Overview of CIPD surveys

Overview of CIPD surveys A barometer of HR trends and prospects 2011

Contents Findings from the 2010 surveys a human capital checklist for UK plc 2 Introduction 3 Resourcing and talent planning 4 Reward management 6 Learning and talent development 8 Absence management 10 Employee outlook 13 HR Outlook 15 Labour Market Outlook 16 Outlook 2011 a radar check for HR 17 Overview of CIPD surveys 1

Findings from the 2010 surveys a human capital checklist for UK plc Table 1: Key human capital benchmarks (UK averages) Recruitment and staffing Labour turnover 16% Organisations making 10 or more staff redundant 33% Organisations experiencing recruitment difficulties 68% Organisations experiencing retention problems 55% Reward management Organisations with written reward strategy 35% Organisations using individual pay rates/ranges/spot salaries 36% Organisations using broadbands 26% Organisations linking salary levels to market rates 40% Employers with an individually based bonus or incentive plan 58% Learning and development Training days received per employee 8 Absence management Absence Cost of absence (7.7 working days per employee) ( 600 per employee per year) 2 Overview of CIPD surveys

Introduction Throughout 2010 the Chartered Institute of Personnel and Development (CIPD) surveyed every changing aspect of the world of work. This ninth annual people management and development barometer report is a compendium of individual surveys drawing out common themes and highlighting emerging trends. Alongside the existing battery of annual CIPD surveys, 2010 saw the introduction of HR Outlook, a new survey of HR professionals. HR Outlook is the third in the CIPD s Outlook series; which also comprises the quarterly CIPD/ KPMG Labour Market Outlook, a survey of recruitment, redundancy and pay intentions among HR professionals; and the quarterly CIPD Employee Outlook, a quarterly snapshot of a random sample of employee attitudes. The barometer report also looks ahead to the next 12 months with our annual jobs forecast. The CIPD forecasts that the coming year will be worse for jobs than 2010, with a small rise in unemployment and a further period of below-inflation pay rises the best that can realistically be expected. Individual surveys looked at all the key issues facing HR practitioners: resourcing and talent planning reward management learning and talent development absence management employee attitudes HR attitudes. Our surveys are drawn from relatively large sample sizes and provide comprehensive coverage across all sectors and sizes of organisation. Each survey report is an invaluable source of benchmarking information for practitioners and policy-makers. This all in one place compendium presents the main findings from each of our 2010 surveys and outlines the challenges facing HR practitioners in 2011. Copies of the CIPD s survey reports can be obtained free from our website at: cipd.co.uk/surveys The summary of main findings (see Key benchmarks, page 2) can be read as a baseline human capital report for UK plc. Overview of CIPD surveys 3

Resourcing and talent planning Resourcing and Talent Planning 2010 (Respondents: 480 HR practitioners in UK organisations) Sixty-eight per cent of organisations reported difficulty in filling vacancies, down from 81% in the 2009 survey. The most frequently cited causes of recruitment difficulties were lack of specialist skills (67%). Between 2009 and 2010, the proportion of organisations reporting retention difficulties decreased from 69% to 55%. Labour turnover for all UK employees averaged 14%, down from 16% in 2009. Resourcing strategies and objectives Fifty-six per cent of survey participants reported having a formal resourcing strategy. Their top three resourcing objectives were attracting and recruiting key staff (79%), enabling the achievement of the organisation s strategic plan (59%) and meeting the future skills requirements of the organisation (47%). Recruitment difficulties On average there was a considerable decrease in the number of vacancies organisations tried to fill during 2009 compared with previous years. Despite the reduction in recruitment activity, and the burgeoning labour market, two-thirds (68%) of organisations experienced recruitment difficulties. This proportion was, however, lower than in the previous year when 81% of respondents reported difficulties. Managers and professionals and technical positions were the most difficult vacancies to fill. The main reason for recruitment difficulties is reported to be a lack of necessary specialist skills (67%), as in previous years. Graduate recruitment Structured graduate recruitment programmes appear to be on the increase across all sectors. Thirty-four per cent of respondents reported their organisations operated such programmes, compared with 22% in 2009 and 23% in 2008. Only a very small minority (4%) closed their graduate programmes in 2009 despite the budgetary pressures of the recession. Twofifths of organisations reduced their intake onto graduate programmes, reflecting the reduction in recruitment generally, 15% increased their intake and for the remaining 42%, graduate intake stayed the same. Nearly one-quarter (23%) of organisations with a structured graduate recruitment programme have an HR-specific scheme. These were most common in very large organisations. Attracting and selecting candidates The most effective methods for attracting candidates were reported to be the organisation s own corporate website and recruitment agencies, although there were significant differences in opinion across sectors. 4 Overview of CIPD surveys

