Compensation Programs Suffer in Down Economy

December 15, 2009 ( – The victims of the recession in terms of employee pay and benefits were employer compensation programs, according to new research from Deloitte.

At least 85% of surveyed companies will not provide standard merit increases on base salaries in 2009, according to a press release. Surveyed executives fare somewhat worse than other employees, with two out of three seeing either no increase in base salary or a salary reduction (compared to 54% for other employees).

Looking ahead to next year, 30% of surveyed executives anticipate standard base salary increases of 3% to 5% for employees, and 28% expect similar raises for executives. A majority of survey respondents (54%) plan to make smaller than normal salary increases for employees next year while 44% indicate executives can expect a smaller salary bump.

In addition to the tight rein on base pay increases, more than six out of 10 executives (64%) surveyed reported their companies plan to award bonuses below target this year, the press release said. Twenty percent reported they plan to forego bonuses altogether — double the number of companies that cut out bonuses last year.  

However, 36% project annual bonuses at or above target — a strong minority but still a decline from 41% in 2008. More than half (52%) of the executives who participated in this survey reported bonuses will be smaller than in 2008, compared to just 20% who believe they will be higher.

As part of their overall compensation strategies, 67% of the companies participating in the survey offer long-term incentives to motivate and compensate high-performing employees and executives, Deloitte found. Among surveyed companies offering long-term incentives to motivate and compensate high-performing employees and executives, 64% grant stock options; 67% award restricted stock; and 45% offer multi-year performance plans payable in cash or stock.  

With stock prices recovering, 55% of surveyed executives report that the value of long-term incentives granted in 2009 will meet or exceed the value of 2008 grants, but nearly one-third (29%) indicated grant values will drop from last year. 

On a positive note, a sizable minority of companies report that they are taking steps now to rebalance their compensation portfolios ahead of an economic upturn.  In addition to adjusting bonus pools and stock options, and increasing restricted stock grants, some surveyed executives are also improving base pay, paying larger bonuses, and enhancing long-term incentives, the press release said.

For those survey respondents standard merit increases will be paid in 2009 for employees (15%) and executives (10%). Approximately 12% of surveyed executives expect to increase annual bonus payments above 2009 targets, and one in five report this year’s bonus will be above 2008 levels.

Seventeen percent of survey participants report they are implementing retention programs for senior executives now, 13% report they are doing so for middle management, and 11% for select business units.

As for how other benefits fared due to the recession, nearly one in three executives surveyed (29%) stated their companies either decreased (9%) or suspended (20%) 401(k) matches in 2009.

Deloitte’s year-long “Managing Talent in a Turbulent Economy” Survey Series is here.