PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL.
3, 149–163 (1997)
Minimum Wages and Pay Policy
in the British Hospitality
Industry: Past Impact and Future
Implications
Nick Radiven and Rosemary Lucas*
Department of Hotel, Catering and Tourism Management, The Manchester
Metropolitan University, Old Hall Lane, Manchester M14 6HR, UK
ABSTRACT
This paper examines the impact of the removal
of statutory minimum rates of pay in the hotel
and catering industry. The past influence of
the wages council as a statutory pay review
mechanism on pay policy within the industry
will be established. The main section of the
paper then reports on the considerable
changes that have occurred to the methods
used for determining pay, changes to pay
structures and addresses the implications that
these changes may have for future rates of pay
and the factors which affect the determination
of pay for manual workers in the hotel and
catering industry. This research represents the
most comprehensive study yet carried out
investigating the effect that wages council
abolition has exerted on pay policy in the
hotel and catering industry. © 1997 by John
Wiley & Sons, Ltd.
Received 9 May 1996; Accepted 21 October 1996
Progr. Tourism Hospit. Res. 3, 149–163 (1997)
No. of Figures: 2 No. of Tables: 8 No. of Refs: 25
Keywords: minimum wages; pay policy;
hospitality
* Correspondence to: R. Lucas
CCC 1077–3509/97/020149–15 $17.50
INTRODUCTION
I
n August 1993 wages councils, the mecha-
nism for setting and enforcing minimum
rates of pay and other aspects of remunera-
tion for nearly 3 million workers in many of
Britain’s lowest paying industries, were abol-
ished.† The Conservative government’s decision
to abolish the councils was based on the long-
held opinion that minimum rates of pay acted as
a barrier to job creation, took no account of an
employers’ ability to pay such rates and were no
longer a necessity as low pay had been largely
eradicated (Employment Department, 1988).
Abolition would create a more flexible labour
market which would, according to former
Employment Secretary Gillian Shephard,
“increase the competitiveness of the economy”
(Employment Department, 1992, p. 596). The
Labour Party, Trades Union Congress (TUC) and
campaign group the Low Pay Network all
opposed abolition. They were able to draw on
increasing evidence that low pay and pay ine-
quality had increased significantly and that far
from being abolished, existing minimum wage
legislation needed strengthening (Low Pay Net-
work, 1993; Dickens et al., 1993). Abolition left
Britain as the only member state of the European
†
Wages councils (as trades boards) were established in 1909
and were empowered to set a range of minimum pay rates
and other aspects of remuneration on a selective industry
basis where pay was deemed to be exceptionally low. The
Wages Act of 1986 substantially reduced their powers,
removing workers aged under 21 from their provisions and
also restricting their powers to the setting of a single
minimum rate. In the hotel industry this resulted in pay rates
and other aspects of remuneration declining (e.g. paid
holidays) (Lucas, 1991).
© 1997 by John Wiley & Sons, Ltd.
150
Union (EU) without any form of minimum wage
provision.
The hotel and catering industry provided a
considerable chunk of the workers formerly
covered by the councils (nearly 1 million). Three
separate wages councils covered workers in
different sectors of the industry. The three wages
councils were the Licensed Residential Establish-
ment and Licensed Restaurant Wages Council
(LRE), the Licensed Non-Residential Establish-
ment Wages Council (LNR), and the Unlicensed
Place of Refreshment Wages Council (UPR).*
This paper reports part of the findings of a
3-year research project investigating the effects of
the removal of wages council coverage on the
structure, levels of and methods of determining
pay within the hotel and catering industry.†
Although less than 2 years had passed since
abolition, the research produces discernible evi-
dence of changes in both the levels of pay and
the overall pay structures of individual com-
panies and also the methods used for
determining rates of pay following the removal
of statutory requirements.
The policy of individual companies imme-
diately prior to and following the date of
abolition (31 August 1993) regarding pay for
workers formerly covered by the councils (i.e.
manual workers) is assessed, to gauge the
impact that statutory regulation of pay levels
exerted on companies’ pay policies and any
subsequent changes that have followed the
removal of obligations to comply with statutory
regulation regarding minimum rates of pay.
It should be stressed that even with the
presence of minimum rates of pay, manual
workers in the hotel and catering industry were
consistently among the lowest paid workers in
the entire economy (Thomas and Earlam, 1978;
Byrne, 1986; Lucas, 1995), and at the time of
* The three wages councils covering the hotel and catering
industry were not established until the Catering Wages Act of
1943. The LRE covered the hotel industry and restaurants, the