Competency-based interviews (78%), interviews following contents of CV/application form (64%) and structured interviews (61%) were the most common methods used to select applicants. The use of general ability tests has fallen (27% compared with 44% last year) although the use of tests for specific skills, literacy and/or numeracy remains constant. The median recruitment cost of filling a vacancy was 8,333 for senior managers/directors and 2,930 for other employees. Resourcing in turbulent times Half of the organisations surveyed said the recession was having a negative impact on their resourcing budget for 2010. Unlike 2009, when the public sector was less affected, this year they were equally likely to report cuts to resourcing. More organisations said that they would be focusing on developing talent in-house and retaining rather than recruiting talent this year compared with last year. There are some indications that efforts to reduce recruitment costs will be made as more report they are reducing reliance on recruitment agencies and substantially more expect to use new media/technology to recruit compared with last year. Fewer organisations said they would be implementing a recruitment freeze in 2010 (22%) compared with 2009 (42%). More (65%) expected to continue to recruit key talent/niche areas in 2010 compared with 2009 (53%). Nevertheless the outlook appeared much bleaker for the public sector in 2010, where particularly large proportions are anticipating recruitment freezes (51%) and reducing the number of recruits they hire (68%). The volume of applicants for vacancies has increased with the labour market. Seventy-six per cent of employers have noticed an increase in the number of unsuitable applicants and 32% reported that there were too many suitable candidates to choose from. At the same time, 41% (compared with 20% in 2009) reported that competition for talent was greater as the pool of available talent to hire had fallen sharply. Most organisations remained focused on managing talent during the economic downturn, with only 7% reporting that their focus had decreased. However, 48% of respondents reported concern that employers are acting too hastily in making people redundant and as a result they will lose too many employees with valuable knowledge and skills. Diversity Overall, 55% of organisations have a diversity strategy. The public services sector leads the way in tackling diversity. Ninety per cent of public services employers have a diversity strategy and they are more likely to operate policies that go beyond basic legislative requirements compared with other sectors. Workforce planning Overall, 61% of organisations conduct workforce planning, although it was most common in the public services sector and in larger organisations. Twenty per cent of organisations plan for less than one year, 41% for one to two years and only 2% for more than five years. The top barriers to workforce planning are fastchanging/unpredictable external (69%) and internal (67%) environments, followed by lack of resources (53%). Labour turnover The median labour turnover rate has decreased over the last few years (2010 survey: 13.5%; 2009 survey: 15.7%; 2008 survey: 17.3%). As in previous years, the majority of turnover is attributed to employees leaving voluntarily. The voluntary turnover rate reduced substantially in the manufacturing and production sector (2010 survey: 2.7%; 2009 survey: 7.7%). The median turnover rate due to redundancies has not increased dramatically compared with last year, although the proportion of organisations making ten or more redundancies over the past year increased to 33% from 26% in the previous year. Employee retention The proportion of employers experiencing retention difficulties has reduced over the last three years (2010 survey: 55%; 2009 survey: 69%; 2008 survey: 80%). Organisations were less likely to take specific steps to address retention last year compared with previous years. The proportion using increased pay reduced to 22% from 42% in 2009. Of the most frequently cited actions taken by employers to address retention, improving the people management skills of line managers (42%) and increased learning and development opportunities (35%) were the methods most commonly rated as most effective. Overview of CIPD surveys 5

Reward management Reward Management 2010 (Respondents: reward managers in 729 organisations) The most common approaches to managing base pay are to use individual pay rates/ranges/spot rates and broadbands. For setting salary levels the most important methods are to use market rates (not using a job evaluation database), market rates (supported by a job evaluation database) and an ability to pay. For managing pay progression, the most common approach is to use individual performance (either solely or, more typically, in combination with other factors, such as competency). Ability to pay (78%), keeping pace with inflation (cited by 39% of respondents to the survey) and movement in market rates or the going rate of pay awards elsewhere (37%) were the main determinants of pay awards. The proportion of employers with final salary pension schemes has dropped from 50% to 43%. Nearly nine in ten (89%) public sector employers offered final salary schemes in the 12 months to 2009, compared with around one in three (36%) private sector services employers and around half of manufacturing employers (50%). Strategic reward Just over a third of respondents reported having a reward strategy. A further three in ten planned to create one in 2010. A total reward approach has been adopted by one-third of the sample, while a further two in ten planned to take this approach up in 2010. One in 12 respondents has abandoned their reward strategy and one in 20 has ditched their total reward approach. Base pay Overall, the most common approaches to managing base pay are to use individual pay rates/ranges/spot rates and broadbands. For setting salary levels the most important methods are to use market rates (not using a job evaluation database), market rates (supported by a job evaluation database) and an ability to pay. For managing pay progression, the most common approach is to use individual performance (either solely or, more typically, in combination with other factors, such as competency). The key factors influencing the size of the year s annual pay review in 2010 were ability to pay, inflation and movement in market rates. Half of respondents predicted that their salary spend would increase in 2010, two-fifths believed that it would stay the same, one in seven forecast that it will fall, while one in ten didn t know. Bonuses, incentives and recognition Cash-based bonus and incentive schemes are widespread in the private sectors. The most common types are individual-based schemes and ones driven by business results, such as profit or customer service. The most popular reasons for having a bonus are to enhance the connection between pay and performance, to motivate employees and reward high-performers. Around two-fifths of all respondents use employee recognition schemes, while just fewer than three in ten use non-cash incentives. 6 Overview of CIPD surveys

Just under half of private sector employers have a long-term incentive scheme and/or employee share plan. The most common arrangements are executive share options, share incentive plans and executive restricted/performance share plans. Pensions and benefits Virtually all respondents have an employee pension plan. The most common types of arrangement are final salary schemes, group personal pensions and stakeholders with an employer contribution. However, outside the public and voluntary sectors, most of the final salary pension schemes are now closed to new entrants, while a significant proportion are closed to future accrual as well. Just under one-fifth of employers planned changes to their pension arrangements in 2010, with the most popular options being to introduce salary-sacrifice arrangements, increase employee contributions and amend the existing final salary pension scheme. In 2010, two-fifths of respondents predicted that their employee benefit spend would remain the same, one-third say that it would increase, one in ten predicted that it would fall, while the remainder didn t know. Reward priorities in 2010 The total reward issues predicted to be key for 2010 were: to ensure alignment with the business strategy; ensuring reward is market competitive; cost minimisation; and ensure reward is internally fair. Overview of CIPD surveys 7

