JobStats - October 2002 - rumours of IT industry's return to life greatly exagerated: 11 Oct 2002
11 Oct 2002
The demand for permanent employees continues to fall.
The demand for contractors continues to rise. It has now
returned to the proportion of adverts that was seen in 1999.
Is this good news or bad news though. One major reason for
employing contractors is that they are easier to get rid of
when the work dries up.
One interesting move here though is that the proportion of
jobs for contract or permanent staff is rising. One reason
for this change is that the contractor premium (the extra
that you get paid as a contractor) has shrunk considerably
over the past two years.
In the City both CSFB and JPMorgan Chase
have announced substantial job cuts recently and the
IT departments will certainly be taking their share of the
pain. The finance sector is a major employer of IT staff
and there has been a drastic shrinkage in revenues over
the past two years. Another major employer of IT staff has
been the telecoms industry and the telecoms companies
have been bleeding all over the floor (don't mention
3G licences). The big software houses also face difficult
times ahead. Logica and CMG are merging and industry analyst
Ian Spence predicted recently that there would be 5000 job
losses following the merger.
What can we expect to see in the coming months? The run-up
to the festive season is always a popular time to shed staff as
employers play the Grinch in the Christmas amateur dramatics.
I expect that we'll see more staff being laid off in the next
two to three months. The reason Christmas is popular is because
employers can save on paying annual bonuses and on the three
bank-holidays (and also because their hearts are two sizes too
Has the market stopped shrinking then? No. The best that can be
said is that the rate of decline has slowed. Rates are also
falling across all bands and for permanent staff as well as for
contractors. Incidentally I would expect to start to see pay-cuts
for permanent staff starting to be introduced. Up until now the
bonuses have been able to take the strain and that coupled with
the savings made by cutting contractor rates and laying off
staff have shieled permanent staff from the pain of pay cuts.
If the pain in the City carries on much longer though expect to
see pay being cut.
Why most companies handle pay-cuts badly
The typical pay-cut has been announced (usually to contract staff) as
a 10% or 20% cut for everyone with no exclusions: accept it or
walk. 'Harsh but fair' you might say but is it fair. Well it's
not fair to staff who have joined in the past year. The
justification for the pay cuts is that the rates rose
dramatically in 2000 and the companies are taking back the
excess money they paid then. The rates have already fallen
sharply though for people joining since the glory days of 2000 and
to cut the pay of people who are already getting a fair market
price for their labour is foolish. By cutting the pay of people who are already
fairly priced they risk losing them to other companies. The
argument here might be that the market is terrible - they'll
never find another job. But even in the quietest market there
are some jobs to be had and the best people are the ones who
find it easiest to find new jobs.
Another approach that some companies consider is to try to find
out what their staff should be paid given the skills they have.
So they look at the median rates in the market and say 'That's what
these people should be earning". This might sound like a more
sophisticated approach but the effects will be even worse. Assuming
they are smart enough not to raise the pay of the staff earning less
than the 'market price' but they just cut the pay of the top earners,
what will happen. The people being paid a premium were getting the
money for a reason, presumably because they were the best at their
jobs. So with this approach they are rewarding the worst performers
(by not cutting their pay)
and punishing the best people. They might not be able to get other
jobs now but guess who'll be the first to leave when the good times
return. Long term it's a strategy for loosing the gold and keeping the bronze.
The right way to do it is to look at each employee individually and
see what's happened to the rates paid for the basket of skills they've
got since the time their pay was last fixed. To get the most accurate
idea you should also look at what they are being paid so that you can
capture the different movements of rates at different ends of the
pay scales. It's not perfect (nothing is) but it's better than the
slash-and-burn approach that the personnel departments have been
adopting up to now. One objection to this would be that the
HR department doesn't know what the key skills of its IT staff are.
It's a fair point but the solution is to ask either the individuals
themselves (and get their boss to agree to it) or just to ask their
boss what skills they have.
When will things get better
Not this year and probably not next year either. There has been a
steady stream of happy noises from spokesmen for IT companies
saying that the downturn is temporary and that this quarter will
be down but the next quarter will be up. The numbers paint a
different picture though with profit warnings and revised forecasts
(down, always down). Recent comments by Julian Hewett, chief analyst
sum it up well:
"Ever since the downturn began, it seems that the recovery
has always been 'two quarters away'. It seems to us that
the industry is still living in denial."