LNR public houses and clubs and the UPR cafes and fast-
food restaurants. There were also two other councils. The
Industrial and Staff Canteen Undertakings Wages Council
(industrial catering) was abolished in 1976 and the Unli-
censed Residential Establishment Wages Council (boarding
houses) was defunct from its inception.
†
This paper is a significantly extended version of the paper
‘Abolition of Wages Councils: Pay Policy in Hospitality’
presented to the Fifth Council for Hospitality Management
Education (CHME) Research Conference, Nottingham Trent
University, April 1996.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
N. Radiven and R. Lucas
abolition these minimum rates were close to half
the national average hourly wage.‡ Recent
research has attempted to assess the immediate
impact of the abolition of wages councils on rates
of pay in the industry.
The Low Pay Network found that pay rates in
the sectors of the hotel and catering industry
formerly covered by the wages councils had in
many cases fallen below the last set of minimum
rates (Low Pay Network, 1994, p. 5). Further
research carried out by the Low Pay Network
using the New Earnings Survey also indicated
that since abolition, pay rates in the industry had
fallen (TUC, 1995). The impact on employment
numbers since abolition has also been assessed.
It was found there had been no increase and
even a slight fall in employment numbers in the
wages council sectors (including hotels and
catering) following abolition (Machin and Man-
ning, 1995).
However, while the impact of statutory mini-
mum rates of pay on actual levels of pay and
employment is central to any assessment of the
role of wages councils, of equal importance is an
appraisal of the wages councils as a mechanism
for providing a pay-setting formula for an
industry with no history of independent formal
pay bargaining. Abolition left a vacuum in
determining pay in the industry. This research
highlights the new methods used to determine
pay following the removal of institutional pay
determination. This is an aspect of the abolition
of wages councils which has received only
limited research attention [Industrial Relations
Services (IRS), 1995]. Work concentrating solely
on the impact of abolition on the hotel and
catering industry has also been equally scarce
(Crossman, 1995).
By investigating the impact of wages council
abolition on pay levels and pay setting arrange-
ments in the hospitality industry some of the
claims made by the Conservative government
vis-à-vis the effects of statutory minimum rates of
pay and the likely outcomes of their removal can
be validated. Also, this research, by highlighting
the past role of minimum wage policy and
assessing current pay practice in the hospitality
industry will have significant implications for
‡
At the time of abolition the respective minimum hourly
rates were: LRE, £2.92; LNR, £3.01; UPR, £2.99. The average
hourly pay (excluding overtime) for male and female manual
workers in 1993 was £5.75 per hour.
Pay Policy in the British Hospitality Industry 151
the Labour goverment’s proposals to introduce a The sample was chosen from these sources since
national minimum wage. The repercussions for they represented the most accessible and com-
the hospitality industry in Britain arising from prehensive lists available. Also, the reports list
this policy change will also become apparent. only the major nationwide operations which
coincided with the industrial sample which was
METHODOLOGY required for the purposes of this research, i.e.
multi-operational nationwide companies.
The data regarding the pay policies of individual
Once a sample list had been drawn up,
companies pre- and post-abolition were collected
companies were approached by telephone and
primarily through a postal questionnaire. A total
the name of the person responsible for operation
of 435 questionnaires were sent to companies
of that company’s pay policy was requested.
whose workers would formerly have been cov-
Questionnaires asking a range of questions
ered by one of the three hotel and catering wages
concerning pay policy were sent in December
councils.
1994 to hotel, restaurant and public house
Four sectors of the industry were canvassed —
operators. Contract caterers were canvassed in
hotels, restaurants, public houses and contract
May 1995 and in addition to the group hotels,
caterers. These categories correspond with the
questionnaires were sent to a number of small
industrial classifications used by the Standard
independently owned hotels in May 1995.† This
Industrial Classification (SIC) and represent the
was done to include the smaller independently
sectors where the bulk of the industry’s manual
owned hotels who make up a significant propor-
workers are located. It should be noted that the
tion of the industry (Lucas, 1995, p. 260) to
contract catering sector had in fact been removed
ensure a more representative sample and also for
from wages council coverage in 1976. However,
the purposes of a comparison between large and
this sector was included so that a comparison
small hotel operators which are discussed else-