Learning and talent development Learning and Talent Development 2010 (Respondents: 724 learning, training and development managers) Eight in ten organisations (78%) have a training budget; for half of organisations this is over 200,000, and for half of them this is under 200,000. This represents an increase of nearly 90,000 from last year. The median number of employees it covers has increased too, from 500 last year to 785 in 2010. On average, employees receive eight days of training a year, which is an increase of two days compared with 2009. The most effective learning and development practices are in-house development programmes (56%) and coaching by line managers (51%). Current and future trends in learning and training development The most effective learning and development practices are in-house development programmes (56%) and coaching by line managers (51%). E-learning is the learning and development practice that has increased the most, with six in ten (62%) organisations saying they use it more than in 2009; in-house development programmes are also used more by 58% of organisations, and coaching by line managers is used more by 56%. Attendance at external conferences, workshops and events has decreased the most, with a quarter (26%) of organisations using it less. Learning and talent development specialists are most likely (53%) to hold the main responsibility for employees learning and development, followed by senior managers (33%), the HR department (30%) and line managers (29%). Employees/learners are mostly expected to show some involvement (54%), but few (17%) organisations expect them to be mainly responsible for their own learning. The two main tasks for learning and development specialists are to deliver courses (46%) and to manage the overall planning of learning (46%). For almost half (46%) of organisations, the major organisational change affecting learning and development in the next five years will be a greater integration between coaching, organisational development and performance management to drive organisational change. For almost four in ten (37%), it will be greater responsibility devolved to line managers. Employee skills The main gaps in skills identified by organisations continue to be business skills/acumen and commercial awareness, and management/leadership skills. The skills which employers say they need to focus on in order to meet their business objectives in two years time are mainly leadership skills (65%), frontline people management skills (55%) and business acumen/awareness (51%). Looking more closely at leadership skills, the main gaps identified by employers are performance 8 Overview of CIPD surveys

management (setting standards for performance and dealing with underperformance), and leading and managing change. The main focus of leadership development activities in the next 12 months will be improving the skills of leaders to think in a more strategic and futurefocused way, and enabling the achievement of the organisation s strategic goals, as cited by four in ten organisations (42% and 39% respectively). School leavers are seen to be most lacking in business skills/acumen and commercial awareness (59%), closely followed by management/leadership skills (54%) and communication/interpersonal skills (53%). The main gap in skills for university graduates differs slightly, as most employers would like to see better management/ leadership skills (59%), followed by the same business skills/acumen and commercial awareness (56%) that school leavers lack the most. Employees coming from another organisation are less likely to be seen as deficient in skills. Management/leadership skills are still cited, but only by three in ten (29%) employers. Systems rely mainly on the collection of postcourse evaluations (58%), individuals testimonies (56%), on assessing the impact on business key performance indicators (KPIs) of coaching (44%) and measuring the return on expectation (40%). Economic circumstances and training spend Funds available for learning and development had decreased for over half (52%) of organisations in 2009, while only one in ten employers (11%) expected these to increase in 2010. Learning and training development departments headcounts have largely remained the same in the last year, while resources available have stayed the same for four in ten (41%), and decreased by a similar proportion of organisations. Main changes in organisations learning and talent development departments over the last year included the department becoming more businessfocused (38%), a reduction in external suppliers and a move to in-house provision (31%), and redundancies of staff (20%). Talent management Almost six in ten (59%) organisations undertake talent management activities. Among these, half (50%) rate these as effective, although only 3% consider them very effective. The main objectives of talent management activities are to develop high-potential employees (67%) and to grow future senior managers/leaders (67%). The three most effective activities to manage talent are coaching (39%), in-house development programmes (32%) and high-potential development schemes (31%). The three most common ways to evaluate talent management activities are to obtain feedback from line managers (42%), to measure the retention of those identified as high-potential (35%) and the anecdotal observation of change (35%). Managing and evaluating coaching Coaching takes place in eight in ten (82%) organisations. Among those in which it does, only a third (36%) have a system to evaluate it. Eight in ten organisations (78%) have a training budget; for half of organisations this is over 200,000, and for half of them this is under 200,000. This represents an increase of nearly 90,000 from last year. The median number of employees it covers has increased too, from 500 last year to 785 in 2010. Among UK organisations, a quarter (25%) consider themselves very or fairly successful at securing government funding, notably apprenticeship funding (57%) and Train to Gain for basic skills funding (53%). Training budgets cover external courses and conferences for nine in ten (88%) organisations, hiring external consultants and trainers for eight in ten (83%), but only cover salaries for in-house trainers in two-fifths (40%) of organisations. Seven in ten (71%) keep a record of the number of training/development days employees receive every year. This represents a median of four days among organisations which track such data. Overview of CIPD surveys 9

Absence management Absence Management 2010 (Respondents: 573 HR professionals in UK organisations) The average level of absence was 7.7 working days per employee. The average reported cost of absence was 600 per employee per year. Absence levels More organisations are recording their annual employee absence rate (82% compared with 70% last year). Length of absence Two-thirds of working time lost to absence is accounted for by short-term absences of up to seven days. The average level of employee absence is 7.7 days per employee. The average level of absence remains highest in the public sector at 9.6 days per employee per year. Absence is also relatively high in the non-profit sector at an average of 8.3 days per employee per year. Absence is lowest in the private sector. Manufacturing and production organisations reported an average of 6.9 days lost per employee per year, while private sector services organisations reported an average absence of 6.6 days per employee per year. As found in previous years, a higher proportion of private sector absence is due to short-term leave of up to seven days than in the public sector. Smaller organisations were more likely to attribute more of their absence to short-term leave than larger organisations. Cost of absence Fewer than half of employers monitor the cost of absence. The average annual cost of employee absence per employee varied considerably across organisations. The median cost of absence was 600 per employee per year. Larger organisations have higher average levels of absence than smaller organisations. Organisations were twice as likely to report that their level of employee absence had decreased compared with the previous year (44%) than they were to say it had increased (22%). One-third (34%) reported it had remained the same. The average cost of absence is much higher in the public sector than in private sector organisations. The median cost per employee in the public sector is 889, more than twice that in the manufacturing and production sector ( 400) and substantially higher than in private sector services organisations ( 600) or non-profit organisations ( 600). 10 Overview of CIPD surveys

