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Chartered Institute of Personnel and Development

Professor Brian Ashcroft, 'not sanguine' <em>Picture: University of Strathclyde</em>

Professor Brian Ashcroft, 'not sanguine' Picture: University of Strathclyde

It’s been a depressing few days for the watchers of Scotland’s economy. First came the CBI, which cut its forecast for growth in the UK between now and next year to just 0.9 per cent. Then the Office for National Statistics showed UK manufacturing output rising by a mere 0.2 per cent in September, after a 0.3 per cent drop in August.

The highly respected Fraser of Allander Institute added to the gloom when it sharply cut its forecasts, warning that our chances of avoiding recession were falling with the eurozone crisis. It halved projected growth in Scotland’s GDP (gross domestic product) this year to 0.4 per cent and cut its forecast for 2012 from 1.5 per cent to 0.9 per cent. The institute also warned about the health of key sectors – especially financial services.

Professor Brian Ashcroft, who edits the Fraser Commentary, said he was “not sanguine” about the eurozone problems. He warned any major debt default in Italy would be “catastrophic for the global economy and catastrophic for the Scottish economy”. In fact, he sees what is happening across the Channel as a warning when it comes to the independence debate, noting that “you can’t have fiscal autonomy within a monetary union”.

Now comes the Bank of Scotland’s Purchasing Managers Index, which samples opinion among businesses across the country. It was almost a relief to see that it was still showing a little growth in the last month – but only just; and, like the other forecasts, the index been getting steadily weaker with the fall in outstanding work the worst since April last year.

“The pace of growth fell to its lowest level for ten months while new business orders fell slightly for the second consecutive month,” said Donald MacRae, the bank’s chief economist. “Input cost pressures eased but remain strong. The Scottish economy is showing resilience in the face of the global slowdown, but is struggling to maintain growth momentum.”

The alarm bells are also being rung by the Chartered Institute of Personnel and Development. Its quarterly update of personnel managers suggests that UK employers are “braced for a slow, painful employment contraction”. They are, it says, in “wait and see mode” while they see how tough things become as the winter draws on.

Enter the Federation of Small Businesses in Scotland, with its own survey. This tells of the gloom felt by smaller firms as they face increased overhead costs – 84 per cent reported a rise, with higher utility bills, raw materials and finance costs. The FSB wants SMEs (small and medium enterprises) to be protected from the “sharp practice” of power companies using lock-in clauses.

The FSB also added its voice to those denouncing the government’s sudden cut in the subsidy for solar energy installations. The amount you will get from feeding the power generated into the National Grid will be halved from April. It warns that we can expect small installers to go from boom to bust after some record years.

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<em>Picture: Images_of_Money</em>

Picture: Images_of_Money

The take-home pay of the executive directors of FTSE 100 companies rocketed by 49 per cent last year, bringing the value of salary, bonuses and other incentives to an average of £2.7 million. This comes at a time when pay for workers in the private and public sectors is being squeezed, with either low or no increases in pay awarded at all.

The main rise came through bonuses – up by 23 per cent to an average of £906,000; the actual average salary went up by a mere 3.2 per cent. However, chief executives received a little less than their colleagues. Typically, their packages rose by “just” 43 per cent. These figures will fuel the debate around excessive boardroom pay.

The increase in executive pay was highlighted in a report by Incomes Data Services (IDS). The report’s editor, Steve Tatton, pointed out that “at a time when employees are experiencing real wage cuts and risk losing their livelihoods, without further explanation it may be difficult for FTSE 100 companies to justify the significant increase in earnings awarded to their directors.”

The news prompted the prime minister, David Cameron, to describe the increase as an “issue of concern”. Speaking at the Commonwealth summit in Australia, Mr Cameron told reporters that “everyone, whether they are in public life, whether they are in private enterprise, they’ve got to be able to justify the decisions they make about pay.” He called for pay and bonuses to be published, including the difference between the lowest and highest paid in a company.

“The most senior executives are in danger of becoming (or have already become) totally removed from reality,” said Alan Crozier, author of The Engagement Manifesto. “People aren’t stupid; in this scenario, they feel they are being used and abused. They become cynical, distrusting, and morale drops at a time when it needs to remain high.

“At the first opportunity, the most talented employees seek pastures new. According to the Chartered Institute of Personnel and Development, 22 per cent are currently looking for a new employer. That represents a significant potential attrition cost. Nearly half distrust their directors. When trust goes, so does engagement, a significant driver of organisational performance.”

