Survey: Companies Laser Focused on HR Costs

June 24, 2003 ( - Under severe cost pressure because of the lagging economy, companies are focusing more closely than ever on compensation and benefit costs - and the efforts may be paying off, according to a new survey.

According to the survey from the Saratoga Institute, a PricewaterhouseCoopers LLP Human Resource Services unit, tying compensation to performance continues to be a prominent HR trend.

Nearly 40% of participating organizations in the 2002 survey indicated a change in their compensation programs to counter adverse financial results. Merit pay increases are being offered sparingly, with a continuous emphasis on performance, the survey found. This approach appears to be working: overall costs per employee increased less than 1% in 2002 – to $56,307 from $55,977 per regular employee.

Nearly 80% of companies indicated having a formal pay-for-performance system, and more organizations reported having project, team, or gain sharing plans this year. The sector most affected in 2002 was health care costs. Substantial growth was seen in the number of organizations offering defined contribution health benefits. Some 81% of participating organizations offer this format compared to just 23% in 2001.

However, the fact remains that health care costs alone represented over 30% of the total benefit cost. In 2002, health related medical costs per covered employee were $5,403, up from $3,905 per covered employee three years earlier.

Providing plans that employees need while controlling the high cost is among the most difficult challenges for HR departments. Since 1999, the cost of employer provided benefits has grown more than 25%. In 2002, the employer provided benefits dollar cost per employee was $16,500, up from $13,138 in 1999.

The data represented in Saratoga Institute’s Workforce Diagnostic System Reports is provided by organizations from over 20 industry sectors ranging in size from 1,000 employees to over 50,000.

For a copy of the Executive Summary contact Tyrene Frederick, PricewaterhouseCoopers LLP tax public relations manager at (646) 394-4456 or .