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REVISED 2009 Compensation Budgets
| Guest post by: Jennifer Loftus |
Article Overview: During the last 6-8 weeks of 2008, Astron Solutions received many inquiries regarding the impact of the unsettled economy on 2009 budget plannings. We took an in depth analysis of the situation, and alongside research have concluded with the following.
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REVISED 2009 Compensation Budgets
Over the past few weeks Astron Solutions has received inquiries regarding the impact of the current economic downturn on 2009 compensation budget planning. Initially we had heard very little from the field. In the past week, however, a number of Human Resource organizations have published “instant survey’” results from their client bases. The following is a summary of these findings along with a link to their website for further review.
Watson Wyatt (http://www.watsonwyatt.com/HRprogramsreport)
Watson Wyatt conducted their economic impact survey in October, 2008. 248 U.S.-based organizations responded. Key findings include the following:
• 86 percent of respondents reported they expect recent events in financial markets to affect their HR programs in the next 12 months.
• Increased communication around benefits is the change most organizations have made so far. Other top actions already taken include restricting travel policies, instituting hiring freezes, raising the employee’s contribution to health care premiums, and layoffs.
• Over the next 12 months, one in four organizations expect layoffs or reductions in force (26 percent), hiring freezes (25 percent), and increases in employee contributions to health care plans (25 percent).
• 28 percent of organizations are revisiting merit increase budgets for 2009. Those that are making changes are decreasing budgets by an average of 32% (3.7% to 2.5%).
• On average, short term incentive funding is dropping from 95% funded in the previous year to 81% funded in the current fiscal year.
• More than half the organizations responded that their employees are moving 401(k) portfolios out of equities.
Business & Legal Reports (http://hrdailyadvisor.blr.com/archive/2008/10/31/epinion_pay_raises_decreased_2009_pay_budgets.aspx)
In an article published by Bob Brady, CEO & Founder of BLR, BLR revealed the following information regarding the impact of the economic downturn on compensation programs. BLR’s survey included data from 518 organizations.
• BLR’s survey indicates that the average merit pay increase scheduled for next year is now 2.8%. That’s down almost 25% from the 3.71% increase employers reported in June 2008.
• The BLR survey, launched October 24, found that 38.5% of respondents are changing their pay budget plans because of the economic situation. Another 32.5% said that changes are “under consideration.” Only 23.6% said they are not changing their pay budget plans.
• BLR’s findings are similar to the results of a recent survey conducted by Hewitt Associates. Hewitt found that 42% of the 411 organizations they surveyed were revising their salary budgets downward, with an average decrease of 1 percentage point. That brought projected pay raises for 2009 down to 3.1%—the lowest seen since 9/11.
• Of the changes being planned by respondents to the BLR survey, reducing the pay budget topped the list (37.3%), followed by smaller or no increases in an organization’s rate ranges (34.4%), a freeze on all raises (24.4%), and delaying the effective date of raises (15.3%).
• Most of the 518 respondents (72.1%) were with for-profit organizations, 19.4% were with not-for-profit organizations, and 8.5% were with government agencies. The largest single segment (36.3%) was organizations of 100–499 employees.
• Click this link to view the actual survey results (http://www.surveymonkey.com/sr.aspx?sm=nK83H0D5vOKOAoXcIxA6zR4uyGWbnomq0l2X_2bfjz0Fk_3d)
William M. Mercer (http://www.imercer.com/us)
On Monday, 11/17, Mercer released its 2008 / 2009 US Compensation Planning Survey Update. The survey’s key findings are as follows:
• Interestingly, 56 percent of respondents indicated that they would not be changing their salary increase budgets from amounts reported during the April 2008 survey data collection period.
• Among those organizations that are planning a change to their budget, the average merit increase budget is 0.2 to 0.3 percentage points lower than those reported in April. At the high end, executive pay increase budgets have dropped from 3.9% to 3.6% among organizations planning a budget decrease. At the low end, salary budgets for trades / production / service employees have dropped from 3.6% to 3.3% among organizations planning a change to their pay increase budgets.
• The most common ways for organizations to address the economic downturn are curtailing overall hiring to below replacement levels through 2009 (48% of respondents) and reducing the workforce through 2009 (40% of respondents).
Astron Solutions’ View:
Your Astron consulting team has been listening carefully to our clients to ascertain how the economy will be impacting 2009 compensation budgets. Based on an informal review we offer the following insights.
First, most organizations want to hold the line on their 2009 compensation planning budgets of 3.0% - 4.0%, depending on the industry, if at all possible. The danger with a dramatic compensation budget reduction is the potential of losing any competitive advantage when the economy experiences an upturn.
The major concern is in protecting “mission critical” employees during this period. Mission critical employees and jobs are essential for the organization to accomplish its primary mission and to remain viable during this period. In some cases mission critical is defined by a skill set. In other cases it is defined as those employees who continue to go well beyond what is expected and have taken personal responsibility for the survival of the organization. There are a number of strategies to be looked at for this group:
• Maintain the budgeted increases for this group of jobs and reduce compensation increases for others.
• Reduce the overall compensation increase budget but have available special discretionary bonuses to recognize the efforts of this group.
Many organizations seek external expertise to better understand how they should deal with this economic environment. Astron Solutions recommends the following steps. First, there needs to be a meeting with the senior leadership team to review the issues at hand as well as the trends from the surveys referenced here and others that may be more applicable to your industry set. This meeting should have as its outcome an agreed to “economic crisis compensation strategy” that will act as a blueprint for decisions in the next year or two. Then, an extensive communication plan should be instituted to begin a dialogue with all levels of employees regarding the current economy and its impact on human resource programs. Astron Solutions recommends focusing on the following groups:
• First: Management overseeing mission critical positions and employees
• Second: All management staff
• Third: Employees in mission critical positions
• Fourth: Long-term employees whose continued loyalty is critical
The purpose of these meetings should be to not only provide critical information impacting employees’ future employment and compensation but also to discuss how they can be part of the problem solving process.
Lastly, Astron Solutions recommends the following in terms of the hierarchy of decisions in order to survive the current economic downturn:
1. A hiring freeze, accompanied by the establishment of strict controls as to how vacancies are approved, allowing mission critical positions to be filled first.
2. Efficiencies in all other parts of the organization’s expense budget.
3. Reduction of planned increases with the exception of mission critical staff.
4. Reduction of planned increases with a discretionary incentive for mission critical staff.
5. Layoffs of non-essential staff.
We know that this issue is very industry specific. The information provided in this article is only a small part of the help you need as you make critical decisions for 2009. We will continue to keep you apprised of breaking compensation trends through Astronology, our blog, and Twitter. That way, you can be fully prepared to face the current economic storm.
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Article Tags: blr, bob brady, compensation budget, compensation programs, current fiscal year, economic downturn, economic impact survey, employee contributions, financial markets, freezes, health care premiums, hr programs, human resource organizations, layoffs, merit increase, previous year, survey results, travel policies, watson wyatt, watsonwyatt
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