between a regulated and unregulated sector of
where (Lucas and Radiven, 1996; Radiven and
the same industry could be made. Any differ-
Lucas, 1996).
ences between the two are not dealt with
The sample produced an overall response rate
explicitly in this article. It should, however, also
of 26% with the response rate for individual
be noted that amongst the respondents listing
sectors varying — restaurants (13%), hotels
their manual employees as being covered by one
(32%), pubs (26%) and contract caterers (19%).
of the three catering wages councils up to
However, the companies that responded repre-
August 1993, several were in fact contract cater-
sented a considerable proportion of the manual
ing operators, indicating that some workers
workforce of the hotel and catering industry and
within that sector were in fact still covered by the
were also in terms of turnover amongst the
wages councils.
biggest companies within their sectors. By can-
No single authoritative list of businesses for
vassing the larger companies it was felt that the
the industry exists (Price, 1994, p. 48) so the
largest number of workers could be covered in
sample was compiled from a number of different
the most effective manner. The nature of the
sources. The main sources used were the Busi-
enquiries was also more suited towards the
ness Ratio Industrial Reports (1994) which
larger, more structured companies as many of
produce a yearly analysis of different industrial
the questions were concerned with how aboli-
sectors and produce a list of telephone numbers
tion had affected the overall pay policy and
and addresses of the major operating companies
structure of a larger organisation. In addition, the
within each sector. Also used in the compilation
geographical spread of the establishments cov-
of the sample were the Key Note annual reports
ered by the respondents ensures that any
which produce a similar publication to the
regional bias to the results is removed and a
Business Ratio series although with a more
more balanced and comprehensive picture of
limited number of company contact addresses.*
†
* Business Ratio Plus, 1994, I.C.C. Group — The Hotel The hotels covered in the sample correspond with those
Industry, The Catering Industry, The Restaurant Industry, who took part in research carried out by Lucas (1991), and
The Brewing Industry. Key Note Report, 1994, Key Note — some assessment of the two sets of data on a more
Hotels, Public Houses, Fast Food Restaurants and Home longitudinal basis is discussed elsewhere (Lucas and
Delivery. Radiven, 1996).
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
152
national trends is able to emerge.
In addition to the quantitative data collated
from the questionnaires, qualitative data was
collected through follow-up interviews with
nine personnel directors who consented to inter-
views (either face to face or over the telephone)
which took place in spring 1995. Those inter-
viewed came from all three sectors formerly
covered by the wages councils, with several
having responsibility for workers in overlapping
sectors. Among those interviewed were some of
the biggest national and regional operators in the
British hotel and catering industry in terms of
both number of workers and establishments.
The research methods employed during this
investigation mirror those employed in past
research concerning past changes to aspects of
wages council coverage and remuneration and
personnel practice within the industry (Craig et
al., 1982; Lucas, 1991; Price, 1994). The response
rate was smaller than in the studies noted above.
However, in terms of the number of establish-
ments covered (112 respondents), the response
compares favourably with the IRS study into
post-wages council abolition remuneration prac-
tice and pay policy which had only 63
respondents in total and only 24 in the hotel and
catering industry (IRS, 1995, p. 2). Therefore the
findings commented upon in this paper repre-
sent the most comprehensive research into pay
N. Radiven and R. Lucas
practice in the hotel and catering industry
following the abolition of wages councils so far
produced.
THE WAGES COUNCILS AND THEIR
INFLUENCE ON GENERAL PAY POLICY
While the wages councils could affect rates of
pay in the industry to the extent that they were
able to set legally enforceable minimum rates,
their influence could also manifest itself in
relation to a company’s overall pay policy, rather
than just the setting of a company minimum rate
in isolation.
Wages Councils as an Annual Pay Review
Wages councils reviewed pay rates on an annual
basis. Table 1 shows the sample’s policy towards
an annual review of their own minimum rates.
Prior to abolition, over 90% of respondents
reviewed minimum rates annually with 26%
using the council’s own new yearly increases as
their basis. The influence of the councils was
strongest in the LNR with 60% using the coun-
cil’s own review and was non-existent in the
UPR where all the respondents claimed to
review minimum rates annually, but not imple-
menting the council’s own review.
Cleared of the legal requirement to ensure that

