More banks cut IT contractor pay
Nomura International and Commerzbank AG have become the City's latest financial services groups to respond to the credit crunch by slashing IT contractors' pay rates.
Technology staff headcount at both the financial employers is likely to fall, as contractors were this month told to opt for a rate cut of up to 10% or a speedy exit.
This type of pay ultimatum, initiated last month by Deutsche Bank - one of the Square Mile's biggest employers, is now in force for contractors in at least eight of the City's top financers.
In an email to its staff, financial services group Nomura said it was terminating contractors or cutting their pay to achieve "cost saving efficiencies" amid "challenging conditions."
Commerzbank said that, rather than a reaction to the economic malaise, its decision was based on its general practice of regularly reviewing IT suppliers' contracts.
"By doing so we identify potential efficiency enhancements and/or possible measures for cost reductions," said the bank's spokeswoman Simone Fuchs, responding to questions.
Paul Elworthy, director of financial IT recruitment at Hudson, reflected that banks were clearly reacting one of two ways to the credit crunch; they were cutting costs or trimming headcount.
He said that paying contract IT staff less but retaining them was a better cost-cutting strategy for banks and fund management firms than terminating them outright and recruiting afresh.
"Contractor pay rates have been rising steadily for a few years so I think we're now witnessing [the downside of] what is a cyclical thing," Mr Elworthy said.
"But unlike in 2001/02 when a lot of banks got rid of contractors, we're not really seeing a lot of contractors being culled.
"Contractors are just experiencing rate cuts so they still have their jobs, assignments and income, and their [critical] projects are still running."
However the number of IT contractors Hudson has placed in financial services has fallen since last year, partly proving its key players have responded to the "need to reduce their costs."
Acting as a counterbalance, though, a number of banks are beginning to favour non-permanent IT staff over their full-time counterparts, who are tougher to dismiss.
"If banks are cutting headcount, [then] they're hiring contractors because it's a lot easier to get signed off," the agency said.
"For a few months or so we've seen contractors favoured over perm, mainly because there's a fairly lengthy sign off process to hire perm, whereas hiring contractors is a lot more straightforward.
"Although they often have a four-week notice period, like some perm, the reasons they're hired is often work-specific and once the work is done, the client doesn't need to worry about redeployment or finding them another role internally."
Reflecting on the IT contracting market as a whole, Mr Elworthy said that in spite of various clients cutting rates, "we're not seeing contractor [jobs] being slashed all over the place; it's by no means a bloodbath."