Hay Group Finds Increase in Employers Cutting Labor Costs

April 6, 2009 (PLANSPONSOR.com) - The number of U.S. organizations decreasing overall staffing levels has nearly doubled in the past four months, according to management consulting firm Hay Group's latest Reward in a Downturn Survey.

A third (34%) of U.S. respondents reported planning layoffs, compared to only 19% in a similar study in November 2008, according to a Hay Group press release. Organizations are also turning to wage freezes and modest salary increase budgets to reduce labor costs – 37% of U.S. organizations have instituted a wage freeze for their employees and more than half of U.S. respondents report their executives will receive no salary increase this year.

“Organizations have been swift and decisive in their actions to reduce labor costs during these trying economic times,” said Tom McMullen, U.S. Reward Practice Leader for Hay Group, in the announcement. “When we conducted a similar study a year ago, only 16% of U.S. respondents expected their business results to be significantly worse than targeted levels (see More Companies See Grim Days Ahead ). Today, that number has jumped to 40% for U.S. respondents, and we’re seeing organizations substantially tightening their belts as a result.”

In addition, the survey found one fifth of organizations with either defined benefit or defined contribution retirement programs are reporting that they are considering changes to the value of these programs. Of organizations making changes to their defined contribution plans, the vast majority (78%) of U.S. respondents report they are considering decreasing the benefit levels of these plans.

Many organizations have stated that the value of their long-term incentive programs have dropped substantially – by a median of 40% in the U.S. and 30% globally. Approximately 32% of U.S. respondents indicate they are considering or making changes to their long-term incentive programs, with approximately half of those reporting they will be granting lower values of options, shares and units per employee in 2009.

Training and development programs are also being decreased or eliminated by 22% of U.S. respondents, and companies are cutting overtime wages (21%) and the use of contract laborers (32%).

Nearly 40% of surveyed companies either made or considered changes to their severance programs in the last year, according to another Hay Group study conducted in February 2009. Of these companies, 39% considered making their programs more generous rather than less.

A total of 2,000 organizations from 88 countries across six continents participated in Hay Group’s latest survey. More information can be found at www.haygroup.com .