Watson Wyatt: Cost-Cutting Initiatives Take Recovery Path

U.S. employers' efforts to battle the recession through cost cutting actions such as layoffs, hiring freezes and salary freezes may have finally peaked, according to the survey by Watson Wyatt, a consulting firm. The results show that most companies surveyed

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U.S. employers’ efforts to battle the recession through cost-cutting actions such as layoffs, hiring freezes and salary freezes may have finally peaked, according to the survey by Watson Wyatt, a consulting firm.

The results show that most companies surveyed are planning no further hiring freezes (67%), organizational restructuring changes (65%) or layoffs (53%). Although the majority is not planning any further salary reductions (89%) or salary freezes (76%) in the next 12 months, the number that has already made these changes has risen sharply since February. Mandatory shutdowns (24%), a reduced workweek (22%) and mandatory furloughs (17%) have also risen sharply since February.

The survey also found that only one in four employers (26%) plans to increase cost-cutting initiatives over the next 12 months, a sharp decline from the 51% planning more cost-cutting measures in February. Watson Wyatt’s latest survey includes responses from 141 employers and was conducted in April 2009.

The survey found that planned merit pay increases are expected to remain at 2% in 2009, but will increase to 3% 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%, compared with 69% now. Only 17% of organizations took cost-cutting measures to protect bonus pool funding.

The number of companies that report having reduced their 401(k) match has increased by 10 percentage points, from 12% in February to 22% in April. There has also been a jump in the number of hardship withdrawals from 401(k) plans — 44% of respondents in April noticed an increase in withdrawals, compared with 35% in February.

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

“Companies remain under great pressure to reduce costs as the recession continues, and no one knows for sure how long it will last,” says Laurie Bienstock, U.S. 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.”

L.D.

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