E-mail this page				Print this page

Contact: Mercer Feedback

United States
New York , 10 February 2009

Base salary budgets for 2009 have been reduced by many companies in response to a worsening economy and reshaping of corporate forecasts, according to a new Mercer survey. Reductions are widespread, leading to salary freezes at one in four companies responding to the survey. Organizations that still plan increases for 2009 have trimmed these by one-half percent from the level they said in October was planned for the coming year.

Mercer’s 2009 US Salary Budget Planning poll was conducted January 22-29. It includes responses from more than 400 mid-size and large employers across the US, and provides an update to Mercer’s 2008/2009 US Compensation Planning Survey, conducted in April and again in October, 2008.

Salary freezes

According to Mercer’s findings, one in four organizations has instituted a salary freeze for 2009 and another 20 percent are considering a salary freeze.

“Although not all companies considering a freeze will take this step, by the time all 2009 budgets are final, we expect to see one in three organizations freezing wages at 2008 levels,” said Steve Gross, global leader of Mercer’s broad-based performance and rewards consulting business. “It’s not an easy message to communicate to employees, but we think managers will be aided by the unprecedented context of these difficult decisions – including low inflation and high unemployment.”

Base pay budgets

Companies making or considering a base salary increase in 2009 – 75 percent of respondents – are budgeting 3.2 percent overall, down almost one-half percent from mid-October projections of 3.6 percent. Between April and mid-October of last year, 2009 pay increase budgets were hardly affected – they diminished by a mere one-tenth percent (from 3.7 to 3.6 percent). See Table 1  for percent increases by employee group.

Times have changed quickly. Just three months ago, approximately one-quarter (24 percent) of survey respondents planned to reduce their base pay budgets from their April projections by one-half percent, and 18 percent of participants planned to increase their budgets from their April projections to an average of 3.8 percent. Some 12 to 18 months ago, just 5 percent of companies planned to freeze salaries for all or a portion of their staff.

Executives are less likely to get an increase than rank and file employees

The biggest budget decrease in the survey findings is at the executive level, where more than three-quarters (77 percent) of respondents plan to decrease their salary budget from their 2008 projections.

“Given lackluster corporate performance and recent pressure from regulators, shareholders and the President, it’s not surprising to see that over the past few months, more than one-third of participants who reported executive salary data went from a 2009 planned base salary increase for their executives to a freeze,” commented Mr. Gross. “In 2009, executives are less likely to get a salary increase than rank and file workers.”

Areas of focus -- performance management and employee engagement

Pay for performance is becoming increasingly more important. “The trend to strengthen performance management programs to better differentiate strong from average or weak performers will only gain more traction in the months ahead,” said Mr. Gross. “Greater differentiation of top performers allows employers to attract and retain those employees that will contribute to the company’s competitiveness and success.”

According to Mr. Gross, employees are most concerned about what this shakeout will mean to them. Clear and timely communication from senior management is essential to help employees move past paralyzing uncertainty and, in the case of layoffs, deal with ‘survivor guilt’. Beyond making employees feel motivated to contribute to improved corporate performance, organizations need to focus on enhancing the employment brand with dignified actions and direct communication.

In addition to communication, organizations must remember that engagement and retention are no longer synonymous with pay. Employers need to emphasize the total employment value proposition – including training opportunities, career development and workplace flexibility. These are the important levers that will help companies retain and engage their key performers in an affordable and sustainable way, thereby positioning the organization for a business upswing.

For more information or to purchase the full report of Mercer’s 2008/2009 US Compensation Planning Survey, visitwww.imercer.com/cps or call 800 333 3070. For insight on how employers can address today’s economic challenges, visitwww.mercer.com/unprecedentedtimes for global survey results and a series of podcasts by Mercer thought leaders.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.

For more information, visit www.mercer.com.

Table 1: Companies granting 2009 base salary increases by employee group

Source: Mercer

E-mail this page

Print this page

Contact: Mercer Feedback