Small Increases Seen in Pay, Benefit Budgets

Frids Kowmbon 30 January 2010

The global recession and sluggish recovery took a toll on employees in terms of pay and benefit cuts, according to a new survey report by consultancy Towers Watson, From Recession to Recovery: How Far, How Fast, How Well Prepared. The survey responses show that companies’ sharp focus on controlling benefit costs and managing financial risk will not abate, although most respondents remain committed to ensuring an adequate benefit safety net for employees.

Conducted in early January 2010, the U.S. portion of the survey drew responses from 118 mostly large employers. Among the findings:

• More than half (52 percent) said the percentage of their employees working past their desired retirement age is higher than it was before the financial crisis, and 31 percent expect it will continue trending higher.

• 32 percent said their employees’ share of health care costs is higher now than it was before the financial crisis, and 38 percent think cost-shifting will be even greater in 2011.

Many employers are acknowledging their employees’ concerns: 28 percent expect that they will put more emphasis on ensuring benefits to provide a desired level of security for employees. But much larger numbers expect to increase their focus on controlling and reducing benefit costs (53 percent) and managing the risk and volatility of those costs (49 percent).

“While employers are clearly hopeful that 2010 will bring healthier balance sheets and bottom lines for their businesses, they also seem mindful their employees might not share that optimism,” says Ravin Jesuthasan, global talent management practice leader at Towers Watson. “With unemployment numbers still high and health care costs continuing to rise, many employees will not be able to shake off their concern for the future. How a strengthening global economy will affect these trends remains to be seen.”

Base Pay, Bonuses Start to Recover

Regarding compensation budgets, the survey found:

• The median bonus plan funding level (as a percentage of target) for U.S. respondents is forecast to rebound to 100 percent in 2010, compared with a funding level of 60 percent in 2009 and 80 percent funding in 2008.

• 11 percent of U.S. respondents have a pay freeze in effect for 2010, vs. 42 percent in 2009 and just 6 percent in 2008.

• The merit increase budget for U.S. respondents forecast for 2010 is 2.8 percent at the median, or 3 percent excluding respondents that have frozen pay for the year, up from 1.7 percent overall (2.5 percent excluding those that froze pay) in 2009, and 3.4 percent (3.5 percent for those that froze pay) in 2008.

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