Table 1. Company practice of reviewing pay rates (before

and after abolition)

Whole LRE LNR UPR

sample
(1a) (2b) (1) (2) (1) (2) (1) (2)
(%) (%) (%) (%) (%) (%) (%) (%)

Reviewed 65 73 66 69 27 81 100 100

annually
Not 9 27 10 31 13 19 — —
reviewed
annually
Followed 26 — 25 — 60 — — —
wages
council
review

Column percentages do not sum to 100 due to rounding.

(1) Before abolition.
(2) After abolition.
a
N = 107; bN = 111.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
Pay Policy in the British Hospitality Industry 153
Table 2. Date of company pay review (before and after aboli-
tion)

Whole LRE LNR UPR

sample
(1a) (2b) (1) (2) (1) (2) (1) (2)
(%) (%) (%) (%) (%) (%) (%) (%)

Date of 44 10 41 6 80 19 36 27
wages
order
Date set 37 42 41 47 13 44 55 27
by company
No fixed 19 48 18 47 7 38 9 46
date

Column percentages do not sum to 100 due to rounding.

(1) Before abolition.
(2) After abolition.
a
N = 108, bN = 109.

minimum rates at least matched the new yearly
increases dictated by the councils, it appears that
the likelihood of minimum rates being reviewed
on an annual basis has receded. Twenty seven
per cent no longer review minimum rates on an
annual basis, with the workers formerly covered
by LRE agreements being the most likely to no
longer enjoy a yearly review of pay rates. It
would seem that abolition has had absolutely no
effect for former UPR covered workers, with
minimum rates still being reviewed annually.
The new statutory minima came into force on
the same fixed date every year.w This was
another element of the councils as a pay-setting
mechanism which affected companies’ pay set-
ting arrangements (see Table 2). The majority of
respondents (44%) who changed their rates on a
fixed date adopted the same date used by the
wages council to implement their own minimum
rates of pay, even though, as Table 3 shows, with
the exception of the LNR the majority of the
sample did not implement the new rates as
stipulated by the wages councils. In the case of
the sample formerly covered by the LRE some
80% used the fixed date adopted by the wages
council, again indicating the very strong influ-
ence that the wages councils exerted on this
* The annual dates when the new sets of minimum rates
came into force were: LRE, end of October; LNR, end of
January; UPR, end of June.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
sector of the industry.
Since abolition, use of the fixed dates formerly
used by the respective wages councils have
largely been abandoned. Only the UPR with 27%
compared to 10% overall appears to have
retained the timing influence of the former
statutory mechanism. Overall there has been an
increase in the adoption of a different fixed date
to implement new rates of pay. Several of the
respondents when interviewed said that their
pay reviews had been moved to the start of their
company’s financial year. This was viewed as a
positive move, as one interviewee said:
the removal of the statutory element of
wages councils meant that in principle
companies now had more flexiblility in the
timing of their pay reviews.
Although using an independent fixed date, the
concept of having an annual fixed date appears
to have been influenced by the presence of a
statutory pay review mechanism. This is cer-
tainly the case in terms of the number of
companies post-abolition who have abandoned
using a fixed annual date as a basis for changing
minimum rates (an increase from 19% to 47%).
This move away from the commitment of always
implementing new rates of pay on a fixed date
appears to be one of the significant effects of the
removal of a fixed statutory review of minimum
rates of pay.
154 N. Radiven and R. Lucas
Table 3. Determination of company minimum rate
(before abolition)

Whole samplea LRE LNR UPR

(%) (%) (%) (%)

The wages 32 29 73 9
council
minimum
Marginally 36 38 13 55
aboveb
Substantially 17 16 — 27
abovec
Variable but 12 14 13 9
never below
wages council
Below wages 1 1 — —
council
minimum
Don’t know 3 1 — —

Column percentages do not sum to 100 due to

rounding.
a
N = 108, b 0–20p an hour, c more than 20p an hour.

Wages Council Minima: a Going Rate? A criticism often levelled at the wages councils
by their detractors was that employers felt
A more noticeable measure of the council’s
obliged to use the increases stipulated by the
influence is illustrated in Table 3, which notes
councils as the basis for any increases to their
company policy with regards to adoption of the
own minima, even in cases where a company’s
wages council’s minima. The reliance on council
minima was already in excesss of the legal
minima for LNR workers compared with the
minimum. Table 4 shows that to an extent this
other councils is again apparent, 73% compared
was true. Through adopting either the percent-
to 32% for the whole sample. Also apparent is
age or monetary increases, 37% of the sample
the more general influence of the statutory
used wages councils awards as the basis for their
minima. In all cases the majority paid either the
pay-setting formula. The LRE was the least likely
actual minima or marginally above the minima,
of the three to adopt this formula, with 64%
suggesting that wages council awards helped to
making decisions completely independent of
provide a general guideline towards the magni-
awards made by the council. The LNR shows a
tude of increases to minimum rates. Perhaps not
complete reliance on the council for providing
surprisingly, very few respondents admitted to
the pay guidelines even for workers receiving a
paying a rate below the legal minima.
higher rate than the statutory minimum. One
The general influence of the councils’ mini-
personnel director even commented that his
mum rates was further borne out by the
company adopted the new percentage increase
comments of those personnel directors who were
of the wages council award to the whole of his
interviewed. The view expressed by one inter-
company’s salaried as well as hourly paid
viewee that there was
manual staff.
a general feeling that the wages council
minimum rate represented a benchmark The Overall Influence of Wages Councils
rate for the industry
Clearly in many respects relating to pay policy,
reflected the view of many personnel directors in the councils exerted a considerable degree of
the industry. influence over changes to minimum rates of pay
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
Pay Policy in the British Hospitality Industry 155
Table 4. Basis of increasing company minimum
ratea before abolition)

Whole sampleb LRE LNR UPR

(%) (%) (%) (%)

Percentage 22 23 40 22
increase
of wages
council
award
Monetary 15 13 60 33
increase
of wages
council
award
Wages 63 64 — 44
council
award had
no effect

Column percentages do not sum to 100 due to

rounding.
a
where company rate was higher than wages
council minimum.
b
N = 67.

