Tucked off the A90 in the historic fishing village of Muchalls is the Stack. Taking its name from the astonishing geological landforms off the town’s coast, the bar and restaurant has been lovingly renewed and was on the verge of celebrating its first year of business under the management of chef proprietor, Andy Smart.
Renewal was a key topic of the group of experts on employment issues who dined there.
Peter-Jon Chalmers, managing director of Empire HR ordered a warming bowl of carrot and ginger soup for his starter as he explained how his clients in were working to adjust down the once massive salaries common on the north-east before the oil price downturn.
“This is typical of our client base,” he began. “An oil service company of 200 employees made a pay cut in April and the finance director told me everyone in the business is still vastly overpaid – and he included himself in that bracket.
“To actually get it down to the correct level would be a shock to everyone. He talked about using Dundee as a comparison to match salaries for the equivalent skills – but because we are in this oil sector bubble, your wages double or treble.”
David Gibbons-Wood, a lecturer and director of the Centre for International Labour Market Studies at Robert Gordon University (RGU), has done significant research on the skills requirement for the North Sea oil and gas sector. He agrees there is still probably a long way to go before salaries on the region come back in line with similarly skilled jobs in other industries.
“There is always going to be a premium associated with oil and gas – for the disruption and the perceived safety issues,” he said. “Really if you look around at the skill set, people have in the past few years been paid on awful lot.
“If you look at what a graduate engineer gets paid in contrast to other kinds of graduates, they are still the top of the pay scale.
“But it is no where near what people with engineering degrees in Aberdeen get. There is a balance that has to come. And it is a particularly painful thing for people.”
Euan Smith, partner and employment law specialist with Pinsent Masons, joined Mr Gibbons-Wood in indulging the temptation to start their meals with pan fried scallops, served with a cauliflower puree and a braised pig cheek.
Mr Smith works with employers in the energy industry, but crucially also has experience of working with another highly paid industry that came near to collapse – banking and financial services.
Tucking into his trio of generously sized bivalves, Mr Smith said: “The fact that people probably were overpaid is illustrated by the fact you can cut pay to such an extraordinary degree we have seen, yet people still stay in their jobs. “There’s obviously a threshold below which labour would say ‘I’ve had enough – I will move to another part of the country or to another industry’.
“I look to the financial recession as a parallel in 2009.
“When you talked to HR directors in the financial services industry, they were in that exact position – they had to make a large number of people redundant, they had reduce salary.
“I remember conversations with very experienced HR directors at the time, asking: what is the world going to look like going forward? How do you keep these employees on board and interested?
“The theme that came back is it has to be about more than just cash – we can’t afford it.
“In financial services you have to offer other things to employees to keep their loyalty and to keep them engaged. It wasn’t just other benefits, like healthcare, which most people get anyway. It was about things like career progression, career development, personal development, training, opportunities to move around to other jobs roles.
“These were tools were used to restore engagement that was lost after they got rid of 30% of the workforce.
“I wonder if that is going to happen in Aberdeen? I’m not sure we are quite at that point yet. I think we are still at the point where redundancies and cost cutting are the drivers for management.
“If you went to management just now and said, how about a summer barbeque so they all can get together and feel part of a group again – I don’t think that would go down well. Yet.”
In the UK, industrial relations appears to be at a cross roads – and not just in the oil and gas sector. The summer of discontent recently passed has seen workers take their feuds with employers – be it the Post Office, the train company – or even the NHS in England – to the streets.
How can you better persuade the workforce to adjust to different market conditions?
Mr Smith said people working in different industries have different levels of understanding of the marketplace. “Workers in the oil and gas industry do have quite an international outlook generally and are conscious of the economic drivers and forces beyond just their arguments with management.
“You see that, sometimes, when employers can take messages to employees about the global socio-economic environment we are in. They understand that.
“Some other industries I have worked in, particularly in the context of industrial action, will take that message to workers who don’t quite get it and won’t accept it in the same way.”
Mr Gibbons-Wood points out that there are different ways of undertaking employee/employer relations in different parts of the globe.
“Traditionally in the UK, the unions and the employers have argued it out.
“The German model involves a lot more negotiation. The argument there is there are union members on the board, they are involved in decisions. There understanding is the only way we are going to maintain or increase pay is if we work for efficiency.
“It is Labour market 101 – your pay relates to your productivity.
“In the UK we have started to adopt that. Some of the car plants in the UK are ridiculously successful – the Nissan plant makes more car than in the whole of Italy. That is pretty good.
“They have this approach to negotiation – how do we get our productivity higher? Because that is how we will get more money for everyone and higher profitability.
“But this involves a lot of discussion. Most people would say I will accept a pay cut if I knew there was a better chance of a large number of people keeping their jobs.
“If you keep the wage high you will end up with a smaller number of people with a job. That is not a viable way to run an industry. Trying to maximise the wage bill should be the objective of the unions.
“Keeping the maximum number of people in work by being willing to accept something that is dropping more towards the norm, which for engineers is still a very good salary: That is an easy thing to say, a difficult thing to do.”
Mr Smith agrees.
“The German model is fascinating. We have offices in Munich and Dusseldorf and have been involved in a litigation in the oil and gas industry there.
“The engagement they have with the works council in Germany is at a level of sophistication that is very rare in my experience in the UK.
“They talk about global partnership issues, productivity. They accept a degree of responsibility in terms of achieving the success of the business. “My experience hasn’t been quite as positive with trade unions in the UK.
“You have to bear in mind in Germany unions have considerably greater power – that is a legislative thing that give them that.
“The investment of that power perhaps has created an environment where they take it more seriously. They attract a different type of individual that gets involved in that.
“The difference in the oil and gas industry is illustrated by the dispute with Ineos at Grangemouth.
“Jim Ratcliffe (chief executive of Ineos) said he could take this plant to Poland as he is working on a global level. It took a long time for the union to get that message. Arguably they only got that after he decided to pull the plug. There was a lot of intervention by politicians.”
“It is something the industry has to watch that we don’t get the reputation for being too expensive and too difficult to manage,” Mr Chalmers added. “There should be greater partnership adopted between unions and employers to work our way out of this mess. I don’t think we are quite there.”
Perhaps it is difficult to worry about any future gap in skills when employers are cutting thousands of jobs – and when the main course of chargilled lamb rump with a tagine made of the tasty animal’s shoulder on a bed of giant couscous and dashed with smoked yoghurt arrives. Mr Smith and Gibbons-Wood have both opted for the lamb, while both Mr Chalmers and I feel rather satisfied with our healthy servings of tandoori corn-fed chicken breasts, Bombay aloo and charred tomato chutney.
Mr Chalmers said: “The other piece I hear people talking about is skills shortages – are we storing something up for the future? People say yes we probably are but let’s worry about that later.”
Mr Gibbons-Wood admits it is difficult to determine if the skills gap talked about in the heady days before the oil price crash will still plague the industry once the job cuts are finished. But there is still an urgent need to future-proof the industry with skills.
“If we don’t do something about skills now we won’t have that base of excellence we are going to export and that will be the driver for internationalisations – that would be my big strategic worry,” he said.
“There is going to be plenty of oil and gas in the world for the next 30 years. Are we going to be the base? The only way were are going to be the base is if we have skilled people who have good quality employment and education here – the whole mix.”
