Pay reward for SME staff after recession sacrifices

The IoD – which has 34,500 members, most of whom lead companies with fewer than 200 employees – also questioned its members about their experiences through the recession following the financial crisis. It said it discovered a sense of “responsibility” from both bosses and staff as they worked together to maintain employment levels as business struggled through the tough times, with the importance of job security rated almost on a par with pay increases by staff.

According to directors, 34pc of staff said the level of compensation was the most important factor at work, while 33pc rated job security as the top issue.

Mr Sproule said: “What we see from this survey is that employers and employees have been remarkably responsible throughout the recession, accepting wage restraint whilst working hard to keep businesses viable.

“The most important factor here is that pay rises will be led by increases in corporate performance. Almost half (47pc) of IoD members report that during the downturn, pay in their firms has either fallen or risen by less than inflation.

“The result of this has been that jobs, along with the skills that go with them, have been preserved. The reward is that pay rises should now be on the horizon.”

The IoD also found that the majority of its members take a similarly paternal attitude towards compensation levels for junior staff, with 77pc of them paying their most junior staff more than the living wage, which is £7.65 per hour outside London and £8.80 in the capital, while 10pc pay the minimum level.

The IoD’s findings came as The Work Foundation published a series of recommendations aimed at tackling low pay.

The Lancaster University-based think-tank produced a report which said that 5.1m people – 21pc of the UK workforce – are affected by low pay.

While it welcomed the introduction of the national minimum wage, the report – Rising to the Challenge: A policy agenda to tackle low pay – said it was not a panacea. The foundation added that the minimum wage – currently set at £6.31 an hour for over 21s – has only a minimal impact because the rate is below the low pay threshold.

To encourage companies to increase pay, the think-tank wants to make it mandatory for FTSE 350 companies to publish the proportion of its staff being paid below the Living Wage.

Kathryn Ray, senior researcher at the foundation, said: “We agree that it’s not a great idea to raise the minimum wage to the Living Wage threshold because it will cost jobs and harm the economy.

“A corporate governance requirement on transparency – backed up by the threat of legislation – would mean companies that are not paying a decent wage could be targeted.

“Companies that have taken up the Living Wage tend to be those that can afford it – such as banks. If companies had to show how many staff they pay below the Living Wage then the sectors that generally pay below it – such as retail and hospitality – could be encouraged to increase pay.”

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