Long-term pay settlements will remain unpopular, say experts

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The popularity of long-term pay deals is waning despite a recent spate of three-year settlements, reward experts have predicted.

Royal Mail, BT and Tube Lines have all agreed high profile, and in some cases “inflation-busting” three-year deals with unions for their staff in recent months, but these are no longer the norm, according to Alastair Hatchett, head of pay and HR services at Incomes Data Services.

“Our data shows there has been a marked decrease in long-term deals,” said Hatchett. “Economic uncertainty and volatility means new long-term deals have completely fallen away since the middle of 2008.”

The public-sector pay freeze announced by the government has all but ruled out any multi-year pay deals in that quarter, but Hatchett explained that long-term settlements have been historically associated with the manufacturing and construction industries.

“They have been a largely private sector phenomenon that the government began to encourage in the public sector from about 2001,” he continued. “The deals started out as being quite generous but then got steadily tighter.”

Hatchett added that such settlements now generally occur in unionised sectors, and that the Royal Mail deal was a case in point. “This was a typical three-year deal, which involved settling a dispute and allowing a whole series of changes in working practices over the period of the deal.”

Whilst acknowledging the RMT had negotiated a “clever” arrangement for its Tube Lines members, Owen Warnock, employment partner at Eversheds, agreed that the structure of three-year deals was unattractive for the majority of employers and trade unions in the current climate.

“Unions could be reluctant to tie members into two or three years’ negotiation, at a time when the pressure for pay rises is very low,” he said. “Unions may end up doing a deal that they regret in three years’ time, having thought they should have gone for a bigger percentage increase.”

Although long-term settlements allowed for the “predictability of labour costs” in company budgets, Warnock said employers also faced losing out when tied into such deals in times of economic uncertainty.

“If an employer can’t afford the deal in year two or three, they would have to try to negotiate it down,” he explained. “But if unions are not prepared to accept that, employers are bound to the increase agreed at the start of the period.”

However, Warnock was optimistic about the possible return of the three-year pay deal in an upturn. “Once the economy is on an even keel again, the incentive for these deals will return from an employer point of view, and they will also tempt in the unions as a way of securing pay increases,” he said. “There is a realisation of the advantages these deals offer, but it will be hard to reach agreements until the outlook settles down.”

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