Companies’ cost-cutting plans slow in anticipation of economic upswing

by 06 May 2009

US employers’ efforts to battle the recession through cost-cutting actions such as layoffs, hiring freezes and salary freezes may have finally peaked, according to research from global HR consulting firm Watson Wyatt.

Most companies surveyed are planning no further hiring freezes (67 per cent), organisational restructuring changes (65 per cent) or layoffs (53 per cent). Although the majority are not planning any further salary reductions (89 per cent) or salary freezes (76 per cent) in the next 12 months, the number that have already made these changes has risen sharply since February.

Mandatory shutdowns (24 per cent), a reduced workweek (22 per cent) and mandatory furloughs (17 per cent) have also risen sharply since February.

The survey also found that only one in four employers (26 per cent) plans to increase cost-cutting initiatives over the next 12 months, a sharp decline from the 51 per cent planning more cost-cutting measures in February.

Watson Wyatt’s latest survey includes responses from 141 employers and was conducted in April 2009.

“Companies have started to move into the next stage of their cost-cutting actions, but are also looking ahead to an eventual recovery,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt.

“There is a recognition that employers will need to be poised for a turnaround, and that continuing some cost-cutting measures such as reductions in force can put them at a disadvantage once the economy improves.”

The survey found that planned merit pay increases are expected to remain at 2 per cent in 2009, but will increase to 3 per cent in 2010. Short-term incentive (STI) funding plans have not changed drastically in the last two months either – in February, companies planned to fund their STI plans at 71 per cent, compared with 69 per cent now. Only 17 per cent of organisations took cost-cutting measures to protect bonus pool funding.

“Companies remain under great pressure to reduce costs as the recession continues, and no one knows for sure how long it will last,” said Laurie Bienstock, US strategic rewards leader at Watson Wyatt.

“While companies are planning for eventual economic recovery, many still face having to make difficult decisions that could affect workforce productivity, future growth and ultimately their bottom line.”


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