Pay rise? No chance

Oct 29 2008 by Nic Paton Print This Article

Your pension may be shot and gas, health and food bills are all rising, but if you think you might get a pay rise to cover it next year, you'd better think again.

Two new surveys have indicated that employers are significantly revising their compensation budgets for the coming year and will be expecting workers to put up and shut up when it comes to asking for more.

A study by HR consultancy Hewitt Associates has concluded that many employers will be doling out smaller-than-expected pay raises and bonuses to employees in 2009, with workers expected simply to be grateful they are still in a job.

A significant number of employees can expect to see reduced bonus payouts this year too, it argued.

At the same time, a study by consultancy Watson Wyatt has found nearly half of the companies it polled were reviewing their executive remuneration policy and philosophy because of the current financial and economic turmoil.

The Hewitt survey of 411 large companies found more than four out of 10 were revising their salary budgets and variable pay spending strategies.

Among these, pay raises were likely to decrease by an average of 1.0 per cent in next year.

In other words, salary increases for both hourly and salaried-exempt employees at these companies were now projected to be 3.1 per cent the lowest projected base salary increase since after 9/11.

What's more, almost half of companies said they were making changes to their variable compensation payouts.

Two thirds were cutting bonuses by more than 10 per cent this year, and 42 per cent were planning to do so next year.

"While the majority of employers are continuing to stay the course with respect to their compensation payouts, increasing cost pressures and concerns about the broader economy have prompted a significant number of organizations to reevaluate and revise their salary budgets," said Ken Abosch, leader of Hewitt's North American Compensation Consulting business.

"Unfortunately, the result is smaller employee pay raises and bonuses this year, which further tightens the wallets of Americans who are already grappling with higher health care costs, inflation and mortgage expenses," he continued.

"This is a very real challenge for companies, as they struggle to find ways to manage costs during a time when attracting, retaining and motivating employees is more important than ever.

"As these pressures continue, we expect to see an increased emphasis on variable pay to motivate employees and help them cope with growing economic pressures. These programs allow companies to more effectively manage fixed costs, focus on key business objectives, and motivate and reward employees with bonuses when they attain performance goals.

"The bottom line is that variable pay is a smarter way to manage a business in a good or bad economy," he added.

But the poll also found good news for high-performing workers. Nearly four out of 10 companies were reserving a portion of their salary increase budget for their highest performers and almost a quarter were creating supplemental, discretionary incentive pools for these workers.

A fifth of firms were offering employees retention bonuses for a specified period of employment.

And, just to remind workers how truly lucky they were, among those firms that were revising their salary budget projections, more than half were also considering implementing a hiring freeze, layoffs or reducing staff.

A quarter were reducing promotions and 15 per cent were implementing a pay freeze.

The Watson Wyatt poll, meanwhile, found annual bonuses were being changed to reflect the new economic reality in terms of targets. Long-term incentives were also being managed more conservatively.

"There is no sign of a rush to make significant changes to executive packages or to override existing performance tests in short-term and long-term incentives," pointed out John Pymm, European head of executive reward at Watson Wyatt.

"Nonetheless, there is a desire to maintain pay packages that will reward executives for achievement of stretching targets in a difficult environment, and to hold out the potential for rewards coming through for strong performers in the upturn," he added.