Occupational sick pay schemes are most generous in the public sector. Over two-thirds of public sector employers provide full pay for more than 20 weeks compared with about one-third in the manufacturing and production and non-profit sectors and just over a fifth in private sector services. Causes of absence Minor illnesses, such as colds, flu, stomach upsets, headaches and migraines, are by far the most common cause of short-term absence. Musculoskeletal injuries and back pain are the next most common causes of short-term absence for manual employees, followed by stress, home/family responsibilities and recurring medical conditions such as asthma, angina and allergies. The most common methods used to manage short-term absence are return-to-work interviews, trigger mechanisms to review attendance, giving sickness absence information to line managers and disciplinary procedures for unacceptable absence. The most effective methods for managing shortterm absence were return-to-work interviews and trigger mechanisms to review attendance, followed by disciplinary procedures for unacceptable absence, restricting sick pay and providing line managers with the information, responsibility and skills they need. Line managers take primary responsibility for managing short-term absence in two-thirds of organisations; however, in three out of ten of these, managers are not trained in absence-handling. Stress remains the second most common cause of short-term absence among non-manual workers, followed by musculoskeletal injuries, back pain and recurring medical conditions. Approximately one in five employers report that absences not due to genuine ill-health rank among the top five most common causes of short-term absence for both manual (23%) and non-manual workers (17%). Non-genuine absence is reportedly most common in private sector organisations. The most common causes of long-term absence are acute medical conditions (for example stroke, heart attack and cancer), musculoskeletal injuries, stress, mental ill-health and back pain. Musculoskeletal injuries and back pain were particularly common for manual workers, while stress was more common for non-manual workers. Stress and musculoskeletal injuries were particularly common causes of long-term absence in the public sector. Managing absence The findings suggest that organisations are employing more methods to manage absence. The public sector is far less likely to restrict sick pay than either the manufacturing and production or private services sector. Along with non-profit sector organisations, the public sector more commonly adopts procedures designed to reduce sickness absence through promoting good health and flexibility. The public sector is less likely to use disciplinary procedures for unacceptable short-term absence than the production and manufacturing sector, although the proportion of public sector employers using these procedures has increased compared with last year. Return-to-work interviews, disciplinary procedures for unacceptable absence and occupational health involvement are the most commonly used approaches to managing long-term absence. The involvement of occupational health professionals was most commonly cited as one of the top three most effective methods for managing long-term absence. Return-to-work interviews and trigger mechanisms to review attendance were also rated highly for the effective management of longterm, as well as short-term, absence. Overview of CIPD surveys 11

Employee well-being Nearly half of employers have an employee wellbeing strategy in place, an increase on the previous two years (2009: 33%; 2008: 30%). They are particularly common in the public sector. Despite the recession and consequent pressure on many organisations to cut costs, one-fifth (22%) of organisations increased and only 9% reduced their well-being spend this year. The most commonly provided well-being benefit is access to counselling services, as was the case last year. Employee assistance programmes and stop smoking support are the next most commonly provided benefits. Looking forward to 2011, one-fifth expect to increase their well-being spend and 9% anticipate a decrease. The public sector are most likely to expect to rein in their well-being spend. Organisations that evaluate their well-being spend are more likely to have increased their spend this year and more likely to increase it in 2011 compared with those who don t evaluate. 12 Overview of CIPD surveys

Employee outlook Employee Outlook 2010 quarterly survey (Respondents: 2,000 employees) Overall, job satisfaction has increased during 2010 and currently stands at a net rate of +42. This represents a 7% net increase since last quarter (summer: +35; spring: +36). Perceptions of leadership are again much worse in the public sector. Perceptions of consultation ( 39), confidence ( 38) and trust ( 34) are particularly poor. The proportion of employees saying they are under excessive pressure either every day or once or twice a week is 39%, a slight reduction from last quarter (40%). Source: Autumn 2010 Job satisfaction Overall, job satisfaction has increased during 2010 and currently stands at a net rate of +42, according to the Autumn 2010 Employee Outlook survey. This represents a 7% net increase since last quarter (summer: +35; spring: +36). While employees working in the voluntary sector remain the most satisfied (+55), in another change public sector employees are now second most satisfied (+42), overtaking private sector employees (+40). Employee attitudes to management The Autumn 2010 Employee Outlook survey showed that employees continue to be generally positive in their attitudes towards their immediate line managers, with 12 items out of 14 rating more positively than last quarter. Employees are most likely to feel that their managers always/usually treat them fairly (73%) and are committed to their organisation (72%). On the other hand, employees are least likely to say their manager always/usually coaches them on the job (30%), discusses their training and development needs (40%) or gives them feedback on how they are performing (46%). Overall, respondents continue to be less positive in their attitudes towards their senior managers. Most items, however, show a slight increase since last quarter. Perceptions of leadership are again much worse in the public sector with every item having a negative net satisfaction score. Perceptions of consultation ( 39), confidence ( 38) and trust ( 34) are particularly poor. Communication and advocacy Over half of respondents (54%) feel fully or fairly well informed about what is happening within their organisations. However, when it comes to satisfaction with opportunity to feed views upwards, there is more of an imbalance. Overall the net satisfaction rate is +12 (compared with +10 last quarter), with scores for those working in the public sector dropping to 8. Over half of the sample (54%) would be very likely or likely to recommend their organisation as an employer to others. Workload and pressure at work The proportion of employees saying they are under excessive pressure either every day or once or twice Overview of CIPD surveys 13