in the hotel and catering industry. In terms of the
formula used for reviewing pay, the system used
by the wages council had a large impact on pay-
setting arrangements within the industry. Of
equal interest are the differences between the
various catering wages councils. Workers cov-
ered by the LRE were less likely to have the
setting of their pay affected by the wages
councils. For those covered by the LNR it would
appear that their management was almost totally
reliant on the wages council mechanism as the
basis for reviewing and altering minimum rates
of pay.
A possible explanation for this may lie in the
different skill requirements of the sectors cov-
ered by the different wages councils. The hotel
sector which was largely covered by the LRE can
be characterised as having a demand for a
greater variance of relative skills amongst its
staff. Accordingly, to reflect this there would
have been a greater variance of pay levels
amongst its manual staff. This may have encour-
aged employers to think about pay structures in
terms other than a reliance on the wages council
minimum as a guide for pay rates for all of the
company’s manual workforce. By comparison
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
the LNR affected primarily the public house
sector. Work carried out by manual workers in
this sector could be characterised as being
relatively uniform and less skilled. Therefore
there was greater likelihood of the company
minimum rate representing the going rate for the
majority of staff, and hence a greater reliance on
both wages council minima as a guide for
individual company minima and also the incor-
poration of the other aspects of the council’s role
as a pay review and setting body within the
industry.
While in absolute terms wages council minima
were not adopted wholesale as a going rate
within the industry, it is apparent that in the
absence of any other guide for setting rates of
pay, employers still looked towards the wages
council minima as a general guiding influence in
setting minimum rates of pay. In overall terms,
however, the biggest influence on pay policy the
wages councils exerted was on a more subtle and
psychological level summed up by one inter-
viewee who spoke of
the historical precedence that the wages
council review entailed.
156
PAY POLICY POST-WAGES COUNCIL
ABOLITION
What then has happened to the formula for
reviewing minimum rates of pay in the industry
now that the wages councils have been abol-
ished? The first fact that needs to be established
is what has happened to the levels of minimum
rates themselves (see Table 5). Throughout the
sample, minimum rates have increased, though
in the majority of cases only marginally. A
sizeable number in the sample as a whole (27%)
had at the time of the research not increased their
rate post-abolition. A small minority in the LRE
had seen rates decrease.
Criteria for Increasing Basic Pay
When those whose rates had increased were
asked what criteria were now used as a basis for
any increase, 8% said they had adopted the
percentage increase of the last wages council
award as their main criterion. This was uniform
except in the UPR, where the figure was 33%.
The respondents were then asked what criteria
were now being used in the absence of any
guidelines.
As Table 6 illustrates, a wide variety of factors
N. Radiven and R. Lucas
are now in use. No single overriding determin-
ing factor has arrived, although the retail price
index/rate of inflation and the economic per-
formance of the company are the two
considerations which gained the most responses
as factors most likely to affect the size of any pay
increases. What is also clear, and not surprising,
is the absence of collective bargaining on a
widespread basis used for reviewing pay within
the industry.
One of the major justifications used by the
previous government, the Confederation of Brit-
ish Industry (CBI) and employers’ organisations
within the industry for abolition, was that the
increases stipulated by the councils took no
account of an individual firm’s ability to pay the
increases and that other factors of flexibility with
regard to pay awards, such as local labour
market conditions and individual worker per-
formance, were ignored.
It is therefore predictable that post-abolition,
employers are using these factors as part of their
basis for reviewing pay. The inherent rigidity
and inertia in pay-setting arrangements that
many employers in the industry felt the wages
councils encouraged has been jettisoned and
replaced with a system more imaginative and
responsive to the individual needs of each

Table 5. Changes to company minimum rate (since

abolition))

Whole samplea LRE LNR UPR

(%) (%) (%) (%)

Increasedb 11 9 7 27
substantially
Increasedc 59 62 67 46
marginally
Stayed the 23 18 27 27
same
Decreased 3 4 — —
marginally
Decreased 2 3 — —
substantially
Remained at 3 4 — —
last wages
council
minimum

Column percentages do not sum to 100 due to

rounding.
a
N = 104, b more than 20p an hour, c 0–20p an hour.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
Pay Policy in the British Hospitality Industry
employer.
The other perennial criticism levelled at the
councils was that their awards were too high and
were also inflationary as there was pressure to
maintain existing wage differentials. That eco-
nomic performance of the company (i.e. what the
company feels that they can afford to pay) was
cited as the most common factor now affecting
the review of pay is again wholly predictable.
The major ideological argument against statu-
tory minima was that they ran contrary to the
principles of the free market, whereby the
market dictates the rates at which workers
should be paid. This is certainly a belief shared
by many personnel directors in the industry.
Several interviewees spoke of the market largely
157
dictating the rate of increase, and one inter-
viewee felt this alone had removed the need for
any statutory guidelines. Both local labour mar-
ket conditions and pay rates of competitors were
the most popular criteria in the LNR. The
favouring of these two factors for this sector
largely dominated by public houses is not
altogether surprising. Public houses rely on a
relatively unskilled section of the labour market,
hence at this bottom end of the labour market
competitiveness in terms of pay is of even more
importance. Thus a rate set will be deemed
suitable as long as staff can continue to be
attracted within a local labour market whose
economic conditions will largely predetermine
the rate of pay offered to staff. The importance of

