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Pay freeze to continue for 1 in 4 UK companies

  • While most UK professionals received a better than expected 1.7 percent real salary increase this year due to low inflation, one in three companies have initiated a pay freeze
  • 10 percent fewer UK companies will freeze employee salaries next year
  • A 1.3 percent real salary increase is expected for UK workers receiving a pay rise next year, equating to approximately £408.99 per annum¹ 
  • Globally, Europe saw the highest real terms salary increase on average (1.5 percent) in 2020 followed by Asia Pacific (1.3 percent)
  • Employees in the USA are expected to feel a real salary decline next year for the first time since 2008

According to the latest Salary Trends Report by ECA International (ECA) surveying over 370 multinational companies in 68 countries, UK employees in the private sector received an average salary increase of 1.7 percent in real terms this year, better than the forecasted 1.1 percent, while over a third of UK companies introduced a pay freeze (35 percent). 

The real salary increase is calculated based on the difference between the nominal salary increase (2.5 percent) and inflation (0.8 percent). As inflation was lower than expected this year, UK private sector employees have fared better than originally forecast. 

The real terms salary increase for 2021 is forecasted to be 1.3 percent in the UK, which is the equivalent of almost £34.08 a month (£408.99 per annum) for the average full-time worker¹ before tax. 

The annual Salary Trends Report from global mobility experts ECA International analyses current and projected salary increases for local employees in 68 countries across the world. In the wake of a global pandemic that affected the world’s economy, ECA also analysed salary freezes in 2020 and the forecast of businesses planning to implement pay freezes in 2021.

 A quarter (25 percent) of UK companies who took part in the report revealed they plan to implement or continue a pay freeze in 2021.

Oliver Browne, Remuneration Manager at ECA International, said: “While 2020 has been an unprecedented year for the economy globally, low inflation levels due to factors such as low global oil prices and falling prices in some retail sectors as demand drops, has meant that many mid-level private sector employees in the UK who were lucky enough to get a raise have benefited from the low inflation.” 

Browne added “Next year will also be hard for many workers as inflation is expected to rise again to 1.2 percent, while salary increases will remain flat at 2.5 percent – lower than pre-pandemic levels – and a quarter of companies still predict salary freezes. However, with the expected roll out of vaccines and the potential end of pandemic restrictions in sight, there are some grounds for optimism that things will soon improve for employees.” 

Europeans received the highest real term salary increase this year

Globally, Europe saw the highest real terms salary increase (1.5 percent) compared to all other continents, due to lower inflation on average. However, expected higher inflation has meant that European employees are expected to receive a lower real salary increase of 1.2 percent in 2021. 

Browne said: “Europe’s real terms salary increase this year is largely due to the substantial fall in inflation, down to just 0.8 percent, the lowest of all regions, and down 0.9 percent on 2019’s average inflation rate of 1.7 percent. Nominal salary increases are actually set to rise next year across Europe, from 2.0 percent to 2.5 percent on average, but many companies are still taking a fairly cautious approach and as the IMF expect inflation to return to normal levels next year, workers based in Europe will see a lower real salary increase as a result.” 

Employees in Ukraine received the highest real salary increase in Europe this year of 3.6 percent (ranking 3rd globally). In 2021, the real salary increase in Ukraine is forecast to be 1.2 percent, as inflation is forecast to increase to 6 percent, up from 3.2 percent in 2020. 

Greece saw inflation drop to -0.6 percent, resulting in a real terms salary increase of 2.6 percent for those lucky enough to get a salary increase.

Browne explained “The Greek economy, already quite weak after recent crises, was especially hard hit by the fall in global tourism, which dramatically cut demand and lowered prices with inflation falling to -0.6 percent. This cushioned the impact for employees of the 38 percent of companies in the country that froze salaries, although inflation is expected to return to positive territory in 2021.”

Despite Norway receiving a real salary increase of 1.4 percent this year, it is the only European country forecast to see a real salary decrease in 2021 (-0.3 percent). 

The USA expected to be hit with first real salary decrease since the global financial crash

Employees in the United States received a real salary rise of just 1.0 percent in 2020. However, forecasted inflation of 2.8 percent in 2021 means things are set to get worse for US employees who are forecast to experience a real salary decrease of -0.1 percent next year, the lowest since 2008. 

“As the world struggles with the social and financial effects of the global pandemic, many economies have continued to feel the effects on their economies and therefore on salaries. Companies are approaching salary rises more conservatively and when inflation returns to normal levels next year as we expect, workers based in the US are not expected to see above-inflation salary increases, meaning many workers will be out of pocket in 2021 compared to this year” said Browne.

