Rolls-Royce Holdings Plc (IW 1000/192) will freeze salaries for 8,000 managers as Europe’s biggest aircraft-engine maker deepens cost cuts after earnings fell by almost half in 2016.
While raises for managers and executive staff will be announced as usual in March, they won’t be implemented until September, with no backdated payments, Chief Executive Officer Warren East said in an internal message to staff, which was disclosed to Bloomberg and confirmed by the company.
The move could save Rolls about 15 million pounds (US$19 million), based on last year’s 2% average wage award. Factory workers and engineers will still get an increase from the usual date.
Rolls-Royce is extending cost cuts after underlying pretax profit fell 49% to 813 million pounds, with only a “modest” gain expected in 2017. East, who has also eliminated 700 middle-management posts, opted to delay the raise rather than make a smaller award earlier so that future gains will accrue from a higher base, according to the company.
“We have maintained reasonable increases for the last few years and this will enable us to continue to invest in the program and capabilities that will make us a more resilient business,” the company said in response to questions from Bloomberg. The savings will help fund increased output of engines for Airbus Group SE’s A350 and A330 jets.
The pay freeze comes after Rolls-Royce employees qualified for their first bonus in three years in 2016, with the earnings decline less than the company and analysts had forecast. The group will return to its normal payment schedule next year, assuming medium-term expectations don’t change.
The salary deferral was included in Rolls’s 2017 forecasts, with the company targeting free cash flow similar to last year’s 100 million pounds last year.
By Benjamin Katz