Table 6. Basis of increasing company minimum rate (since abolition)

Whole samplea LRE LNR UPR

(%) (%) (%) (%)

Percentage 8 3 8 33
increase
of 1993
wages
council
award
Independent 92 97 92 67
criteriab
New criteria
Number of Number of Number of Number of
responses responses responses responses

Cost of 52 36 8 4
living/
inflation
Pay rates of 43 25 9 5
competitors
Local labour 40 23 9 5
market
Negotiations 8 4 1 2
with unions
Company 60 43 10 3
economic
performance
Individual 39 28 8 2
worker
performance

a
Where company minimum rates have been increased (N = 87).
b
Basis for new criteria listed (multi-response question).
No responses were given for a third criteria — monetary increase of 1993
wages council award.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
158
local labour market conditions post-abolition as
a criteria for determining pay is reinforced by the
comments made in a British Hospitality Associa-
tion (BHA)/Hotel, Catering and Institutional
Management Association (HCIMA) survey on
pay in the hospitality industry (1993), which
places a special emphasis on regional pay rates
post-abolition and stresses the importance of this
in helping to guide operators in setting appro-
priate rates of pay following the removal of
statutory guidelines.
This reliance on market conditions and in
particular local labour market conditions as a
basis for determining basic rates of pay can be
viewed as having some disturbing consequences
for many hospitality workers. In areas with a
more depressed labour market, pay rates may be
able to be forced down and evidence from the
BHA/HCIMA (1993, Appendix 1) survey indi-
cates a disparity in regional pay rates and in
some regions pay rates for some occupations to
have fallen below the actual former statutory
minimum set by the wages councils.
Performance-related pay as a criterion for
increasing pay was the second least popular
criteria overall for increasing basic pay, in terms
of the number of responses it received. In relative
terms it was favoured more in the sector for-
merly covered by the LNR, although it was also
the third most used criteria in the former LRE
sector.
The form that such a criterion took varied
throughout the respondents. One spoke of an
individual appraisal of a worker’s performance
based on subjective managerial assessment
rather than strict measured performarnce of
workers. Another based their appraisal on a
sales-based assessment for certain categories of
staff (i.e. waiters and bar staff).
Increased Flexibility in Pay Structures?
The majority of personnel directors when inter-
viewed stressed that the single major change the
abolition of wages councils had brought about
was a new flexibility in their company’s
approach to pay setting. Certainly there was a
widespread belief that the wages councils had
acted as a barrier to the development of more
imaginative pay structures. Interviewees felt that
statutory guidelines had encouraged ‘laziness
and inertia’ in pay structures, that they fostered a
‘structured mentality towards pay setting
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
N. Radiven and R. Lucas
arrangements’ and that in general terms statu-
tory minimum rates were ‘inflexible, patronising
to individual companies and largely ignorant of
the needs of individual companies’. The feeling
was that pay policy and structures were now far
more flexible.
However, the sample as a whole was a lot less
clear-cut as to whether pay policy had become
more flexible in the immediate wake of wages
council abolition (see Table 7). Over 50% of the
whole sample reported that in terms of flexibility
their pay policy had remained unaltered (or
indeed in a small minority of cases had become
less flexible) since abolition. Across the three
wages councils the response rate was similar to
the sample as a whole.
Where an element of flexibility in pay struc-
tures had occurred, it predominantly took the
form of the introduction of pay linked to skills
(see Table 7). Interviews again revealed differ-
ences between the form such as a linking of pay
with skill took. One company had introduced its
own skill/pay matrix. Others reported taking up
a skills programme based on National Vocational
Qualifications.
The linking of pay to skills acquisition was
viewed by one employer as an example of the
company’s overall commitment towards invest-
ment in training. This implies a move from a
rigid basic minimum rate of pay as being
mutually beneficial for company and worker
alike. This optimistic viewpoint was not shared
by all. One personnel director reported that, thus
far, there was little evidence of staff keen to
upgrade their skills with the extra work this
entailed. The validity of such schemes was
questioned in the context of the sections of the
labour market from which sections of the indus-
try recruited staff, with the majority of staff
described as being ‘still wives working for pin
money’.
This engrained view of manual workers in the
industry may in part explain why, although it is
the most popular form of pay flexibility intro-
duced since abolition (i.e. pay linked to skill), it
still represents only a minority of the sample as a
whole. It is possible that a number of the
respondents had pay linked to skills schemes in
place before abolition. However, other elements
of flexibility in differentiating pay rates amongst
manual staff have received very limited support.
Employers do not seem keen to grade pay
Pay Policy in the British Hospitality Industry
according to age and workers’ status. With the
industry reliant on a majority of part-time labour
and significant numbers of young workers (i.e.
those under 21), employers seem reluctant to
differentiate pay rates on these factors alone.
Geographical location across all three sectors
also received scant support as a basis for flexibil-
ity on top of basic pay rates. This is perhaps
surprising in view of the complaints that by
setting a national uniform rate wages councils
took no account of regional labour market
differences. It can also, perhaps, be viewed as
surprising given the noticeable regional differ-
ences in mean rates of pay for manual workers
since abolition reported in the BHA/HCIMA
pay survey (1993, Appendix 1). Table 6 indicates
that local labour market conditions are used in
part as a criterion for the determination of
minimum rates of pay post-abolition on a fairly
159
widespread basis in the industry. However, it
would appear that local labour markets are only
a consideration in the setting of a minimum rate
and that increases in rates of pay above the
minimum using the same criteria are extremely
limited. This may be an indication of the ability
to attract manual workers at the minimum rate
of pay, with employers not feeling the need to
have to increase pay above the minimum accord-
ing to geographical location.
This can be viewed as a consequence of the
sector of the labour market from which the
industry draws the majority of its manual staff
and to the relatively unskilled nature of the
majority of these manual occupations. These
secondary sectors of the labour market display
relatively uniform national characteristics.
Hence, above a certain minimum rate of pay the
conditions of the local labour market will not be

