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Freelance contractors who accept hefty pay cuts were last night said to be confronting the lesser evil of an IT jobs market in recession . The verdict from leading IT recruiters and analysts came just after Credit Suisse and HSBC confirmed they would each eliminate hundreds of jobs across the UK. IT staff will be among the 500 jobs to go at Britain’s largest bank, an HSBC spokesman said, following an internal review of the “current economic conditions.” Also responding to questions, Credit Suisse said it would cut 650 jobs due to today’s “market conditions and projected staffing levels required to meet client needs.” There was no word from either group whether, like other financial clients, they plan to accompany the cull by squeezing their IT contractors, with layoffs or pay cuts. Being forced to opt for less money or an exit was almost unthinkable for most contractors just three months ago, but today not all contractors are even getting that choice. Mirroring a move made by HBOS, Citigroup proved this week that shedding IT staff and reducing their rates are not mutually exclusive ways to cut costs in a recession. On top of cutting 52,000 staff from its worldwide ranks, the US bank told its IT contractors that those who wish to keep their jobs in 2009 will work for 15% less. The bank declined to comment on this ‘slash or burn’ approach to IT contractors which, having been adopted last week by a hedge fund, is now in place at a dozen City outfits. “The pay cuts are being driven by current major downturn in markets and investment bank profitability, which have led to recent layoffs exceeding 10% industry-wide,” said Robert Iati, an analyst for TABB Group. “With such a large reduction in headcount, investment banks are scaling back their commitment to external staff as well, either through termination or wage cuts.” Steve Pragnell, of project staff and services firm PM7, said pay cuts should be ‘the least of contractors’ worries’, as demand for their services fell this year to its lowest level since 2002. “Having no contract, and competing with 500-600 others for every role advertised on a job board, is much less appealing than losing £50-£100 per day,” he said, referring to project managers. Deferring budgets for ‘change initiatives’ will also serve to reduce the need for freelance IT workers, said Paul Elworthy, director of financial IT recruitment at Hudson. Pointing to the supply-demand economics of the market, he said less demand for contractors, just at a time when their pool is widening, allows clients to call the shots. “Although for individual [contractors] it hurts to have rates cut, no one is being prejudiced against,” Mr Elworthy said, “so…overall the market rates are going down, rather than just pockets of skills and technologies.” Yet this is at a time when competition for IT contracts is intensifying, Pragnell said, because the rise in full-time redundancies is making ejected and jittery employees apply for both types of role. “Being new to contracting, and quite possibly having a lump sum of cash behind them, they are able and willing to pitch at rates far below what I would consider to be fair market value for their experience.” Hudson’s database reveals contract IT roles resisting any undercutting, from cheaper competition or frugal clients, include Sun Identity Managers and Tibco Triarch Engineers. “The magic moment for IT contractor pay rates to increase again will be when the market is more settled, growth can be funded again and investment made, “ Elworthy said. “With this, demand for skills will increase again and market forces will follow with supply becoming more limited”. He hopes this “simple equation” will return to define the market by the middle of next year, and believes contractors are now “past the worst” of the job cuts. But the view from the US, where pay cuts are less prolific than job eliminations, of the prospects for IT contractors was much more pessimistic. “[There is] absolutely no magic moment,” Mr Iati said, when asked when financial IT contractors’ pay might recover. “Pay scales across the board in investment banking will change. “With other [financial clients], since these conditions have never been seen before, they can in no way to appear as [offering] ‘normal’ rates. Like any other severe downturn, I expect the pay scale to follow a course parallel to the growth of the economy.” He said clients will cut contractors’ jobs or their pay to “weed out the lowest rated resources” so the business can “pare down the fat” and ‘leave only the best contractors standing.’ Iati added they will also argue that the so-called ‘slash or burn’ approach is really a considered strategy to scale down costs to prepare for reduced revenues, expected imminently. As a result of the ‘really bad environment’ for IT staff, in-work contractors might take a pay cut, especially if they can secure better terms, like a longer notice period, Pragnell advised. He reflected: “I fear that 2009 will be a very hard year for both independent IT contractors and consultancies. My [normal] advice to contractors is to budget for working nine months of the year. For next year, however, I am saying anything over six months worth of work would be an acceptable year.” Dec 3, 2008 Email this article Printer friendly page Previous Page
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