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One in four U.S. companies has instituted a salary freeze, a number that might rise to one in three employers by the time 2009 budgets are finalized, according to a Mercer survey. Executives are less likely to get a base pay increase than rank and file employees.
Shrinking 2009 salary budgets are a response to the worsening economy and reshaping of corporate forecasts, according to Mercer. Organizations that still plan increases for 2009 have trimmed raises by one-half percent from the level they said in October 2008 was planned for the coming year.
Mercer’s U.S. Salary Budget Planning poll was conducted Jan. 22-29, 2009. It includes responses from more than 400 mid-size and large employers across the United States.
By way of comparison…
A WorldatWork salary budget survey conducted in December 2008 found that three out of four U.S. employees could expect a raise in 2009, and that U.S. employers' average salary budget increases for 2009 will be 3.1 percent vs. what had been an expected 3.9 percent in April 2008 (see Three Out of Four U.S. Employees Can Expect a Raise in 2009).
According to Mercer’s findings, in addition to the 25 percent of U.S. employers that have instituted a salary freeze for 2009, 20 percent are considering a salary freeze.
“Although not all companies considering a freeze will take this step, by the time all 2009 budgets are final, we expect to see one in three organizations freezing wages at 2008 levels,” says Steve Gross, global leader of Mercer’s broad-based performance and rewards consulting business. “It’s not an easy message to communicate to employees, but we think managers will be aided by the unprecedented context of these difficult decisions—including low inflation and high unemployment.”
Base Pay Budgets
Companies making or considering a base salary increase in 2009—75 percent of respondents—are budgeting 3.2 percent overall, down from mid-October 2008 projections of 3.6 percent. Times have changed quickly: between April and mid-October of 2008, pay increase budgets for 2009 were hardly affected—they diminished by a mere one-tenth percent (from 3.7 to 3.6 percent).
Companies Granting 2009 Base Salary Increases by Employee Group
Percent of base pay increase
Percent of U.S. companies making or considering an increase per employee group
Professional (sales and non-sales)
The biggest budget decrease in the survey findings is at the executive level, where more than three-quarters (77 percent) of respondents plan to decrease their salary budget from their 2008 projections.
“Given lackluster corporate performance and recent pressure from regulators, shareholders and the president, it’s not surprising to see that over the past few months, more than one-third of participants who reported executive salary data went from a 2009 planned base salary increase for their executives to a freeze,” comments Gross. Other recent executive compensation surveys reveal that incentive pay for executives is being cut as well. (See, for example, Recession Is Reducing Executive Pay Packages.)
Performance Management and Employee Engagement
Pay-for-performance is becoming increasingly more important, Mercer found. “The trend to strengthen performance management programs to better differentiate strong from average or weak performers will only gain more traction in the months ahead,” Gross says. He recommends:
Greater differentiation of top performers to attract and retain those employees who will contribute to the company’s competitiveness and success.Clear and timely communication from senior management to help employees move past paralyzing uncertainty and, in the case of layoffs, deal with "survivor guilt." Emphasis on the total employment value proposition, including training opportunities, career development and workplace flexibility.
Greater differentiation of top performers to attract and retain those employees who will contribute to the company’s competitiveness and success.
Clear and timely communication from senior management to help employees move past paralyzing uncertainty and, in the case of layoffs, deal with "survivor guilt."
Emphasis on the total employment value proposition, including training opportunities, career development and workplace flexibility.
Stephen Miller is an online editor/manager for SHRM
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