Salaries sacrificed to save jobs

As markets deliberate over the strength of global economic recovery, employees around the world are striking a "new deal" accepting lower wage growth in return for less unemployment, economists have said.

News this week that British Airways asked its staff to work without pay for up to four weeks to "help reduce the overall cost base of the airline" is indicative of the new labour environment.

Europe's third-largest airline said employees could opt to work part-time, without pay or take unpaid leave for a month.

BA also said Chief Executive Officer

Willie Walsh would forgo his salary for July – £61,000 (Dh365,360) – due to "exceptionally challenging circumstances facing the airline".

"Employees are suffering lower wage growth to protect jobs," said Amit Kara, an economist at UBS. "You are seeing lower wage growth being compensated by less unemployment. That's the new deal."

For employees who have survived the cull of tens of thousands of jobs across the corporate landscape, their experience of the cost-cutting trajectory in the wake of the economic downturn typically started with them accepting a pay freeze or giving up perks.

Then bosses asked staff to work a four-day week – often suggesting one day of unpaid leave a week to avoid messy legal wrangling.

Some firms have followed this with a call for volunteers to take unpaid leave from one month to several years, in the case of one Spanish banking group. The move by BA seems a natural next stage in the evolution of the process.

"It's happening quite a bit in Dubai at the moment," said Tim Sharp, partner and MD at recruitment consultancy Paddington Partners. "What tended to happen from November last year when the downturn started was that companies went through a stage of reducing salaries by 10, 25 or even 50 per cent. It then became gradually worse to the point where people were working for free or not getting paid commission then being made redundant."

Earlier this month, Bayt.com said 20 per cent of professionals in the Gulf admitted that job loss fears, as a result of the recession, were prompting them to put much more effort into their work.

"If employees don't accept it they will be out of a job," Sharp said. "So what is the better position to be in? A lot of staff are feeling trapped by it but if they're not happy it's not always easy to get another job and firms know that."

And there are no signs that the threat of further job cuts is about to diminish anytime soon despite optimism the worst of the downturn may be over.

On Tuesday, US?President Barack Obama told Bloomberg that US unemployment was expected to hit 10 per cent, this year up from its current 25-year high of 9.4 per cent. Obama said jobs would continue to be lost even as the recession that struck in December 2007 eased.

"What you've seen is that the pace of job loss has slowed, and I think that the economy is going to turn around," said Obama. "But as you know, jobs are a lagging indicator. And we've got to produce 150,000 jobs every month just to keep pace, just to flatten this out."

However, the long-term consequences of this "new deal" may be the erosion of employee loyalty. The above Bayt.com survey showed 32 per cent of professionals have already taken on a greater workload and range of responsibilities in the wake of the crisis – the additional impact of lower pay being thrown into the mix may not be fully appreciated by bosses desperate to stave off the effects of the downturn.

"Asking staff to work unpaid is reactionary to the market but businesses

have to make really hard decisions," said Sharp. "Extenuating circumstances are causing it and many are doing all they can to avoid redundancies."

"If managers are very clever and can position the idea in the right way then it can work, especially if staff have not had any prior reason not to trust them and many will forego a month's salary for the sake of saving a firm. However, those who see this as the latest in a string of bad events will look for another job as soon as the market picks up again." (With agencies)


If you are asked to work without pay

Would you do it?

The results of an Emirates Business straw poll revealed that 57 per cent of respondents WOULD work without pay for a month if it meant saving their colleagues' and their own jobs. What do you think? Email online@business24-7.ae

The law

a) Article 55 of UAE labour law states that employees "engaged on a yearly or monthly remuneration shall be paid remuneration at least once a month; all other employees shall be paid at least once every two weeks";

(b) that, in accordance with the UAE labour law, any stipulations, or agreements between the employer and employee, contrary to Article 55 of the labour law are null and void unless they are more advantageous to the employee.

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