I have been posting regular updates (see here and here) on salary and overall pay planning intelligence, in the wake of the economic crisis, as information becomes available to me. With the release of some more recent research in the past week or so, it is time for a post on the latest.
Earlier studies attempting to gauge the impact of economic turbulence found that only about 40% of organizations were reporting any plans to change (lower) their original salary increase plans. Among those who were reporting a decision to lower salary increase levels, the average "drop" seemed to be about 1% (i.e., an organization that had originally planned a salary increase budget of 3.8% was lowering it to about 2.8%). About 10%-15% of employers were reporting plans to freeze salaries.
New research released by Hewitt and Mercer (and, per postcript below Watson Wyatt) suggests that this picture has shifted over the past month or so (and these new findings mirror what I am seeing and hearing on the ground from my consulting practice).
From the newest research:
More than half of employers have changed their salary spending plans for 2009 -
- Mercer study: 73% have changed their plans/budget.
- Hewitt study: 50% have changed their plans/budget.
Watson Wyatt: 61% have changed their plans/budget.
New/revised salary budget plans for 2009, according to the Hewitt research -
- Executives: 2.2% (down from 3.8%)
- Salaried Exempt: 2.5% (down from 3.8%)
Salaried Nonexempt: 2.6% (down from 3.7%)
Watson Wyatt reports an overall revised 2009 salary budget number of 2.5% (from 3.8%).
A small piece of good news; the number of employers freezing salaries has held steady (12% as reported by Mercer), indicating that most organizations are making an effort to provide some level of salary increase. (Per postscript, Watson Wyatt reported a lower level of salary freeze plans in October, 4%, which has now risen to 13%, a level consistent with Mercer's findings.)
How to cope? How to manage your compensation costs while retaining your top performers and keeping your overall workforce motivated and productive? Here are some options to consider, drawing on my own experience and recent conversations as well as some thoughts provided in the Hewitt, Mercer and other recent releases:
- First of all, remember that ongoing communication is essential to manage employee anxiety during these challenging times.
- Rather than freezing salaries or even lowering increase levels, consider the alternative of postponing the salary increase cycle (by, for example, 3 or 6 months). This would lower 2009 costs but still provide a competitive increase to employees. I realize that this would be a bigger challenge to those on an anniversary date cycle than those on a common increase date cycle - but still an option to consider.
- Another option is withholding or lowering senior management salary increases (the Hewitt data above suggests that this may already be happening out in the marketplace). Not only would this reduce costs, but it would also send an important signal to employees and other shareholders that leaders are doing their part and carrying their share of the burden in these difficult times.
- Make sure you are taking full advantage of your incentive/variable pay plans. By design and even by definition, these programs are positioned to relieve the pressure of fixed compensation spending by making payout contingent on organizational success/prosperity. If your program isn't working this way, you may want to make changes.
Can you share any strategies that your organization has found helpful for managing compensation costs, while maintaining morale and productivity?
Additional studies, including a major update by WorldatWork, are scheduled for release in January. Keep watching here for more information as it becomes available.
Postscript: I have updated the original Hewitt and Mercer findings this post with Watson Wyatt data released Thursday 12/18.
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