a week is 39%, a slight reduction from last quarter (40%). Public sector staff are much more likely to say they are under excessive pressure, either every day or once or twice a week (44%), than those in the private sector (38%) or voluntary sector (33%). The proportion of workers saying their workload is too much has also reduced slightly since the previous quarter to 28% from 30%. Public sector employees are more likely to report their workload is too much (36%) than those in the private (26%) or voluntary sectors. Employee attitudes and the recession In all, 19% of respondents say it is likely or very likely they could lose their job as a result of the recession, a slight increase from last quarter s figure of 18%. There is no change in employees attitudes towards the labour market, with just 10% believing it would be easy or very easy to get a new job if they lost their current job. The proportion of employees saying their employer has made redundancies as a result of the economic downturn has fallen very slightly to 30%. The proportion of private sector staff reporting redundancies has also fallen. However, the proportion of public sector respondents and voluntary sector employees reporting redundancies has increased since the last quarter. There has also been a continuing trend by employers to cut back on training. Pay freezes also continue to be more widely reported, with 43% of respondents saying their organisation has introduced a pay freeze, up from 40% last quarter. Job-seeking Only 21% of respondents are currently looking for a new job with a different employer. However, over a third (37%) would ideally like to change jobs within the next year. Only 28% are very or fairly optimistic about ability to change jobs within the next year. Private sector employees are most confident (34%) while public 14 Overview of CIPD surveys

HR outlook HR Outlook 2010 (Respondents: 2,266 HR practitioners) Senior HR people identify the top three organisational priorities in the 12 months to September 2011 to be managing costs (73%), growing the current business (65%) and focusing on customer need (54%). Senior HR professionals top three priorities for the HR function in the 12 months to September 2011 are managing change and cultural transformation (50%), employee engagement (41%) and improving performance management and reward (38%). Key findings: Senior HR people identify the top three organisational priorities to be managing costs (73%), growing the current business (65%) and focusing on customer need (54%). Senior HR professionals top three priorities for the HR function are managing change and cultural transformation (50%), employee engagement (41%) and improving performance management and reward (38%). HR professionals top three priorities for the HR function are managing change and cultural transformation (50%), employee engagement (41%) and improving performance management and reward (38%). HR professionals working within the public sector were significantly less likely to state improving performance management and reward as a top priority for their HR function than those working within the private sector. The public sector was the only sector where HR professionals surveyed did not number employee engagement among their top three HR functions. Nine in ten HR professionals who have responsibility for running a team said skills/capability gaps existed within their HR function this view was the same among seniors and the broader HR sample. Senior HR professionals were most likely to be addressing these gaps through on-the-job training, coaching and CIPD qualifications. Similar to the senior sample, the broader HR sample state managing change and cultural transformation as the top priority (49%) for their HR function. Seniors were significantly more likely than the broader HR sample to state that their function displays behaviours of a skilled influencer (44% compared with 32%). Overview of CIPD surveys 15

Labour market outlook Labour Market Outlook 2010 quarterly survey (Respondents: HR practitioners in 400+ UK organisations) The proportion of employers that expected staff levels to increase against those that expected them to decrease improved to +12 in the three months to December 2010 from 3 in the three months to December 2009. However, employers are less optimistic about the medium-term outlook. The proportion of staff that expected staff levels to increase against those that expected them to decrease is +1 in the 12 months to September 2011. Average pay expectations rose to 1.6% in the three months to December 2010 from 1.5% in the three months to December 2009. Demand for migrant workers remains relatively high. About one in six employers intended to recruit migrant workers in the final quarter of 2009. Absence levels The survey s net employment intentions balance improved to +11 in autumn 2010. As in the spring and summer quarters, this positive figure is largely driven by private sector recruitment intentions. By contrast, recruitment intentions in the public sector are at their lowest level and redundancy intentions are almost twice as high as in the private sector. The scale of the difference in mood between the two sectors is best summarised by the net employment figures. In the private sector, this has risen again to +39, while in the public sector it has sunk further to 44. However, the medium-term outlook looks less benign. These positive findings have been reflected in the strong performance of the jobs market for much of the year. However, the survey s net employment intentions balance for the 12 months to September 2011 at only +1 shows that the medium outlook looks less favourable. Pay outlook The sectoral split in employment prospects also concerns the pay reviews. Overall, the average expected pay review in the 12 months to September 2011 amounts to an increase of 1.5%. The average figure has remained relatively unchanged during 2010, varying between 1.5% and 1.6%. However, pay settlements in the private sector have gradually increased to 2.3%. The average annual cost of employee absence per employee varied considerably across organisations. The median cost of absence was 600 per employee per year. The average cost of absence is much higher in the public sector than in private sector organisations. The median cost per employee in the public sector is 889, more than twice that in the manufacturing and production sector ( 400) and substantially higher than in private sector services organisations ( 600) or nonprofit organisations ( 600). 16 Overview of CIPD surveys

