One fifth of companies expect to lower salaries in 2021

06 November 2020 Consultancy.eu

According to a new study, one fifth of European employers is planning and hence hoping to lower the salaries of their employees in 2021 as part of their Covid-19 rebound strategies.

The financial impact of the coronavirus on the economy can safely be called devastating. Governments are spending billions on support packages to keep things afloat, and providing lifelines to key impacted sectors such as aviation, hospitality and tourism. Despite the efforts, unemployment rates are rapidly climbing and a growing number of freelancers are left squandering their time at home in despair amid a subdued jobs market. 

In such times of economic downfall, employees are among the first to be impacted. And according to a study by Kienbaum, this impact is going to be serious. The German-origin human capital consultancy surveyed more than 1,700 employers in Western Europe across all major sectors, and found that 68% expect to be able to preserve the current level of salaries.

One fifth of companies expect to lower salaries in 2021

However, just over one fifth (21%) is working on plans (or will be forced to) lower the salary of their employees. Such steps are already widespread – even the likes of football giant FC Barcelona has taken the step to ask its players (= well-paid employees) to voluntarily hand in some of their salary.

Meanwhile, in the consulting landscape, large players such as Aon and the Big Four have taken similar steps in light of pressures to bolster their profitability through a lower wage bill.

Beyond voluntary pay reductions, lowering compensation packages is notoriously difficult in Western European countries. In some countries, decisions on salary reductions can be taken by the executive only if certain conditions can be met, but in other countries, reducing pay in one-sided fashion is practically impossible due stringent labour laws.

For the small group of people that is expected to get a salary hike in 2021, the rise is not expected to be major. On average between 2% and 3%, which translates into an average of 1% to 2% in real terms.