Hewitt Finds Companies Globally Cutting 2009 Salary Budgets

February 4, 2009 (PLANSPONSOR.com) - According to new research by Hewitt Associates, the majority of organizations in every region of the world are responding to the current economic turmoil by making across-the-board cuts to their 2009 salary increase budgets.

According to a press release, European companies were most likely to make changes (67%), followed by Latin America (63%), Asia-Pacific (58%) and companies in the U.S. (50%) (see Economic Turmoil has Serious Pay Budget Impacts). Of those companies making changes, employees in Asia-Pacific will see the most drastic cuts to their pay – by an average of 1.7% to 5.2% in 2009 compared with projections made earlier in 2008.

Companies in Latin America are cutting salary increase budgets by an average of 1%, 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%), the press release said. Employees in Europe can expect to see average pay increases of 4.2% in 2009, down 0.9% 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%, down 0.7% from projections made earlier in 2008.

Other Compensation Cost Reductions

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. In Europe, 69% of companies are also planning layoffs, and nearly two-thirds (63%) are contemplating hiring freezes. In Latin American, two-thirds (66%) of companies are considering hiring freezes.

According to the press release, 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%) 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% are doing so by more than 10% (46% in Asia Pacific; 42% in the U.S.).

While the down economy means many companies globally are forced to reduce their 2009 compensation budgets, research from Hewitt Associates shows most are not losing sight of the importance of retaining top talent.

According to a press release, a majority of employers in Asia-Pacific, Latin American and Europe are offering high performers additional learning opportunities as a way to increase engagement. In addition, 66% of companies in Latin America, 62% of companies in Europe, and more than half (59%) of companies in Asia-Pacific are setting aside a separate pool of money to reward high performers.

Nearly half of companies in Europe (47%), and more than a quarter (27%) in Asia-Pacific are rewarding high performers with discretionary long-term equity grants. Hewitt found some organizations in the U.S. (18%) and Latin America (16%) are offering high performers retention bonuses.

From October to December 2008, Hewitt conducted surveys simultaneously across 40 countries, covering more than 2,000 companies and representing more than 25 million employees.