% cut in salary in real terms (pay freeze)

markmorb

Hi,

Not quite sure what forum to put this question in so apologies if it's in the wrong place.

I was just wondering if there was an easy way to work out the effects of having a salary freeze since 2007.

I'm in a position whereby I have not received a salary increase since 2007 and I've got a feeling that this year will be much the same. Before going into negotiations I was wondering if the effect of a pay freeze like this could be expressed in terms of a salary cut due to the "cost of living" expenses rising over the same period?

Any help is appreciated.

Thanks

danothy

One method would be to use the CPI or RPI values.

The annual RPI in 2007 was 206.6 and 226.8 in Nov of 2010 so a salary of £20,000 would roughly equate to £21,955.50 now if kept in line, that is about 9.77% increase over the three years or about 3.15% year on year.

The CPI has an annual value of 104.7 in 2007 and 115.6 in Nov of 2010 giving a rise from £20,000 to approximately £22,082.14 equating to a rise of about 10.41% or about 3.36% year on year.

Those percentages are rises that would be in line with inflation (assuming an even increase across the three years), so you would need to go the other way to work out an effective decrease.

[I'm gonna edit out what I said about calculating the effective decrease as I'm uncertain of it now I review it]

Indexes are taken from http://www.statistics.gov.uk. I picked Nov 2010 indices in place of 2010 annual as it hasn't been calculated at time of posting.

markmorb

Thanks very much for the reply...that's exactly the information I was after.
Much appreciated

danothy

I've had a chance to think about it now and I am going to go with the philosophy that what you have now is (as per the example in my post above) £20,000 in place of what should be approximately £22,025.75 (an average of the in-line increases). This would mean you have 90.8% of what you had before in terms of buying power meaning a 9.2% effective decrease in wage.

markmorb

danothy wrote: »

I've had a chance to think about it now and I am going to go with the philosophy that what you have now is (as per the example in my post above) £20,000 in place of what should be approximately £22,025.75 (an average of the in-line increases). This would mean you have 90.8% of what you had before in terms of buying power meaning a 9.2% effective decrease in wage.

Really appreciate that...not sure it will get me anywhere but at least I have some useful information now.

Thanks again.

danothy

I think it'd be unlikely to convince an employer to backdate a pay rise to that level (especially if you work in the public sector) but it might be a good negotiating point at the next pay review to highlight how damaging a continued freeze would be and it can certainly help you budget by taking into account the effective reduction in your spending ability.

It's alarming to observe the cost of living increasing as ~10% in three years but to hear about long term pay freezes (especially since there was an economic recession as defined by the indices used to make that calculation).

markmorb

I'm not in the public sector but I wouldn't dream of trying to get 10% in order to bring me in line, but as an argument for a 2 or 3% increase this year it's pretty good and as you say it highlights to my employer the actual effect a continued pay freeze is having.

Yes, many people do not equate a pay freeze with a pay cut but that is what it effectively is, especially over several years.

MrRedundant

What do you hope to achieve by this?

RPI/CPI are pointless mechanisms and very few receive a raise based on these. What industry are you in? If it has a central negotiating body such as a joint council using their raises may be useful.

Tbh depending on your motives I am not convinced its a worthwhile effort to do or will bring a productive outcome.

Employers want value for money, any raise based purely on "market" conditions rather than performance will rarely be welcomed by employers; other factors to consider is what is the industry position? If RPI has increased it doesnt mean its an succesful industry. Will you be willing to accept a proper cut if they turn round and show that industry has shown a far larger cut than the "pay freeze"

markmorb

What I am hoping to achieve is just to point out the effect a continued pay freeze is having...I've already shown that at best I would hope for a small rise, if nothing is forthcoming then that is also fine...but I do not accept that I should not even discuss the option of a payrise during my annual pay and performance review as any rise would be helpful for me and my family.
I have not been complaining and I fully understand (and support) the reasons for the pay freeze in recent years.
I believe it's worthwhile if for no other reason than to get a full explanation from the board as to why there will be no rise, as last year they did not even communicate there would be no rise to the employees, they just did not hold any pay reviews at all. An action that caused more resentment than not receiving a pay rise.
I have accepted pay cuts in the past when necessary as well...still doesn't mean that after 4 years of a freeze it would be somehow greedy or ungrateful for me to suggest a small increase this year in order to try and keep up with inflation.

MrRedundant

markmorb wrote: »

What I am hoping to achieve is just to point out the effect a continued pay freeze is having...I've already shown that at best I would hope for a small rise, if nothing is forthcoming then that is also fine...but I do not accept that I should not even discuss the option of a payrise during my annual pay and performance review as any rise would be helpful for me and my family.
I have not been complaining and I fully understand (and support) the reasons for the pay freeze in recent years.
I believe it's worthwhile if for no other reason than to get a full explanation from the board as to why there will be no rise, as last year they did not even communicate there would be no rise to the employees, they just did not hold any pay reviews at all. An action that caused more resentment than not receiving a pay rise.
I have accepted pay cuts in the past when necessary as well...still doesn't mean that after 4 years of a freeze it would be somehow greedy or ungrateful for me to suggest a small increase this year in order to try and keep up with inflation.

I would suggest you concentrate on why you deserve a payrise. Using RPI/CPI is not the answer.

What do you bring to the company and what do they stand to lose (that couldnt be replaced at market rates) if you where to leave?

markmorb

My efforts and worth within the company are highly appreciated and regarded. I am in a management position and my performance and ability is constantly commented upon.
The money has not been forthcoming due to a policy to freeze pay in order to weather the recession, etc., for the last two years and the previous two years management agreed to a pay freeze in order fund new business. Last year the company broke all records in it's 30 year history, highest turnover, highest profit, highest GPM.
I have no intentions of using RPI/CPI as the "reason" for me to get a payrise, I only asked for a way I could work it out so that if necessary I can use it in my negotiations this year.