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More Anticipate Salary Freezes, Smaller Raises, Match Reductions
Stephen Miller
As the recession continues, employers are looking ahead and expecting to experience a long period of economic hardship. However, a new update to a series of surveys conducted by consultancy Watson Wyatt shows that while most companies have already made most of the sweeping changes they intend to, many others still expect to make cost-cutting changes during 2009, such as salary and hiring freezes, and reduced 401(k) matching contributions.
“Companies have come to terms with the fact that this recession is going to last and that they can’t slash their way out of it,” says Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. “With over half of companies reporting they have already made layoffs, they are now focusing on smaller, more sustainable cost-cutting actions.”
According to the survey of 245 large U.S. employers conducted in mid-February 2009, 52 percent have made layoffs, up from 39 percent two months earlier. However, the number of companies still planning layoffs fell from 23 percent to 13 percent. Additionally, 56 percent have a hiring freeze in effect, an increase from 47 percent in the December 2009 survey.
The number of companies that have put into place other changes has jumped as well. These include salary freezes (up to 42 percent of respondents from 13 percent in December’s survey); reductions in 401(k) matches (up to 12 percent from 3 percent); a shortened workweek (up to 13 percent from 2 percent) and travel restrictions (up to 69 percent from 48 percent).
Companies Continue to Change a Variety of HR Programs in Response to Cost Pressures: |
|
|||||
|
Already made change |
Expecting to |
||||
Feb |
Dec |
Oct |
Feb |
Dec |
Oct |
|
Add/increase restrictions to company travel policy |
69% |
48% |
34% |
10% |
16% |
21% |
Hiring freeze |
56% |
47% |
30% |
10% |
18% |
25% |
Layoffs/reduction in force |
52% |
39% |
19% |
13% |
23% |
26% |
Eliminate or reduce the hiring of seasonal workers |
44% |
28% |
17% |
9% |
16% |
18% |
Salary freeze |
42% |
13% |
4% |
14% |
19% |
12% |
Eliminate or reduce training programs |
35% |
23% |
10% |
15% |
18% |
18% |
Organization-wide restructuring |
31% |
23% |
14% |
20% |
21% |
23% |
Increase communication to employees about their benefits |
31% |
32% |
35% |
27% |
35% |
35% |
Increase communication to employees about their pay |
28% |
16% |
18% |
31% |
43% |
37% |
HR function restructuring |
23% |
14% |
15% |
22% |
21% |
19% |
Reduce/eliminate other employee programs (tuition reimbursement, subsidized dining facilities, etc.) |
23% |
12% |
8% |
18% |
12% |
11% |
Raise percentage that employees pay for health care premiums |
22% |
20% |
21% |
24% |
17% |
25% |
Reduced workweek |
13% |
2% |
4% |
8% |
6% |
4% |
Reduce employer |
12% |
3% |
2% |
12% |
7% |
4% |
Salary reductions |
7% |
5% |
2% |
4% |
6% |
4% |
Promote early retirement window |
6% |
3% |
4% |
6% |
6% |
5% |
Source: Watson Wyatt. |
||||||
Raises Trimmed
Planned merit increases now average 1.7 percent, less than half of what employers originally planned before the recession hit. Of those who have revised their budgets, 58 percent did so since December 2008.
Survey results show that the majority of companies (61 percent) expect the downturn in their performance to last at least until the end of 2009. Approximately half of companies (51 percent) plan to increase their cost-cutting actions in 2009 and beyond.
“As the business outlook remains challenging, employers are buckling down and making hard decisions,” says Laurie Bienstock, senior compensation consultant at Watson Wyatt. “This may be good news as companies move more toward cost-cutting efforts other than workforce reductions in an effort to hold on to the workers they will need when recovery eventually comes.”
Additional Highlights
Other findings from the survey include:
- Severance. Of those who have made layoffs, 29 percent have offered enhanced severance benefits such as extended benefits coverage, extended pay or extended job search assistance.
- 401(k) participant behavior. Since the economic crisis hit, 79 percent of respondents have noticed 401(k) or 403(b) participants changing their investment mix to move out of equities (up from 59 percent in December 2008), 45 percent have seen an increase in the number of loans taken (up from 27 percent in December’s survey) and 35 percent have seen an increase in the number of hardship withdrawals taken—a doubling from December, when only 16 percent had.
- Short-term incentives. Funding for short-term incentives has not changed substantially since October 2008—from a mean of 86 percent funded in 2008, current annual bonus pools stand at 71 percent funded.
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