Expected low inflation and faster growth means Asian nations set to see a faster economic recovery next year

Indonesia, Singapore, Taiwan and Thailand are amongst the 12 Asian nations that ranked in the global top 20 highest real wage increases in 2020, with an increase between 2.6 and 4.1 percent, while Malaysia saw a 4.4 percent real terms salary increase.  

Browne said “Continuing the annual trend of high salary increases in recent years, Asian countries dominate the global rankings for annual salary increases, with 2021 forecast to be the same. With the average level of inflation in Asia in 2021 not far off the global average, it is the higher nominal salary increases that set the region apart. The driver for the high salary increases in the APAC region is the sustained growth and increasing productivity in many Asian nations. The APAC region’s economy has been the quickest to show signs of recovery following the economic shock brought on by Covid-19, with the average real salary increase forecast at 1.7 percent in 2021, compared to the global and European average of 1.2 percent.”

Conversely, employees in Bangladesh are among the worst impacted by the recent economic turbulence with inflation rocketing to 5.6 percent in 2020, which resulted in a real terms salary decrease of -3.6 percent. However, 2021 is looking a little more optimistic, with real salaries forecast to increase by 2.1 percent with a significant nominal salary increase of 8.0 percent expected in the face of continuing high inflation.

Argentina’s financial crisis drives further economic turmoil 

Ranking at the bottom of the global salary table yet again, Argentina saw a real terms salary decrease of -25.7 percent in 2020 thanks to soaring inflation of 39.2 percent, meaning pay raises couldn’t keep up with rising costs. 2021 is expected to see more of the same, with inflation forecast to rise to 43.0 percent and forecasted real salary decreases of 28.6 percent.

Browne commented: “Argentina has been engulfed by a financial crisis for some time now, which links heavily to the political unrest in the country and the struggles to contain Covid-19 numbers. The inflation rate is almost at a three-decade high and it places among the top five countries with the highest inflation rates in the world.”

Israeli employees expected to receive amongst the highest real pay increases in the world, while the UAE forecasts a bounce in 2021

While inflation remains low in Israel, employees are expected to receive a real salary increase of 2.8 percent in 2021, the second highest in the world after Indonesia (3.8 percent).

While the UAE dropped out of the global top 20 rankings for real salary increases this year, employers are expecting to increase salaries by 2.8 percent next year, resulting in a forecasted 1.3 percent real terms salary increase after inflation (which is forecasted to be 1.5 percent). 

Top ten forecast real salary increases 2021 – Global
Country
2021 forecast real salary increase (%)
2020 real salary increase
Indonesia
3.8
2.6
Israel
2.8
2.5
Thailand
2.7
4.1
Singapore
2.7
2.9
Colombia
2.7
-0.2
Korea Republic
2.6
1.5
China
2.3
0.9
India
2.3
-0.1
Cambodia
2.1
2.1
Bangladesh
2.1
-3.6
 
-ENDS-
 

Notes to Editors

About ECA’s Salary Trends Survey

The information above was taken from ECA's Salary Trends Survey 2020/2021. The survey reports current-year salary increases for local national employees and the anticipated increases for reviews in the forthcoming year. It is based on information collected from over 370 multinational companies for 68 countries. Reports are available free to all participants or for purchase either as a set or individually per country for non-participants from the ECA website.

The forecast average real salary increase in a country is calculated by looking at the predicted average nominal salary percentage increase (i.e. the salary increase given to employees by their employers) and subtracting the forecast inflation. E.g. if the average nominal salary increase in a country is 4% and inflation is at 2.1%, this would result in an average real salary increase of 1.9% (4%-2.1%=1.9%).

Data is based on increases including merit. Including merit is the total salary increase and represents general cost of living/inflationary increases plus performance/merit related increases. The data above was collected from August to September 2020. 

The survey included data from all seniorities across the following industry groups which included Energy, mining & petrochemicals; Chemical & pharmaceutical; Transport & logistics; Manufacturing & consumer goods; Legal & professional services; Engineering & technology; Retail, leisure & other services; Financial services; Non-profit.

About ECA International 

ECA International is the market-leading provider of knowledge, information and technology that enables businesses to manage their international reward programmes.

Partnering with thousands of clients on every continent, we provide a fully integrated suite of quality data, specialist software, consultancy and training. Our unparalleled insights guide clients as they mobilise their most valuable resource: people.

We make the complex world of international mobility simple, providing clients with the expertise and support they need to make the right decisions - every time.

ECA International: Mobility solutions for a world that’s constantly moving.

For further information, please contact:

Jack Firth 
Tel: +44 0 20 7351 5000
Email: Jack.Firth@eca-international.com

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