JobStats - October 2002 - rumours of IT industry's return to life greatly exagerated: 11 Oct 2002

Market trends

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 small).

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

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

"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."