Redundancy alternatives - UK brokers strive to avoid redundancies

A survey conducted by independent campaign group Keep Britain Working has highlighted that 97% of financial services employees polled would accept changes in their working conditions to help colleagues keep their jobs, with 30% willing to accept a pay cut. Last month's PB Sentiment Survey revealed that 70% of broker managers who responded were considering cuts in expenses but, before making redundancies, it is important for broker managers to consider the alternatives (see PB January-February 2009 for the cost of redundancies, p.10).

Broker Aon changed its UK staff pension policy in order to avoid making redundancies due to recessionary pressures. Discussions on a move to a lower standard employer contribution were started between managers and the Aon Forum - made up of elected employee representatives from across Aon - in April, halving the defined contribution from 12% to 6% for many.

Decisive action

An Aon spokesperson explained: "In order to protect our business in challenging conditions and to ensure we emerge from the recession strong and successful, no stone is being left unturned during 2009 to drive out further cost and achieve greater efficiencies. The increasing cost of pension provision is one of those costs."

The spokesperson continued: "Many companies are looking at ways of reducing their fixed costs, examples being pay cuts, reduced hours, four-day weeks and enforced sabbaticals on greatly reduced levels of pay - all of them being short-term fixes. We recognise times are hard for employees but we believe in taking a different, longer-term view."

David Price, senior employment law consultant at Peninsula, highlighted that a vast majority of contractual changes can be agreed through mutual consent with employees. However, strict legal steps need to be followed. He said: "If a contract is in place, you need specific permission from employees to make any changes but, when avoiding redundancies, most will give permission.

"First, you need to sit down with employees to consult with them about potential redundancies and the measures needed to avoid them at this stage. Most employees will be happy to make changes at this point because in this climate they are happy to keep their jobs. However, all staff members will need to agree because you cannot make changes for some staff and not all. If employees do not give their consent legally after these consultations, you can dismiss employees with substantial reason where you can prove the company financially needs to do so and then offer them a new contract, forcing employees to accept the changes."

Although there are some signs of recovery, economic consultancy Fatham has predicted that unemployment in Britain will continue to rise for at least another three years, peaking at four million in 2012. Grave economic indicators mean that most employees are willing to accept changes in their contracts in order to keep their jobs.

Bucking the trend

However, the insurance market is proving resilient, with personnel continuing to take the risk and move between companies, demonstrating that insurance employees continue to be positive about their job prospects. For those that will not accept changes willingly, forcing staff to accept changes to their contracts is unlikely to have a positive effect on morale.

If employees refuse to accept changes to their contracts then, in order to avoid redundancies, there are also other steps that can be taken. Willis has given its staff the option of sabbaticals on 30% pay and the opportunity to work four-day weeks in order to cut costs further after having made 300 staff redundant globally in the first three months of 2009. A spokesperson for Willis told PB: "We are offering our associates the option to take some unpaid leave or part-paid sabbaticals; this gives us another tool that allows us to manage our costs. This scheme is not compulsory and is managed completely in conjunction with the team leaders to ensure client service is never compromised: it has been extremely well received by our associates."

Earnings hit

In a sign of the severity of the economic slowdown, average earnings were 0.4% lower in the first three months of 2009 than they had been in the same period of 2008; previously, average earnings had not fallen since records began in 1991. According to government figures, the cost of living has also decreased (in terms of UK annual inflation measured by the Retail Prices Index, which went negative in March for the first time since 1960 to -0.4%). Price believed that this drop enables employers to enact pay freezes: "If it is worded in employee contract that a cost-of-living increase is expected for salaries each year then the employer could argue that there should be no pay increases due to the recent decreases in inflation."

FIRST QUARTER UNEMPLOYMENT GLOOM

In the first three months of 2009, the number of adults out of work in the UK rose by 244,000 to 2.2 million (7.1%), according to The Office for National Statistics. This quarterly rise in the jobless rate was the largest since 1981.