Tuesday 26 September 2017

Richard Curran: Where companies can afford it, wages are set to rise

HAVE you heard the one about the guy who goes to his boss and asks for a pay rise because he was "doing the work of three men?" His boss said he couldn't have a pay rise, but if he gave him the names of the three men he would fire them!

Companies of different sizes and sectors have called upon their employees to do more for the same pay during the financial crisis. In some cases they have done more for less pay. This has also been true in the public sector, where non-replacement policies have impacted on the workload of staff.

Undoubtedly, some companies have been better at managing costs than others. But with every employee paying higher taxes than five years ago, the workforce would welcome a bit of good news.

Earlier this week, PwC published a survey of finance directors which said over half of them were expecting to increase basic pay next year. In fact, a different PwC survey from earlier in the year suggested that among professionals and managers across a range of sectors, between 49pc and 58pc of companies awarded pay increases last year.

Marginally lower numbers froze pay and between 1pc and 3pc of firms surveyed decreased pay.

This is not the usual narrative one hears about pay, performance and profit in corporate Ireland in recent years. One reason is that many of the most visible sectors, like retail, banking, media and small service companies, have been hit the hardest. Many small firms are in survival, rather than pay-increase, mode.

A small sample of companies operating in different sectors highlights the contrasting fortunes of employees across the economy.

Some companies were very quick to meet the challenges of the downturn head on, cut costs and build from there. This was especially true in the most competitive sectors. Take Musgrave, for example.

In 2008, it generated a turnover of €4.8bn and pre-tax profits of €75.5m. It paid its 5,897 employees an average of €39,511 when pension and share-based payments are included. Add in the cost to the company of PRSI and it cost Musgrave an average of €40,784 to employ someone. Operating profit per employee was €14,244.

Fast forward to 2012 and it has bought Superquinn. Turnover is €4.9bn and pre-tax profit is €71.6m. Average pay, including pension contributions etc, is €38,415. Operating profit per employee is down to €10,330. The company has had to cut pay, cut costs and drop its prices too. This affects its margins in a very competitive sector.

Staff may be getting less but the company as a whole is working harder for what it has.

Vodafone Ireland is part of the wider global multinational. Mobile phone companies saw revenues and profitability fall in the downturn as greater competition came along. In the year to March 2008, Vodafone Ireland generated turnover of €1.2bn and pre-tax profits of €328m. Its 1,321 employees earned an average of €62,528 and contributed €204,000 of operating profit per employee. Happy days!

In the year to March 2012, turnover was just over €1bn and pre-tax profit was €136.8m. The 1,143 staff received average salary and pension contributions of €78,907 per year. Operating profit per employee was €100,192.

All staff in this sector have probably had to work harder to generate turnover than in the boom days, but they are getting paid more for doing it.

Microsoft is a classic example of the economy we haven't always heard about in recent years, one in which some multinationals have thrived and employees have enjoyed solid pay increases. Comparing turnover and profits from one year to the next at an Irish Microsoft operation is quite meaningless, given the way these corporations are structured.

But Microsoft Ireland Operations Ltd employs around 818 staff and generated revenues of €13.7bn last year. Average pay in 2008 was €92,500. Last year it amounted to €122,000.

The contrasting fortunes of employees, depending on who you work for, has been extraordinary in the last five years.

Central Statistics Office figures suggest the recession cut disposable income by up to €17,000 between 2009 and 2010. Households where the main earner had a diploma saw disposable income fall from €65,000 in 2009 to €47,855 in 2010. Those who were made redundant were obviously hit the most.

Public-sector employees have been tied into wage agreements, including the latest Haddington Road deal, which lasts until 2016. Their employer, the State, is still racking up the equivalent of losses of about €190m per week. They will have to look on with envy as some of their private sector colleagues get pay rises in the years ahead.

However, average private-sector pay rises, for those who get them, are expected to be around 2pc. Public-sector increments, which were temporarily frozen, will be back. Private-sector pensions will not.

The private sector is divided into two camps. In one camp is a mixture of profitable exporting multinationals and indigenous firms. In the other is a mixture of struggling small firms and bigger older Irish names in highly competitive sectors.

Some firms have managed incredibly well. I heard a third-generation owner of four clothing shops in the Galway region say on radio recently how he had no redundancies and no pay cuts in the last five years, but didn't replace some staff who left. That was tough, but some achievement.

If half of companies increase pay next year, it will be a very positive development. They will only increase pay if they think they can afford it and are concerned about staff going to other firms.

For the others, the expected small pick-up in the domestic economy will be a welcome relief. The problem is, there is little sign of that gap between the two camps genuinely closing any time soon.

Irish Independent

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