Press Releases

Many Employers Still Planning Salary and Hiring Freezes, 401(k) Match Reductions and Smaller Raises

WASHINGTON, D.C., February 25, 2009 — As the recession continues, companies are looking ahead and expecting to experience a long period of economic hardship. A new update to an ongoing series of surveys conducted by Watson Wyatt, a leading global consulting firm, shows that most companies have already made most of their intended sweeping changes. However, many expect to make further cost-cutting changes this year, such as salary and hiring freezes, and reduced 401(k) matching contributions.

“Companies have come to terms with the fact that this recession is going to last and that they can’t slash their way out of it,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. “Many companies are putting the drastic cuts behind them and are now focusing on smaller, more sustainable cost-cutting actions.”

According to the survey of 245 large U.S. employers conducted last week, 52 percent have made layoffs, up from 39 percent two months ago. However, the number of companies planning layoffs has fallen 10 percentage points from 23 percent to 13 percent. Additionally, 56 percent now have a hiring freeze in effect, an increase from 47 percent in December’s survey.

There has been a jump in the number of companies that have put into place other changes as well. These include salary freezes (up to 42 percent of respondents now from 13 percent in December’s survey), reductions in 401(k) matches (up to 12 percent from 3 percent), a shortened workweek (up to 13 percent from 2 percent) and travel restrictions (up to 69 percent from 48 percent).

Companies continue to change a variety of HR programs in response to cost pressures

HR program	Already made change			Expecting to make change
	Feb 2009	Dec 2008	Oct 2008	Feb 2009	Dec 2008	Oct 2008
Add/increase restrictions to company travel policy	69%	48%	34%	10%	16%	21%
Hiring freeze	56%	47%	30%	10%	18%	25%
Layoffs/reduction in force	52%	39%	19%	13%	23%	26%
Eliminate or reduce the hiring of seasonal workers	44%	28%	17%	9%	16%	18%
Salary freeze	42%	13%	4%	14%	19%	12%
Eliminate or reduce training programs	35%	23%	10%	15%	18%	18%
Organization-wide restructuring	31%	23%	14%	20%	21%	23%
Increase communication to employees about their benefits	31%	32%	35%	27%	35%	35%
Increase communication to employees about their pay	28%	16%	18%	31%	43%	37%
HR function restructuring	23%	14%	15%	22%	21%	19%
Reduce/eliminate other employee programs (tuition reimbursement, subsidized dining facilities, etc.)	23%	12%	8%	18%	12%	11%
Raise percentage that employees pay for health care premiums	22%	20%	21%	24%	17%	25%
Reduced workweek	13%	2%	4%	8%	6%	4%
Reduce employer 401(k)/403(b) match	12%	3%	2%	12%	7%	4%
Salary reductions	7%	5%	2%	4%	6%	4%
Early retirement window	6%	3%	4%	6%	6%	5%

Planned merit increases are now 1.7 percent, less than half of what companies originally planned before the recession hit. Of the 69 percent who have revised their budgets, 58 percent did so in the last two months.

Survey results also show that the majority of companies (61 percent) expect the current downturn in their performance to last at least until the end of 2009. Approximately half of companies (51 percent) plan to increase their cost-cutting actions in 2009 and beyond.

“As the business outlook remains challenging, employers are buckling down and making hard decisions,” said Laurie Bienstock, U.S. strategic rewards leader at Watson Wyatt. “This may be good news as companies move more toward cost-cutting efforts other than workforce reductions in an effort to hold on to the workers they will need when recovery eventually comes.”

Other findings from the survey include:

• Of those companies that have already made layoffs, 29 percent have offered enhanced severance benefits such as extended benefits coverage, extended pay or extended job search assistance.
• Since the economic crisis hit, 79 percent of respondents have noticed 401(k) or 403(b) participants changing their investment mix to move out of equities (up from 59 percent in December’s survey), 45 percent have seen an increase in the number of loans taken (up from 27 percent in December’s survey), and 35 percent report an increase in the number of hardship withdrawals taken — more than doubling the December response of only 16 percent.
• Short-term incentive funding has not changed substantially since October — from a mean of 86 percent funded last year, current annual bonus pools stand at 71 percent funded.

To read the full report, "Effect of the Economic Crisis on HR Programs," visit www.watsonwyatt.com/hrprogramsfeb09.

For further information please contact:

Ed Emerman
609.275.5162
eemerman@eaglepr.com

Steve Arnoff
703.258.7634
steven.arnoff@watsonwyatt.com

About Watson Wyatt

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 32 countries and is located on the Web at www.watsonwyatt.com.