Outlook 2011 a radar check for HR A year ago the CIPD forecast that 2010 would be a better year for jobs than either 2008 or 2009 as the UK economy gradually began to emerge from the deepest and longest recession since the Second World War. By this we meant a relative improvement, with employment falling by less and unemployment rising by less than during the recession. In the event, however, 2010 turned out to be a much better year for jobs with the number of people in work increasing and unemployment starting to fall. In discussing these possibilities we also posited three related scenarios for the jobs recovery: a jobs-lined recovery: a strong and sustained rebound in global demand and domestic demand consistent with a V-shaped economic recovery enabling employers to take advantage of Britain s flexible labour market to create jobs, resulting in a strong rise in employment and an early fall in unemployment in 2010 Despite this we expect 2011 to see a return to falling employment and rising unemployment though we do not envisage the deterioration in labour market conditions being anything like as severe as during the recession. At the same time we expect that, as in 2010, average earnings will increase by less than price inflation resulting in a squeeze in workers real incomes. Our longerterm forecast in turn indicates that labour market conditions will remain weak in 2012 before starting to recover more robustly in 2013. The UK labour market in 2010 In last year s barometer report we discussed possible scenarios for the economy as the UK emerged from recession. Some economists reckoned there would be a V-shaped recovery with the economy bouncing back very strongly having slumped previously, the bottom of the V being roughly how things stood at the trough of the recession in 2009. Others forecast a W-shaped recovery that is, the return to growth would not be sustained with the result that the economy would double dip back into recession or an L-shaped recovery, which implied that the recovery would be sustained but at a very moderate pace. a jobs-light recovery: consistent with a sustained but modest L-shaped economic recovery, demand for labour would be sufficient only to enable a gradual increase in net job creation, with unemployment at best merely levelling off in 2010 close to its post-recession peak a jobs-loss recovery: a very weak and uncertain growth akin to a W-shaped economic recovery, marked by continued fear of a double-dip recession with unemployment continuing to rise throughout 2010 and beyond. At the end of 2009 our central forecast for 2010 was that of an L-shaped/jobs-light recovery. The forecast was that GDP would grow by an annualised rate of 1.2%, that average earnings would increase in nominal terms at a rate of 2% per annum and that inflation as measured by the Consumer Prices Index would increase by an average of 3% per annum. The base interest rate set by the Bank of England was expected to be unchanged at 0.5%, the Bank of England was expected to maintain but not expand its policy of quantitative easing, and the trajectory of fiscal policy was expected to be broadly similar to that set out in the 2009 pre-budget report. Overview of CIPD surveys 17

The forecast was that the economy would shed a net 250,000 jobs between the third quarter of 2009 and the second quarter of 2010, by which time we expected unemployment to have reached a peak of 2.8 million. The forecast then showed a gradual recovery in employment from mid-2010 onward, with the pace of recovery accelerating into 2011. The outturn was much better than forecast. The number of people in employment increased by 120,000 (0.5%) between the third quarter of 2009 and the second quarter of 2010. The level of employment at the end of the second quarter was thus 370,000 higher than we had forecast. Unemployment meanwhile was broadly unchanged at just below 2.5 million (a rate of 8%). There was, as we forecast, an increase in the redundancy rate in the winter of 2009/10 but this was less than expected and accompanied by an earlier than anticipated increase in job vacancies. The redundancy rate then subsided, helping to bolster employment into the third quarter of 2010 (the latest period for which data are available at the time of writing) despite a corresponding fall in vacancies. Although almost 0.5 million people were made redundant between the first and third quarters of the year, the economy added 0.35 million jobs, with the level of unemployment in the third quarter down to 2.47 million (a rate of 7.7%). Independent survey evidence, including the quarterly CIPD/KPMG Labour Market Outlook (LMO) survey, paints a mixed picture of the pace of the jobs recovery in the final quarter of 2010 but overall suggests that employment will have continued to rise. The composition of the 2010 jobs recovery There was at the time of writing this year s barometer report insufficient official data to give a complete assessment of which sectors of the economy added most jobs in 2010, or the occupational make-up or regional distribution of those jobs. What is known is that all the net new jobs were in the private sector (the public sector began what is expected to be a prolonged period of employment downsizing, see below). Employees account for just under two-thirds (63%) of the 350,000 jobs added to the economy between the first and third quarters of 2010. Self-employment accounts for most of the remainder (30%). More than nine in ten (95%) of the additional employees in employment were working part-time, while one in three of the additional employees were working in temporary jobs. There was no recovery in full-time permanent jobs for employees. By the third quarter of 2010, 14 million part-time workers (14% of the total of 7.8 million) were frustrated part-timers who really wanted full-time jobs. Likewise, 0.6 million temporary employees (38% of the total of 1.5 million) wanted permanent jobs. Men, the young and old, fare better than women and the middle-aged Men account for more than eight in ten (83%, or 289,000) of the jobs added to the economy by the third quarter of 2010. The relatively small rise in women in employment (62,000) combined with an increase in the number of women entering the labour market to look for work (28,000) resulted in higher female unemployment. By the third quarter there were more than 1 million women unemployed (a record level). This was an increase 18 Overview of CIPD surveys

of 52,000 since the start of 2010, taking the unemployment rate for women to 7%. By contrast, in the same period the number of unemployed men fell by over 100,000 to 1.4 million (an unemployment rate of 8.4%). The relative experience of men and women in the labour market in 2010 is the reverse of what happened during the course of the recession in 2008 and 2009. At that time women benefited from their relatively high representation in the public sector, which saw a small rise in employment while the private sector was shedding jobs (women account for two-thirds of public sector jobs). The era of fiscal austerity is likely to be as uncomfortable for women as the recession was for men. Two-thirds of the jobs added to the economy in 2010 have gone to young people aged under 35. The rest have gone to people aged over 50, with those aged 35 49 for the time being missing out. 2010 was the year of the real pay squeeze It is well known that for many workers the main recession year of 2009 proved to be the year of the pay freeze or pay cut, especially in the private sector. By the end of 2009, the average earnings of private sector workers were increasing at an annual rate of just 0.5% (much lower than the public sector average of 2.9%). However, 2009 was also a year of low price inflation, with the rate of inflation at just 1% on the Consumer Prices Index (CPI) measure and 1.4% (that is, price deflation) on the Retail Prices Index measure. Low inflation cushioned the blow of low, zero or no pay rises in 2009. This enabled workers on average to enjoy a slight real pay increase, although again this was not the case for workers in the private sector. In 2010, by contrast, average pay increases of above 2% (2.1% in the private sector, 1.9% in the public sector) failed to match CPI inflation of above 3% and RPI inflation well above 4%. While 2010 could not be described as the year of the widespread pay freeze, it did turn out to be the year of the widespread real pay squeeze. Why did 2010 turn out to be a better than expected year for jobs? The overall outturn for jobs was better than the CIPD forecast a year ago simply because the pace of economic recovery was better than forecast. All our underlying assumptions held except that for the rate of growth in GDP, which by mid-2010 had risen well above 2.5% on an annualised basis. In other words, instead of experiencing an L-shaped/jobslight recovery in 2010, the economy in fact saw a V-shaped/jobs-lined recovery. While the CIPD was happily surprised by the strength of the economic recovery in 2010, once this became clear we were not surprised by the strength of the associated jobs recovery. Prior to and during the recession we contended that the UK labour market was in good underlying shape and likely to operate more efficiently than in previous recessions. By comparison with previous recoveries, the labour market also exhibits fewer structural problems of the kind that used to trigger inflationary wage pressure well before unemployment returned to pre-recession levels. Consequently, we concluded that once the economy started to see a strong post-recession recovery in demand for labour, there would be Overview of CIPD surveys 19

