The negotiations have been difficult. We have worked hard to achieve an offer of 2.75%. You will be aware that the company has decided that it will push ahead and implement the pay review process.

It is worth reminding ourselves why this year's negotiations have been so tough and what we believe is necessary to achieve a resolution.

Inflation
The backdrop to this year's pay review was a rate of inflation that many cannot remember in their working lives. It is now 20 years since the rate of inflation last exceeded 5%. The increase in the cost of living at a time when the economy is close to stagnant causes difficulties for O2. Nonetheless all the evidence is that O2 is weathering the storm quite well in a highly competitive market and we are working closely with the company to help control its costs and to readjust its market trajectory. However, the cost of living affects all of us as employees and everybody needs cushioning against the effects of inflation.

O2 tells us that its reward principles are to set basic pay rates at market competitive pay levels and to differentiate pay increases on the basis of individual performance. However, our view and the clear feedback from members across the UK is that the Company is very short of meeting this aspiration in most areas and its pay structure lacks transparency and consistency.

Market rates
Market rates of pay have at least two dimensions - internal and external.

Like many other companies O2 obtains external market comparisons from various companies that are in the market to collate such data. We challenge some of the data collected but, in any case, a much better indication of external market comparisons arises from the pay rates at which O2 recruits new employees. Many of you have been telling us, particularly in engineering, systems and customer services that new employees have been recruited at basic pay levels well above those of many existing experienced colleagues.

The market has an internal dimension as well, which manifests itself in differentials. Again we have considerable evidence of differentials amongst many experienced managers and professionals being very low and, in some cases, non existent. It has disappointed us that in order to demonstrate there is not a problem with differentials the company has referred to average salaries and bonus payments rather than the basic pay position of individual managers and the basic pay relationship to those they manage. Far too many managers in O2 who have earned a promotion to a very responsible job are asking "what's the point of becoming a manager"?

Progression
People who start a new job, especially on promotion, do not expect to immediately receive as much pay as their experienced colleagues. We all know that it takes time to gain experience and become fully effective. The length of time it takes to achieve that level of effectiveness depends on the complexity of the job. However, far too many members are telling us that having done the job for a number of years and demonstrated their effectiveness, they are still earning less than some newly appointed colleagues. Neither they nor we believe that can be justified. We have also been made aware by a number of members that the absence of consistent starting pay and progression arrangements has resulted in some equal pay anomalies. Members report that some are paid on the basis of where they came from rather than what they are doing.

Pay ranges
We believe that it is simply not credible to have a pay range running from £22,000 to £39,600 (MPG2) encompassing all job families including engineering, systems, marketing, finance and customer services as well as many others that operate in widely differing internal and external market environments. We have argued that the bottom of the range is too low and the top of the range is inadequate to meet even the company's own principles. Many members report not having had pay rises for 2 or 3 years or more despite performing well. It also leads employees to understand that the whole pay range is relevant to their role when it is plainly not. This concerns have been reported for all parts of O2's pay structure not only MPG grades.

The Pay structure was inherited from BT who realised some years ago that it was no longer fit for purpose and have moved away from these long all encompassing pay ranges. We know of no other company that operates its pay arrangements in this way.

So where do we go from here?
Prospect has argued that the concerns run too deep to resolve them without extra budget. We understand that they won't all be fixed in one year or even two, but the reason we simply could not recommend the pay offer to you this year was because it addresses none of your concerns that we have articulated above. For many the differentials over those they manage will be even worse when the general population receive their pay increase next month.

The company has offered to review its pay arrangements with us as part of an overall resolution to this year's pay negotiations. We have not yet been able to agree terms of reference and the company has not been prepared to confirm that it is prepared to invest any budget in addressing some of the urgent issues.

Members tell us they are truly disappointed in the approach of O2 to pay. This is a worrying disconnect in a company that you overwhelmingly tell us is good to work for in nearly all other respects.

We know that many of you have been raising your concerns articulately and respectfully, both with the union and on Open Voice, O2's own web based sounding board. We are also aware that many of you have been discussing your concerns at team meetings and other opportunities you have to meet senior managers. The company can no longer argue that it is not hearing the concerns of employees.

It is now time more than ever for O2 to work with Prospect to address its pay arrangements and to take urgent steps to fund some of the obvious inequities. Please continue to let the company and its managers know that Prospect is representing your views faithfully and encourage any colleagues who are not members to join the union and participate in our campaign for fair and transparent pay arrangements for all professionals and managers.