Mr Crozier said that at one end of the spectrum those senior executives are in the personal wealth-creation business, while at the other end they are destroying shareholder value. “The CEO and executive directors make promises to shareholders and customers that rely for their fulfilment on employees. The executive team therefore have to be totally invested in engaging their employees in that pursuit.”

Last month, business secretary Vince Cable launched a consultation on the future of narrative reporting, including a discussion paper on executive remuneration. At the time, he said there was a “general disconnect between pay and long-term performance [that] suggests that there is something dysfunctional about the market in executive pay or a failure in corporate governance arrangements.”

The news caused outrage amongst union leaders. Unite said executive pay was “obscene” and called for shareholders to be given more power to hold directors accountable. Unite general secretary, Len McCluskey, said that the government should consider giving shareholders greater legal powers to question and curb these excessive remuneration packages.

“Institutional shareholders,” he said, “need to exercise much greater scrutiny and control of directors’ pay and bonuses. It’s obscene and it shows that the City has learnt nothing during the financial troubles of the last four years.”

Labour leader Ed Miliband said that people were “not against those at the top getting higher rewards if those rewards are earned, if more wealth is created, if more jobs are created. But when people are struggling, when the middle is being squeezed, when people are seeing their living standards fall, it is not fair for those at the top to get runaway rewards not related to the wealth they have created.”

But Sir Martin Sorrell, chief executive of advertising firm WPP, launched a strong defence of executives’ pay on Today on BBC Radio 4. “Look at what chief executives of media companies are paid in other parts of the world,” he said. “We are a worldwide company; we are the leading company in our industry. The comparison, whether you like it or not, is with other companies in the world.”

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<em>Picture: Langspeed</em>

Picture: Langspeed

Two surveys out today suggest that the jobs market is fragile. A Bank of Scotland survey reports that a growing number of workers in Scotland found jobs in July, but the economic crisis meant that the improvement would be hard to maintain.

The quarterly forecast by the Chartered Institute of Personnel and Development (CIPD) and KPMG warns of a drop in business confidence leading to a loss of jobs later in the year.

The Bank of Scotland “Labour Barometer” is based on a monthly survey of around 100 recruitment and employment consultants. It’s a snapshot of how these organisations view the current market conditions, looking at such things as demand for staff, employment and availability for work and pay. Any figure above 50 represents expansion in the market; one below 50 means contraction. In July, the barometer measured 55, fractionally down from June, but the figure was higher than the UK average.

“The Scottish labour market showed a further improvement in July,” said the bank’s chief economist, Donald MacRae, “with both permanent and temporary staff appointments increasing strongly. There was a rise in the number of people placed into permanent work, bringing the current period of growth to ten months. However, it will be difficult to maintain improvement, given the concerns over sovereign debt in the eurozone and slowing growth in the USA.”

That view is shared by the CIPD, which surveys 1,000 employers across the UK. Its report suggests that the number of employers hiring staff has dropped, with the jobless figures set to increase in the coming months. If this prediction is fulfilled and the past year’s drop in unemployment is reversed, then it will be a serious blow to the government’s economic policies.

“On average, growth in hiring intentions has been reported throughout the past year,” says the CIPD report, “but a more sombre outlook is now being driven by a fall in confidence among private sector employers, particularly in manufacturing.” The report adds that the number of firms taking on new staff has fallen by a third over the last three months.

According to Gerwyn Davies, public policy adviser at the CIPD, “increasing uncertainty about growth prospects in both the UK and global economies is now affecting hiring intentions, particularly in those industries such as manufacturing that stand to lose most in the event of a global slowdown. Together with the public sector redundancies, which will affect one in 20 frontline workers according to our survey, the recent story of an employment revival may become one of an employment relapse.”

Andrew Smith, chief economist at KPMG, adds that “the economic storm clouds are gathering. Hopes of a general rebalancing in the economy, away from consumption towards exports and investment, are being dealt a blow by sinking manufacturing confidence – undermining hopes that cuts in public sector employment will be offset by the private sector.”

The reports will make depressing treading for the government, especially following last week’s decision by the Bank of England to cut its forecast for economic growth this year to 1.4 per cent. At the time, the bank’s governor, Mervyn King, warned that headwinds for Britain’s economy were growing by the day.

This means that more attention than usual will be paid to the latest unemployment figures, due out on Wednesday. There are already nearly 2.5 million adults out of work, nearly a million of them young people. Some economists expect the number of claimants to rise by 20,000 in the latest figures, though the unemployment rate of 7.7 per cent is expected to remain stable for the three months to June.

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