Table 7. Pay flexibility (since abolition)

Whole samplea LRE LNR UPR

(%) (%) (%) (%)

More flexible 44 43 57 55
The same 54 54 43 46
Less flexible 2 3 — —
Where pay is more flexibleb
differentials are greater
in relation to:
Number of Number of Number of Number of
responses responses responses responses
Length of 9 7 2 —
service
Skills/ 43 27 9 5
experience
Age 10 8 1 1
Status
(full time, part-time 6 5 1 —
temporary)
Geographical 6 1 2 2
location
Time of 3 2 — 1
year

Column percentages do not sum to 100 due to rounding.

a
N = 109
b
Based respondents who stated pay had become more flexible (multi-response
question).
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
160
of major significance in determining rates of pay
above the minimum rate offered by that
employer.
Pay Structure
With the more widespread introduction of differ-
ent pay grades above the company minimum, it
could be expected that pay differentials above
the minimum would have widened. Over 50% of
the sample (see Table 8) and all three of the
former wages councils sectors report that since
abolition pay differentials above the minimum
rate have widened. However, most of the
increases reported are only marginal and 41%
overall report no changes to their pay structure.
This in part is a reflection of the majority of
respondents not altering the basic formula of
their pay structure. Even where greater pay
differentiation has been introduced, several of
those respondents interviewed reported that at
least 50% of their hourly paid staff still remained
at the basic minimum hourly rate. Clearly the
long-term effects of any changes to pay grading
will only become evident over a longer period of
time. Only 2 years after the removal of statutory
minimum rates of pay there has, however, been a
noticeable widening of the distribution of pay
amongst manual workers in the hotel and
catering industry.
For many companies, their minimum hourly
rate had in effect become their starter rate for
N. Radiven and R. Lucas
new employees and it was expected that staff
would increase their pay as they progressed with
the company. It was acknowledged, primarily as
a result of new pay grading schemes, that wage
bills had increased since abolition. This was seen
as justifiable as part of a long-term strategy, with
one personnel manager envisioning
long-term benefits in increased quality of
service, increased work performance and
reduced labour turnover
brought about as a result of increased rates of
pay. Recruiting and maintaining quality staff
was proposed as a key business strategy for the
success of the industry, and for companies to
achieve this their pay rates would have to
reward and reflect ability.
CONCLUSIONS AND FUTURE ISSUES
Wages councils clearly had a significant impact
upon pay determination procedures, pay levels
and pay structures in the hotel and catering
industry. While sectoral differences existed, the
LNR almost completely dependent the LRE less
so, the wages councils helped to perpetuate a
mindset in terms of pay-setting arrangements.
The amount and timing of pay increases both to
the company minimum level and pay rates
above were heavily influenced by the annual
wages council pay review.

Table 8. Differentials of workers earning above the

minimum hourly rate (since abolition)

Whole samplea LRE LNR UPR

(%) (%) (%) (%)

Increased 9 10 — 20
substantially
Increased 42 41 54 50
marginally
Same 41 41 39 30
Decreased — — — —
marginally
Decreased 2 3 — —
substantially
Don’t know 7 6 8 —

