Of those companies making changes, employees in Asia-Pacific will see the most drastic cuts to their pay raises this year. For those employees, planned pay raises will be reduced by an average of 1.7 percent to 5.2 percent in 2009 compared with projections made earlier in 2008. Companies in Latin America are cutting salary increase budgets by an average of 1 percent, although the overall rate of increase for employees in this region continues to be significantly higher than in other parts of the world (12.3 percent). Employees in Europe can expect to see average pay increases of 4.2 percent in 2009, down 0.9 percent from original projections. In the U.S. -where original salary increases for 2009 were already dismal - workers will see the lowest pay raises in three decades, with average increases of 3.0 percent, down 0.7 percent from projections made earlier in 2008.
In addition to cutting merit based pay, Hewitt’s survey revealed most of these global organizations plan to take further steps to reduce their compensation costs this year, yet the approaches vary by region. In Europe, 69 percent of companies are also planning layoffs, and nearly two-thirds (63 percent) are contemplating hiring freezes. In Latin American, two-thirds (66 percent) of companies are considering hiring freezes. On the other hand, companies in Asia-Pacific and the U.S. are focusing more on reducing variable pay budgets, or performance-based awards that must be re-earned each year. Nearly two-thirds (64 percent) of companies in Asia-Pacific and half of companies in the U.S. are reducing variable pay budgets in 2009. Of those, more than 40 percent are doing so by more than 10 percent (46 percent for Asia Pacific; 42 percent in the U.S.).
"With few signs that the current economic situation will improve in the next nine to 12 months, making across-the-board cuts to salary increases and/or reducing headcount are some of the quickest and easiest ways to lower overall costs," said Peter Acker, North American leader Global Rewards at Hewitt Associates. "But we encourage companies to think through the longer-term implications. While some reductions may be unavoidable, organizations need to use this time as an opportunity to assess all of their benefits and rewards programs. Are these programs aligned with their business strategy? Are they competitive? Do they support investments in certain markets or segments where growth is anticipated? At that point, companies can be smarter about where cost reductions can and should be made, and ultimately, they will be the ones best positioned to succeed once the economy improves."
Retaining Top Talent During Tough Times
While a down economy means many companies are forced to reduce their 2009 compensation budgets, most are not losing sight of the importance of retaining top talent. In fact, Hewitt’s research showed that a majority of employers in Asia-Pacific, Latin American and Europe are offering high performers additional learning opportunities as a way to increase engagement, and/or earmarking additional pools of money to reward those employees. Two-thirds of companies (66 percent) in Latin America, 62 percent of companies in Europe, and more than half (59 percent) of companies in Asia-Pacific are setting aside a separate pool of money to reward high performers. Nearly half of companies in Europe (47 percent), and more than a quarter (27 percent) in Asia-Pacific are rewarding high performers with discretionary long-term equity grants. While less common, some organizations in the U.S. (18 percent) and Latin America (16 percent) are offering high performers retention bonuses.
