Bank will lower its repo rate one percentage point to 7,5% on Thursday, given the sharp deceleration in CPIX (consumer inflation less mortgages) this year.

According to Renwick Reward, salaries increased 8,3% this year as result of last year's surge in CPIX to an average of 9,3%. Last year's rises were the highest since 1999, when salaries rose 8,6% on average.

Steven McManus, information director at Renwick Reward, said the difference between this year's and next year's salary increases was likely to be large, although the extent of the difference hinged on two key factors. "Going below 8% breached an important psychological barrier for companies, but they needed to weigh this against the need to attract and retain key skills. However, economic growth was slow and demand for skills was less now than in the recent past."

Another factor influencing salary increases next year was the extent to which employers heeded the Bank's call for wage moderation to assist it in maintaining CPIX below the 6% upper band of the inflation target.

McManus said it was unclear whether this would be limited to executive salary increases, or whether all staff would be included. He said if most companies followed the Bank's lead in keeping its own salary increases within the CPIX target range, there could be salary increases of between 4,5% and 6% in 2004.

Increases in the fixed portion of executive salaries were also likely to be contained to 4,5%, but executives' total remuneration including both short and long-term incentives was likely to increase by more than this, according to the report.

Where executives were able to earn substantial performance-based remuneration, increases in the guaranteed portion of the total package would tend to be lower.

The report also stated that salary adjustments at the executive level in the past 10 years had averaged far higher than general staff increases.

Dec 08 2003 07:16:34:000AM  Business Day 1st Edition