Column percentages do not sum to 100 due to

rounding.
a
N = 101.
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
Pay Policy in the British Hospitality Industry
These findings certainly belie the argument of
both the Conservative government and many in
the hospitality industry who, as a justification for
abolishing wages councils, argued that pay rates
in the industry were far in excess of council
minima and therefore statutory regulation of pay
was not required. Many manual workers in the
industry relied on the minimum rates to keep
uprating their pay.
In terms of pay policy following abolition
some evidence of an increase in flexibility over
pay-setting arrangements is apparent. This has
manifested itself in terms of the timing of pay
reviews, the size of pay increases (if any) and in
the pay structure of the workforce. Several
respondents concurred with the view of one
interviewee who stated that ‘abolition had
prompted and encouraged the review of my
company’s pay structure’. Statutory collective
pay determination fostered a static approach to
pay policy. For those who had introduced greater
differentiation in pay rates based on training
programmes, performance-related pay and skills
acquisition, this was a positive development,
implying a pay policy had been devised to reflect
concerns about improving overall company per-
formance.
For these companies, wages council abolition
has provided the flexibility to allow for some
longer-term considerations. While greater pay
grading may entail extra short-term costs, the
extra commitment shown to workers through
rewarding hardworking staff may bring about
long-term benefits such as increased productiv-
ity and reduced labour turnover. However,
several notes of caution do need to be sounded.
Overall these firms were in a minority, and of
those who had introduced more pay grading,
several were sceptical if the policy would prove
beneficial in the long run and be persevered
with.
However, for others freedom from statutory
requirements has prompted different forms of
pay flexibility. An annual review of pay has been
abandoned by a significant number, suggesting a
pay freeze may be used when deemed appro-
priate. This has already materialised in nearly a
third of cases, with minimum rates remaining
unchanged following abolition, representing a
drop in pay in real terms. This can be viewed as
an illustration of the pursuit of reducing labour
costs as long-held policy regarding pay in the
© 1997 by John Wiley & Sons, Ltd. PROGRESS IN TOURISM AND HOSPITALITY RESEARCH, VOL. 3, 149–163 (1997)
161
industry (Robinson and Wallace, 1984). Some
would argue (Riley, 1991) that this is simply a
reaction to conditions in the labour market and
the constraints of methods of production in the
industry which prompt this course of action.
Nevertheless, such action can be viewed as a
conscious policy in the light of the different
approaches to pay systems and structures which
have been pursued following abolition. The
important point with regards to the removal of
statutory minimum rates of pay is that it has
allowed companies the option of pursuing a
policy of reducing pay rates if an employer
considers that their business conditions demand
this.
The evidence from this research and from
others’ (Low Pay Network, 1994; Low Pay Unit,
1995; TUC, 1995), indicates that even a relatively
short period after wages council abolition there
has been a significant decline in pay. When the
figures for the hotel sector in this sample are
disaggregated between chain-operated hotels
and those small independent hotels (typically
employing 25 or less), pay has deteriorated even
more rapidly in these small businesses (Radiven
and Lucas, 1996). The impact of these develop-
ments needs to be viewed from the fact that the
majority of employees in the hospitality industry
are employed in businesses of this type. Indeed,
several personnel directors of large companies
pointed out that one of the strengths of the
wages council mechanism was that it protected
the pay of workers in these small businesses who
were more vulnerable to low pay.
The findings of this research also need to be
seen in the context of the Labour government’s
commitment to introduce a statutory hourly
national minimum wage (NMW). The indica-
tions are that such a minimum would be
somewhere within the range of £3.40–£4.00 per
hour, even though the TUC adopted £4.26 an
hour as its target minimum wage at its Annual
Congress in September 1996. Even if the lower
figure were to be taken this research indicates
that the majority of workers within the British
hospitality industry are paid well below that
figure. A recent employers’ study concluded that
a NMW of £3.50 would have the highest wide-
spread direct effect in the hotel and catering
industry (Employment Policy Institute, 1996).
Two further implications can be drawn from
this summary. Firstly, general levels of pay
162
within the industry fall so far below an antici-
pated minimum level that pay in the industry
can be regarded as being particularly low.
Secondly, given that pay rates for a majority of
manual staff will have to be increased signif-
icantly, management in the industry is likely to
remain implacably opposed to such legislation.
A document in 1992 outlined management’s
objections, with the most likely suggested out-
come a major loss of jobs in the industry (BHA,
1992). This prediction can, however, be disputed
in the light of research from the United States of
America that fairly substantial increases in the
minimum rate did not ‘cost’ jobs within the
hospitality sector (Katz and Krueger, 1992; Card
and Krueger, 1994). British employers ques-
tioned recently believe that a NMW of £3.50 will
generate accelerated restructuring, with many
small firms coming under severe pressure to
survive. Some price rises may also occur, but it is
expected that there will be little or no impact on
jobs because restructuring will open up the
prospect of ‘replacement’ jobs being created in
surviving firms. Firms with no low-paid workers
will only be affected if the NMW is set high
enough to distort wage structures (Employment
Policy Institute, 1996).
This research has illustrated that many work-
ers within the hotel and catering industry still
need the protection of some form of minimum
rate of pay. The already generally low levels of
pay have fallen even further without a statutory
minimum and this process is already becoming
more pronounced over time (Lucas and Radiven,
1996). Britain has become increasingly isolated in
terms of employee protection, although the
introduction of a NMW and signing the EU
Social Chapter mark an important turning point
for many British workers. Only time will tell
how far these measures help remove the stigma
of Britain and the hospitality industry being
regarded as centres of low pay.
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