correspondingly strong growth in employment and an early fall in unemployment. The key question for 2011, therefore, is will the recovery in demand for labour be sustained at the rate enjoyed during the past year? Private sector jobs forecasts The difference between the OBR and CIPD forecasts is due to a lower CIPD forecast for economic growth and hence a lower forecast for private sector job creation and a higher CIPD estimate of public sector job losses. Forecast for the UK economy and employment in 2011 In answering this question we take as our initial benchmark the most recent central economic and employment forecast published in November 2010 by the Office for Budget Responsibility (OBR). Table 1 compares this with the latest (December 2010) CIPD forecast. The OBR forecasts that the total number of people in work will be 100,000 higher at the end of 2011 than at the end of 2010 and continue to rise through to 2015, resulting in a net gain in employment of 1.1 million between 2010 and 2015. The rate of unemployment meanwhile peaks at 8.0% in 2011 and then falls to 6.1% by 2015. The CIPD, by contrast, forecasts that the total number of people in work will be 200,000 lower at the end of 2011 and continue to fall in 2012 before starting to increase in 2013. The eventual net gain in employment between 2010 and 2015 of 0.3 million is correspondingly lower than that forecast by the OBR. Similarly, the CIPD forecasts that unemployment peaks at a higher rate and later than the OBR, rising to 9% (2.7 million) in 2011 and then reaching 9.5% in 2012 before falling to 7.6% in 2015. The OBR s central forecast of net total employment growth of 1.1 million accounts for an estimated net fall in public sector employment of around 400,000 and thus indicates that the private (or market) sector will create 1.5 million jobs during the forecast period. This amounts to an average net increase in private sector employment of 1.1% (roughly 300,000 jobs) per year. As the CIPD has previously concluded, the experience of the past 30 years suggests that the UK economy needs to grow by at least 2.5% per year in order to trigger 1% annual private sector employment growth (a relationship that also holds for the jobs recovery witnessed in 2010). This relationship between economic growth and private sector job creation holds within the OBR s central forecast, which sees GDP growing on average by 2.53% per annum between 2010 and 2015, a fast enough rate to boost private sector employment by 1.5 million. The CIPD expects an outcome for GDP growth averaging 2.3% between 2010 and 2015, fast enough to boost private sector employment by 1 million. However, both the OBR and the CIPD forecast growth in GDP of well below 2.5% in 2011 (the OBR 2.1%, the CIPD 1.6%). These translate into a relatively modest OBR forecast for growth in private sector employment in 2011 (an increase of 140,000) and a CIPD forecast of a fall in private sector employment of 80,000. 20 Overview of CIPD surveys

The OBR forecast sees a strong pick-up in business investment and net exports more than compensating for muted (though not especially weak) consumer spending and the initial impact of the Coalition Government s policy of fiscal consolidation. However, while the CIPD expects continued improvement in business investment and net exports in 2010, we also forecast that the fiscal consolidation both at home and also across the eurozone the UK s main export market will curb the demand for the goods and services that ultimately drives business investment and exports. The CIPD in turn forecasts that average earnings will increase at a rate of 2% per annum and that inflation as measured by the Consumer Prices Index will increase by an average of 2.6% per annum. The base interest rate set by the Bank of England is expected to be unchanged at 0.5%, the Bank of England is expected to maintain but not expand its policy of quantitative easing, and the trajectory of fiscal policy is expected to be that set out in the June 2010 Budget and the October 2010 Comprehensive Spending Review. It is possible that a relatively slow rate of GDP growth in line with the CIPD s central forecast could result in a change of either monetary or fiscal policy, which would alter our projections. However, there is little sign as yet that the Coalition Government is likely to contemplate a change of course on fiscal policy the Chancellor frequently dismissing calls for a fiscal Plan B and sufficient uncertainty about prospects for consumer price inflation to make the Bank of England cautious of adopting a looser monetary policy. Public sector jobs forecasts The difference between the OBR and CIPD estimates of public sector job losses stems from different methodologies. The OBR models change in general government employment by combining growth in funds available to general government employers to finance paybills and projected growth in paybill per head. The CIPD instead surveys and consults public sector HR managers to determine what they are experiencing and expecting to happen. At the time of the Chancellor s Budget statement in June, the OBR estimated that general government employment would fall by 490,000 between the end of 2010 11 and 2014 15. This estimate accounted for the period covered by the Coalition Government s public expenditure plans as subsequently set out in the 2010 Comprehensive Spending Review (CSR) but excluded the impact of spending cuts of approximately 6 billion within 2010 11 and additional spending cuts pencilled in for 2015 16. Including the 2015 16 cuts raised the OBR s June forecast for the fall in general government employment to 610,000. The OBR in addition implied that general government employment would also fall by 5,000 within 2010 11 (though that now looks like a considerable underestimate, with the outturn likely to be closer to 50,000). The total reduction in general government employment projected by the OBR in June 2010 was not greatly out of line with the corresponding CIPD estimate of a 725,000 fall in public sector employment in the period to 2015 16 obtained by the CIPD in June. However, the November 2010 OBR forecast is for a fall in general government employment of 330,000 rather than 490,000 between 2010 11 and Overview of CIPD surveys 21

