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Royal Mail pay offer ‘could worsen industrial relations’ warn analysts

Broker Liberum said the offer of a 6% pay rise over three years, below RPI inflation, was unlikely to secure much support from workers or trade union leadership

Royal Mail PLC - Royal Mail pay offer ‘could worsen industrial relations’ warn analysts

Royal Mail PLC’s (LON:RMG) new pay offer to workers could end up causing more tension between the postal carrier and trade unions, analysts at Liberum have warned.

On Thursday afternoon, the FTSE 250 firm offered workers affiliated with the Communication Workers Union (CWU), around 100,000 members of its staff, a 6% pay rise over the next three years which it said will amount to an increase of “more than 16%” between 1 April 2018 and 31 March 2023.

READ: Liberum slashes price target for Royal Mail as dividend at risk

However, Liberum, which rates Royal Mail at ‘sell’ with a 120p price target, raised doubts on Friday that the offer, which is below retail price index inflation, would be enough to appeal to either the union leadership or staff members.

They added that the public announcement of the offer, effectively going over the heads of the CWU’s leadership, “may be ill advised” as it had “the potential to cause further stress in the relationship with the union”.

“[Going public] with a below-RPI offer is unlikely to make staff feel the union is wrong to want to continue the dispute. If anything, this could strengthen the CWU’s narrative that staff need to back the union to get a better deal”, Liberum said.

This view was echoed by broker Peel Hunt, who said that the issue was “not just whether the CWU and staff accept the offer, but also whether they agree to the changes in working practices and productivity increases that Royal Mail requires ultimately to avoid becoming insolvent”.

The company is currently in the middle of a turnaround programme aiming to boost profitability by automating its sorting systems and expanding its parcel delivery business to capitalise on the online shopping boom.

Peel Hunt highlighted that the company’s UK business was “chronically inefficient” and that a “significant potential margin improvement…can only be achieved with a willing workforce, which it clearly is not currently”.

The deal seems even less likely to secure support from workers after the CWU said on Thursday night that the company was not serious about the pay offer and they were “playing to an audience” in a bid to avoid a national postal strike.

The CWU is currently planning for another strike ballot among its Royal Mail members after industrial action over the Christmas period was blocked by the company in court.

Royal Mail shares were 1% lower at 180.7p in early trading on Friday.

Quick facts: Royal Mail PLC

Price: 133.5 GBX

LSE:RMG
Market: LSE
Market Cap: £1.34 billion
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