Oil giant Royal Dutch Shell has issued a pay ultimatum to its IT contractors. An internal memo sent last month advises contractors that they will face termination unless they accept a pay reduction of 12 per cent. The policy of reducing contractor rates was first introduced across the financial services sector thirteen months ago at the start of the economic downturn.

Leading recruitment agency Jenrick CPI stated that over the past three months the majority of clients are telling IT contractors to take a pay cut of between 10 and 20 per cent or leave.

Managing director, Philip Fanthom commented, “In most cases there has been a period of consultation with the contractors which had lead to some interesting and sometimes heated debates.”

He said that permanent and contract IT staff felt that they were placed in a no-win situation.

IT analyst, Richard Holway said that ultimatums were ‘widespread’ as British IT contracting staff battled against the discounts being offered by their offshore rivals. IT contractors will now worry that other companies in the energy, oil and gas sectors will follow the precedent set by Shell as this is what has happened across the financial services sector.

IT agency, SQ Computer Personnel said, “Clients with significant numbers of IT contractors are taking advantage of the downturn in the number of IT contractor vacancies. [Clients are] imposing ‘take it or leave it’ pay cuts on contractors, usually mid-term during the contract, often despite the success and recession-proof aspect of their industry sectors.”

Founder of SQ, Bernie Potton said, “Agencies obviously pass this pay cut on to the contractor, taking a 10% hit in their own profit in pound note terms, but maintaining the same percentage margin. Some contractors have got upset with this approach, claiming that the mid-term pay cut is unfair and unethical, which it is, but unfortunately it is contractually valid.”

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