2014 15, the figure including 2015 16 falling from 610,000 from 410,000. Moreover, the forecast fall in general government employment is heavily back-end loaded. The vast majority of the fall does not occur until after 2012, with the fall in 2011 projected to be 40,000 (0.7%) and in 2012 30.000 (0.6%). The CIPD, by contrast, estimates a fall of 120,000 (2.2%) in both 2011 and 2012. Of the OBR s 160,000 downward revision to its initial forecast to 2014 15, 30,000 is due to what it describes as methodological refinements, the remainder to changes to the Coalition Government s spending plans as finalised in the CSR, which saw smaller cuts in departmental spending as a result of the Chancellor s decision to instead cut more deeply into the welfare budget. As a result, there is now clearly a very big gap between what the OBR projects on the basis of what it describes as its top down modelling approach and what the CIPD obtains from its bottom up survey-based approach. Indeed, the difference between the two estimates for the period to 2015 16 is itself almost as big as the total number of public sector job losses the OBR forecasts for the period to 2014 15. The OBR recognises the limits of its own methodology: All these projections are inevitably subject to a large degree of uncertainty: they are based on a set of stylised assumptions and do not reflect departmental paybill plans or policy. The CIPD likewise recognises the limits of its methodology. Either way, if the OBR is correctly modelling real world effects this should filter through on the ground within public sector organisations and emerge into the CIPD s evidence base. Once it does so, the CIPD will revise its forecasts. However, there is to date no sign of this. For example, the autumn CIPD/KMPG Labour Market Outlook survey, conducted in October by Ipsos Mori, finds four in ten public sector organisations planning redundancies in the final quarter of 2010 alone, with these expected to affect 14% of staff in those organisations. If ongoing, job cuts on this scale would in fact exceed the CIPD s overall estimate for the period to 2015. What possibility of a jobs standstill? The OBR s central economic forecast suggests that 2011 will be a year of continued modest recovery in employment but relatively jobs-light compared with 2010, with the result that unemployment will increase to 8%. The CIPD s central economic forecast instead suggests that 2011 will be a jobs-loss year, with unemployment eventually hitting 9%. The mid-point between the two forecasts in turn suggests 2011 will be a year of jobs standstill, which also happens to be in line with what employers are at present expecting. The CIPD/KPMG autumn 2010 LMO survey finds a positive balance of +1 between the proportion of employers across all sectors that expect to be employing more staff by autumn 2011 and those that expect to be employing fewer staff. These survey findings are obviously conditioned by expectations about the outlook for the economy in autumn 2010, which may or may not be fulfilled. But with so much uncertainty around, it looks as though 2011 will be a fingers crossed year for the economy and jobs. If all goes well and the unexpectedly strong progress made in 2010 is sustained, the jobs market will be able to cope with the impact of the Government s 22 Overview of CIPD surveys

spending cuts and tax increases without any significant rise in unemployment. However, things only have to turn out a bit worse than expected in the wider economy for the jobs situation to weaken, which remains the CIPD s expectation. This doesn t mean that we are facing a return to the dire recession days of late 2008 and 2009, but 2011 will probably feel like another year in the economic doldrums rather than the start of a return to prosperity. Types of jobs and pay prospects for 2011 Even if 2011 turns out to be a jobs-light rather than a jobs-loss or jobs standstill year, the chances are that the bulk of any new private sector jobs will continue to reflect the experience of 2010, with part-time and temporary jobs in the majority. Moreover, the bulk of workers will feel a squeeze in their living standards, with pay rises still relatively modest against a backdrop of higher prices for many essential products and services, higher taxes, the availability of credit still tight and the likelihood of falling house prices. Even on the relatively more optimistic OBR jobs forecast, unemployment will act as a tough constraint on pay rises which are unlikely to outstrip price inflation. 2011 will, like 2010, be a year of real pay squeeze for most workers, especially those in the public sector. A jobs-light/pay-tight year is probably the best we can hope for, which will make for another challenging year for employers and HR professionals. Add in the possibility of employment disputes and social discontent arising from the fiscal squeeze and public sector job cuts and it s not hard to conclude that 2011 could prove to be a troubled year all round. Overview of CIPD surveys 23

Table 1: OBR (November 2010) and CIPD (December 2010) economic growth and employment forecasts compared GDP growth (% change) 2011 2012 2013 2014 2015 OBR 2.1 2.6 2.9 2.7 2.7 CIPD 1.6 2.1 2.5 2.6 2.7 Total employment OBR (million) 29.1 29.3 29.6 29.8 30.1 CIPD (million) 28.8 28.7 28.8 29.0 29.3 OBR (change 000) 100 200 300 200 300 CIPD (change 000) 200 100 100 200 300 OBR (change %) 0.3 0.7 1.0 0.7 1.0 CIPD (change %) 0.6 0.4 0.4 0.7 1.0 Unemployment (ILO % rate) OBR 8.0 7.7 7.2 6.7 6.1 CIPD 9.0 9.5 9.0 8.0 7.6 Source: OBR economic and fiscal outlook, table 3.1, November 2010 24 Overview of CIPD surveys

We explore leading-edge people management and development issues through our research. Our aim is to share knowledge, increase learning and understanding, and help our members make informed decisions about improving practice in their organisations. We produce many resources on people management and development issues including guides, books, practical tools, surveys and research reports. We also organise a number of conferences, events and training courses. To find out more please visit cipd.co.uk Chartered Institute of Personnel and Development 151 The Broadway London SW19 1JQ Tel: 020 8612 6200 Fax: 020 8612 6201 Email: cipd@cipd.co.uk Website: cipd.co.uk Incorporated by Royal Charter Registered charity no.1079797 Issued: December 2010 Reference: 5418 Chartered Institute of Personnel and Development 2010