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A growing number of clients are forcing IT contractors to choose between the biggest daily pay cuts since the dotcom bust or being out of work. In a sign that IT wage pressures have spread beyond financial services, sources told CUK yesterday that a non-financer last week cut pay for IT contractors by 25%. Like the pay ultimatum initiated by Deutsche Bank months ago, and then adopted by its rivals, the organisation said refusal to accept the lower rate would lead to termination. Yet it is doubtful that the first round of cuts in June yielded enough savings, partly evidenced by HBOS’s move to adopt the policy only to layoff contractors weeks later. Indicating it will not make the mistake of timid pay cuts (9%) like its rivals did, JP Morgan Chase Bank this week cut its pay for IT contractors by 15% a day. America’s largest bank, until now one of the most resilient to the sector’s troubles, has therefore initiated the biggest IT contractor pay cut by a financer since the industry crisis began. Internally, the group said IT contractors working in its Investment Banking Technology unit would accept the reduction from November 1, or work out their four-week notices. Ovum analyst Madan Sheina said the cuts could mean one of two things, or both: either the economy is curtailing financers’ IT budgets or JP Morgan is scaling back on IT projects. A spokesman for the US-headquartered bank declined to comment on the 15% cut, which has since been copied by Goldman Sachs, which also declined to respond to a request for comment. In a recent third quarter trading update, JP Morgan said its profits fell 84% on last year, and on Monday, Goldman’s flagship hedge fund was reported to be down about $1bn in 2008. Meanwhile, Bloomberg has reported JP Morgan’s CEO Jamie Dimon as saying his bank may show a “strong recovery” in 2010 after enduring “highly challenging conditions” in the coming months. Asked about the cause of the pay cuts, Robert Iati, of TABB Group, said new regulations threatened to recast investment banks’ businesses away from proprietary trading and high risk. Not only will the rules change their traditional business models, but they will also dent their ability to earn the huge revenues of the past, leaving less cash for staff compensation, he said. Speaking to CUK last night from his office in Massachusetts office, Mr Iati explained: "With expected profits to severely tighten, many banks will seek to squeeze more production out of headcount and eliminate external contractors, unless those contractors can be had for less money than before. “So…many contractors will be faced with an unpleasant choice of having to work for less money or have their contracts terminated." Tempering the gloom, Ovum analyst John Madden said he was yet to hear of any financers in the US who were belt-tightening by giving pay ultimatums to their IT contractors. “Anecdotally,” he explained, “most of the larger players feel fairly secure in their negotiated contracts for the moment, at least through the end of the year. “[But] if these contracts are open to negotiation come first quarter next year, things could get interesting” for contractors chasing the high rates of yesteryear. Joined by Ovum outsourcing analyst Eamonn Kennedy, Mr Maddon said the move by London-facing investment banks to make ‘take it or leave it’ pay offers was not surprising. Given today’s fiscal pressures, reductions for top-rate IT staff were “inevitable,” as it is now clients who are “in the driving seat” for pricing IT services, as seen in the last downturn. Seeming not to object to less pay, an IT contractor writing on the CUK forum said he saw rate cuts – “the flip side of rate rises in a boom” as a “healthy” sign for the jobs market. He added: “ Indeed, smart companies may actually bring forward projects that they can now make a business case for, with plenty of cheap and good contractors available.” Another post hinted that the pool of jobless techies may be about to swell, as one client company plans to change its recruiter, resulting in a 10% rate cut from next month if contractors accept. The recruiter facing the axe was unavailable to comment. Suggesting it may be a let-off to accept a 10% cut, Mr Kennedy, of Ovum, said one UK outfit had slashed its daily contractor rates by as much as 25%. Addressing IT contractors, he said: “Unless you are viewed as a strategic supplier and have a contract in place specifying long-term pricing agreements, you have to expect current budgetary pressures to significantly alter…[your] negotiating strength”. Nov 5, 2008 Email this article Printer friendly page Previous Page
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