Survey Indicates Staff, Benefits Cuts Will Moderate

June 17, 2009 ( - There are signs that deep workforce, pay and benefit cuts are moderating as businesses budget for the remainder of 2009, according to Mercer's latest Leading Through Unprecedented Times global survey.

With respect to defined contribution retirement plans, 73%of organizations globally do not plan to reduce the level of employer contributions in the remainder of 2009,while 14%of have already done so in the past six months, Mercer said in a news release. To date, a third have reviewed their overallinvestment menus(32%) and reviewed both investment and administrative fees (33%), while 43%are likely to take these actions by year-end.

Regarding defined benefit plans, 37%of organizations plan to get a better understanding of, and take actions to mitigate the risk inherent in these plans, according to the news release. Within the sixmonths prior to the survey, 34%have already done so.

Looking ahead, organizations are more likely to change their DB planinvestment strategy to reduce risk (38%) rather than change the funding policy (25%). Fourteen percent and 12%respectively have already taken these steps.Only 16%of organizations are likely to cut back or stop accruals in the remainder of the year, while10%have already done so.

Although health benefit utilization often increases during a recession, the majority of companies(94%) have not eliminated any current health and group benefit programs to control expenses this year. Instead, most increased employee contributions for health coverage and raised employee cost-sharing of the program, and many organizations plan to do the same for next year’s health care plan.

Over the past six months, 29%of respondents added wellness programs and another 38%reported that they are likely or highly likely to do so. Just over a quarter of respondents (26%) increased premium contributions.Mercer found increased employee contributions are most common in the United States (45%) and among organizations with more than 10,000 employees (34%).

One-quarter (23%)of respondents indicated theyalso haveintensified efforts to understand cost drivers. Looking ahead, organizations are very or somewhat likely to turn to the changes they know will produce predictable results-continue to increase employee contributions (58%), require cost sharing (50%) and offer lower-cost plan options (41%).

Some 58%of organizationsresponding toMercer's latest "Leading Through Unprecedented Times" global survey plan some cuts to their workforce in the remainder of 2009,compared to 66%that implemented workforce cuts in the six months prior to the survey.However, only 5%of these organizations plan deep cuts (morethan 10%of staff) in the remainder of the year, compared to 13%that made such cuts in the six months preceding the survey.

U.S.-based companiesare more likely to have made at least some workforce cuts in the prior six months (74%), but fewer companies (64%) plan cuts by the end of the year, according to a Mercer news release.

More than one-third of organizations globally (37%) say they will continue to hire key talent even as they reduce their workforce overall. Approximately another third of organizations (35%) plan to hire talent to replacement levels only, while 15%expect overall workforce reductions and 12%expect to expand their workforces in 2009.

Mercer's study also shows that organizations are beginning to use or consider alternative work arrangements to control workforce costs. Ten percent globally have already instituted voluntary reductions in hours with a corresponding reduction in pay, while 12%have instituted such a program on a mandatory basis. Roughly an equal number of organizations are considering similar actions in the remainder of 2009.

Organizations globally are almost equally divided on whether their 2009 base pay budgets will be more than their 2008 budgets (31%), equal to 2008 budgets (33%) or less than 2008 budgets (36%).

They have been more likely to freeze pay levels or defer pay increases than to implement pay cuts, as Mercer found that in the past six months,51%froze salaries at 2008 pay levels for at least part of their employee populationand32%froze pay enterprisewide.Just 30%deferred 2009 pay increases and even fewer (13%) decreased salaries from 2008 levels.

Regarding annual bonus payments, 57%of organizations globally awarded smaller bonus payouts for 2009 (based on 2008 performance) compared to 2008 awards (based on 2007 performance). Just 20%granted higher bonus payments in 2009 compared to 2008.

According to Mercer's survey, job security tops the list of employees' concerns- 50%of organizations said employees expressed significant concern about their jobs. Forty percent of organizations said employees expressed significant concern about how the economy is impacting the overall organization.

Just 12%of companies said employees expressed major concern about the current economy's impact on the cost of health care,and 37%said employees were worried about how the economy is affecting their retirement plan investments. Most organizations said employees showed a moderate level of concern about 2009 promotions and merit increases.

Other findingsof the survey, according to the news release, include:

  • The HR function continues to be under cost pressure, and 27%of organizations surveyed reduced planned investments in HR services in the past six months. Some 28%are likely to do so in the remainder of 2009.
  • Consolidation of outsourcing vendors is another action companies are taking to help manage overall costs. Seventeen percent of organizations worldwide have already taken such action in the past six months,and another 33%are likely to consolidate vendors in the remainder of the year.
  • Only 10%of the organizations surveyed think increased merger and acquisition activity is very likely in 2009. Organizations indicating the greatest likelihood of increasing M&A activity are those within the technology and finance/banking industries (13%).