Tough Economic Times Hurts Pay, Bonus Awards

October 23, 2008 ( - In response to the weakening economy and increasing cost pressures, a new pulse survey from Hewitt Associates found that many employers will be doling out smaller-than-expected 2009 pay raises and bonuses.

A Hewitt news release said a significant number of employees can expect to see reduced bonus payouts in 2008 as well.

Hewitt’s recent survey of 411 large companies found that 42% are revising their salary budgets and variable pay spending strategies in reaction to the economic downturn. For those companies, pay raises will decrease by an average of 1% in 2009.

In other words, Hewitt asserted, salary increases for both hourly and salaried exempt employees at these companies are now projected to be 3.1%-the lowest projected base salary increase since after 9/11.

In addition, almost half of companies making changes to their salary budgets (49%) plan to reduce variable compensation payouts, with two-thirds (66%) cutting bonuses by more than 10% in 2008, and 42% of companies planning to do so in 2009.

In addition to reducing merit increases and bonuses, Hewitt's survey found that companies who are revising their salary budget projections in 2009 are also considering:

  • Implementing a hiring freeze (52%)
  • Layoffs or reducing staff (55%)
  • Reducing promotions (25%)
  • Implementing a pay freeze (15%)

According to the Hewitt news release, similar to past economic downturns, most employers aren't making short-term decisions in response to the current financial landscape.

"Still, a significant number of employees will see smaller pay raises and bonuses this year, which further tightens the wallets of Americans who are already grappling with higher health care costs, inflation and mortgage expenses," said Ken Abosch, leader of Hewitt's North American Compensation Consulting business, in the news release. "This is a very real challenge for companies, as they struggle to find ways to manage costs during a time when attracting, retaining and motivating employees is more important than ever."

There is good news for high performing workers, however. Hewitt's survey found that 38% of companies are reserving a portion of their salary increase budget for their highest performers and almost a quarter (23%) are creating supplemental, discretionary incentive pools for these workers.

Another 20% are offering employees retention bonuses for a specified period of employment.