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More Employers Plan to Undo Cutbacks in Pay, Benefits
But as some cuts are rolled back, many face smaller raises, lower bonuses and higher health care costs

By Kathy Gurchiek and Stephen Miller  9/2/2009
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The number of U.S. employers planning to reverse salary cuts and freezes and restore matching contributions to 401(k) plans increased in June and July 2009, according to the latest update to a series of surveys by consulting firm Watson Wyatt. Nevertheless, the survey found that many employers remain concerned about retaining their top performers.

Watson Wyatt’s latest bimonthly survey was conducted in August 2009 and includes responses from 175 large U.S. employers.

The good news: Among the 61 percent of employers that had implemented a salary freeze, 33 percent expect to unfreeze those salaries by January 2010. Only 17 percent of employers had expected to unfreeze salaries in the coming months when Watson Wyatt surveyed them in June 2009.


August 2009

June 2009

Among employers that froze salaries, the percentage planning to unfreeze them within the next six months



Percentage planning to roll back salary cuts within the next six months



Percentage planning to reverse reductions to 401(k) match contributions within the next six months



Source: Watson Wyatt

Among other findings from the survey:

  • Of the 19 percent that had reduced their workweek, more than half plan to reverse that change in the next six months. Another 20 percent plan to do so in the next 12 months.

  • Of the 17 percent that had instituted mandatory furloughs, 52 percent plan to reverse that in the next six months. Another 26 percent plan to do so in the next 12 months.

  • Of the 18 percent that had instituted mandatory shutdowns, 42 percent plan to reverse that in the next six months. Another 19 percent plan to do so in the next 12 months.

  • Of the 74 percent that had implemented restrictions to company travel, 18 percent plan to roll them back in the next six months. Another 31 percent plan to do so in the next 12 months.

    Smaller Raises, Lower Bonuses

    However, “it’s not going to be a rich compensation and benefits environment by any measure” for the rest of 2009, cautioned Laura Sejen, Watson Wyatt’s global practice director for strategic rewards. “[Employers] could lift the salary freeze in general, but … it’s not necessarily for all employees,” she told SHRM Online.

    “Some employers are seeing the light at the end of the tunnel and feeling optimistic about the prospect of improved business results,” said Sejen. “However, even as some of the program cuts are rolled back, many employees are facing smaller raises, lower bonuses and higher health care costs.”

    The median merit increase in August 2009 was 1.5 percent, down from 2 percent in June 2009. In 2010, the projected median merit increase will rise to 3 percent, matching pre-recession levels, according to Watson Wyatt.

    More Benefit Cost-Shifting

    “On health care, the news is not good,” Sejen added, with 71 percent of employers making some change to their 2010 health care plan because of the economic crisis.

    As regards health care cost-sharing, the survey found that:

    66 percent of respondents that increased the percentage that employees pay for health care premiums do not expect to reverse that decision.

    40 percent are planning to shift more health care benefit costs to workers by increasing the percentage of premiums they pay.

    Another 41 percent expect to increase the deductibles, co-pays or out-of-pocket maximums for their 2010 health care plans.

    As regards defined contribution retirement plans:

    More than a third of employers have noticed an increase in the number of employees taking hardship withdrawals (36 percent) and loans (37 percent) from their 401(k) and 403(b) plans since June 2009.

    Retention Tensions Re-Emerge

    Looking ahead three to five years, half of all respondents expect to see an increase in the difficulty of retaining critical-skill employees, and 46 percent in attracting them.

    Companies should be using existing programs—such as recognition plans, coaching and mentoring programs, informal performance feedback, and development opportunities—to keep valued employees focused and engaged during the downturn and recovery, Watson Wyatt suggests in its report.

    “Even as employers look ahead to an eventual economic recovery, they still face many challenges, such as the potential disengagement of top performers,” said Brian Wilkerson, global director of talent management at Watson Wyatt. “Employers can manage this to some extent not only by effectively communicating with employees but also by ensuring that they are rewarded for the job that they do—in particular taking into account how that job might be changing in the current environment.”

    Expanded Responsibilities

    Expanded responsibilities is a tool that employers have seized to help with retention. Close to half the survey repondents (47 percent) have expanded their employees’ roles or responsibilities.

    Increasing responsibilities can cut two ways, though. It can hurt engagement if it translates into trying to do more work with fewer employees, Sejen said. On average, those employers surveyed had laid off 8.5 percent of their workforce between December 2008 and August 2009. That is expected to lessen, on average, to 1.9 percent from August 2009 to July 2010.

    Increasing employee responsibilities can be a retention tool, though, if used to enhance the employee’s skill sets, Sejen said.

    “In particular, career development opportunities are really critical in keeping [employees] engaged and minimizing their attrition risk,” Sejean said.

    Among other rewards that are traditionally used to improve retention,  far smaller numbers of respondents had:

    • Expanded the use of recognition programs (27 percent).

    • Created special compensation programs for high-performing or at-risk employees (18 percent).

    Better Communication

    Communication also is important—83 percent of employers increased their communication during the downturn, and 40 percent are holding more employee forums or interactive sessions to address workers’ concerns about the economy.

    “Employee engagement has taken a hit across the board,” Sejen said. However, “the [employers] who are faring better are the ones who have done a more effective job of communicating.”

    Among efforts to keep employees engaged, the survey found:

    83 percent of employers have increased communication.

    40 percent have held additional employee forums such as town halls or other interactive sessions to address economy-related concerns.

    Kathy Gurchiek is associate editor for HR News. Stephen Miller is an online editor/manager for SHRM.

    Related Articles:

    Pay Raises Expected to Rebound in 2010, Survey Suggests, SHRM Online Compensation Discipline, July 2009

    U.S. Salary Budget Increases Lowest in 36 Years; Turnaround on the Horizon? SHRM Online Compensation Discipline, July 2009

    Thawing Out Pay, SHRM Templates and Tools, July 2009

    Companies Plan to Restore Some Cut Pay, Benefits, Reassess Others, SHRM Online Compensation Discipline, June 2009

    Rewards Outlook: Deep Pay and Benefits Cuts Show Signs of Moderating, SHRM Online Compensation Discipline, June 2009

    U.S. Companies Plan Pay Increases for Most Jobs, Pay Cuts for Some, SHRM Online Compensation Discipline, June 2009

    Suspend the 401(k) Match? Issues to Weigh, Pitfalls to Avoid, SHRM Online Compensation Discipline, April 2009

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