Corporate scandals push down pay deals

Pressure for higher wage deals has eased and may fall further in the wake of the recent run of corporate scandals, labour market analysts said today.

The overwhelming majority of pay settlements are lower than a year ago, the Industrial Relations Services said. The average pay deal for the three months to June nudged down to 2.8 per cent from 3 per cent in May.

The largest pay awards are going to the public sector, where growth of 3.5 per cent makes it the fastest-growing section of the economy.

"While generous public-sector awards are still having an effect, the overall pay climate remains subdued," said Ben Louvre, acting editor of IRS Pay and Benefits Bulletin.

He warned that the implications of the scandals surrounding WorldCom, Enron and Global Crossing among others could be "serious".

Falling profits would crimp companies' staff budgets although, the growing pension crisis could lead to higher pay awards to offset the impact.

"Any non-guaranteed increases in remuneration – such as bonuses – could be vulnerable if companies are under extreme pressure to cut costs," he said.

The impact had already been felt in the City, he said, with profit-related deals for bankers and other traders turning out lower than a year ago.

"Job losses already affecting parts of the finance industry could result in downward pressure on pay in the months to come," Mr Louvre said. "With markets still in a state of flux, the overall outlook remains uncertain."

Last week official figures showed that average total earnings growth rose to 3.8 per cent in May from April 3.3 per cent, the largest monthly rise in a decade. But pay settlements in the engineering and manufacturing sectors dropped to 2 per cent in the three months to June, the lowest since 1984.

Meanwhile, the UK economy is likely to slow down in the first quarter of 2003 after peaking at the end of this year, a private research group said yesterday.

Lower car registrations and weaker growth in consumer spending pushed the leading indicator from NTC Research to its lowest level for more than a year.

Economists said the latest report suggested annual GDP growth would peak at just more than 3 per cent at the end of the year or early in 2003.