budget announced in August 2011, down to 2.3% in early 2012.

This stability is good news for employees given the recent decrease in inflation rates. Given that on average, employees across Europe have not received significant salary increases since the beginning of the downturn in 2009, this has had an impact on disposable income in real terms when set against a backdrop of strong inflation.

These latest figures show that with the exception of the UK, salary increase budgets are marginally higher than Consumer Price Inflation (CPI) rates across Western Europe. In Germany, inflation has fallen from 2.6% in September 2011 to 2.1% while salary increase budgets show 3.0%; in France, inflation remains stable with a current rate of 2.3% and projected salary increases at 2.8%; and in Spain inflation has dropped from 3.1% to 2% against a salary increase budget of 2.7%.

Even in the UK, the high inflation rates of 2011 have significantly dropped in recent months (from 5.2% in Sept 2011 to a current rate of 3.6%) meaning that the real value of salary increases for UK employees will be higher.

Decreasing inflation rates could have been an opportunity for companies to realign with lower salary increase budgets.  However, with the prolonged period of economic downturn and continued austerity measures, companies feel the need to show a positive sign to employees.

The fact that employers overall have not reviewed their budgets to align with decreasing inflation rates, indicates an attempt to remain socially responsible which reflects the continued uncertainty in the European economy.

There are efforts to maintain disposable income at all levels of organisations, with a small trend away from variable pay and back to general increases. With lower merit increases, the question for companies will be how to reward performance and retain key talents.

The challenges remain for organisations. Our experience and additional research would suggest that we are likely to see a greater emphasis on effectively communicating the value of total reward packages to employees. This might include highlighting the worth of employee share plans, healthcare programmes and other benefits.

More information

http://www.aon.com