British telecoms giant BT is slashing the amount it pays contractors by up to 30% in a bid to save cash at its troubled IT services division, it emerged today.
The group, which has already made 6,000 contractors redundant during the past few months, had given remaining staff until earlier this week to accept new terms.
These new terms for workers in its BT Global Services unit included pay cuts of between 10% and 30%, the Guardian reported.
The group has also imposed a one-year pay freeze on its 100,000 workers across the whole group, including its directors.
The Global Services division, which provides IT and communication services to large multinational companies and public organisations, was supposed to power BT’s growth.
But the recession has shown that some of its profit projections were over-optimistic.
Problems at the division led to BT having to make a profits warning last year, which sent its share price spiralling to a record low.
It also blamed an 81% slump in third quarter profits on a “disappointing” performance at the division, adding it had written down the value of its contracts by £336m.
The problems at Global Services overshadowed a strong performance by its three other divisions, which produced their best profit growth for five years.
BT may be forced to announce a similar writedown on Global Services when it unveils its full year results on May 14 unless it can renegotiate two of its biggest contracts, including its role in the multi-billion upgrade to the NHS IT system.
A BT spokesman said: “BT Global Services has asked some of its contractors to accept lower rates of pay.
“This is part of the ongoing cost control programmes at BT. We believe this review will ensure contractors are paid according to the currently appropriate market rates.
“Many of our competitors and other large organisations have carried out similar exercises. This is not unique to BT.”
The group is also expected to announce the outcome of the triennial review of its final salary pension scheme when it reports next month.
The scheme, which has 360,000 members and assets worth £33bn when it last reported, is the biggest in the UK.
But like all final salary pension funds it is likely to have taken a battering during the past year due to the combination of falling stock markets, and more recently, falling gilt yields, which have pushed up the cost of schemes’ liabilities.
Analysts said the scheme, which last reported a £1.7bn deficit, could now be up to £8bn in the red and BT may have to pump between £500m and £750m a year into it to plug the shortfall.
The company has already announced changes to the scheme, including increasing the retirement age, in a bid to improve its funding position.
Analysts have even speculated that BT may be forced to cancel its final dividend in order to conserve cash.