Softening Economy Has Employers Rethinking Pay Strategies

November 16, 2001 ( - About a quarter of employers have delayed or reduced salary increases but few are reporting plans to cut or freeze pay, according to a new survey by Watson Wyatt Worldwide.

The survey also reveals that in order to achieve reward plan objectives, close to half (41%) of employers surveyed are changing their incentive plan formulas in the middle of the year to adjust performance targets or payouts to the current economic reality.

Pay Dazed? 

Nearly 60% of employers expect to reduce annual bonuses for executives this year while a like number (54%) will do so for middle managers, and about half will do so for individual workers.

About one-third (30%) of employers have reduced merit pay budgets and those have dropped the pools from 5.0% to 3.3%, on average.

In addition, more than 40% of survey respondents now say that underwater stock options are a problem and are considering overhauling their programs. Those making changes are split between issuing more options at a lower strike price or canceling existing options and reissuing them at a lower price (19%), while 13% are contemplating accelerating the grants.

A total of 110 mid- and large-size companies representing a broad range of industries participated in the survey, which was conducted in late September as a supplement to a larger study of pay practices.