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March 16, 2010

Survey predicts frozen pay will thaw in 2010

By Lee Howard

Publication: The Day

Published 12/08/2009 12:00 AM
Updated 12/08/2009 04:57 AM

Frozen salaries nationwide may be about to undergo a January thaw.

Of companies that had frozen employee salaries this year, nearly two-thirds surveyed nationwide in October by the Stamford professional-services firm Towers Perrin said they expect to increase pay in 2010.

Still, merit increases will likely be small, according to the survey of more than 300 human resources managers, because two-thirds of employers don't expect a significantly better business climate in the early part of next year.

Median salary increases nationwide - for those who receive them at all - will be in the 3 percent range. That's better than the raises handed out last year, but well below the 4 percent increases seen in 2007, Towers Perrin said.

Major local companies contacted Monday either said they were still looking at compensation levels for next year and had not finalized their plans or did not immediately respond. But the Woodbury-based Connecticut Human Resource Reports said its survey of 127 state businesses showed pay increases for the coming year projected at 2.8 percent, compared with from last year's 3.2 percent estimate.

"The forecast is down considerably from employers' forecasts for 2009 - no surprise with our current economic situation," according to the survey commentary.

But the state forecast was only for those planning pay increases. Connecticut Human Resource Reports said a full 30 percent of state firms expect to give no increases next year, a huge increase from last year's projection of 2 percent but a reduction from the 41 percent that actually had to freeze budgets as last year's economic problems descended into a meltdown at 2008's fading light.

"Companies are making an effort to gradually return some sense of normalcy to compensation budgets in the coming year," said Ravin Jesuthasan, managing principal of Towers Perrin. "Employees coming off a year with no salary increases or bonuses will likely appreciate a small bump in compensation, even if it is noticeably off from pre-recession norms."

Towers Perrin also said workers should expect bigger discrepancies in raises among employees as companies try to retain key talent.

"Organizations that plan to recover quickly can't sit back and watch top talent walk out the door," said Jesuthasan. "Companies that use differentiated compensation strategies as a means of retention and recognition are realizing real returns - and we see more organizations considering this strategy for 2010."

This year, according to Towers Perrin, 43 percent of companies froze salaries, while 25 percent cut back on their 401(k) contributions and 17 percent instituted hour-reduction or furlough programs.

The Connecticut Human Resource Reports said year-end bonuses will be handed out by 18 percent of companies surveyed this year, down from 25 percent last year. Of those offering bonuses, only 1 percent said the payment will be larger this year than last, while 34 percent expected reductions.

"For 2010, the plan is to slowly reverse these strategic cuts as businesses take thoughtful actions to balance the competing needs of cost reduction and talent management," according to the Towers Perrin report. "In the coming year, just 17 percent of companies polled plan to have a salary freeze in place and 7 percent will reinstate salaries across the board."

Among companies that pulled back on 401(k) contributions this year, more than a third are expecting to increase the company match. Overall, a more modest 10 percent of companies were looking to bolster their employees' retirement funding through the popular 401(k) program.

"Taken as a whole, the survey responses suggest that most organizations are still a long way from resuming 'business as usual' with regard to their work force and reward programs," said the report. "The pay reality in many organizations is likely to lag employee perceptions of a strengthening economy."

MORE

Key points of survey:

• The majority of companies have taken and continue to take steps to reduce work force costs, including hiring freezes, layoffs, pay freezes and reductions in travel and entertainment spending, training budgets and 401(k) contributions.

• About one in five companies expect to increase hiring; one in 10 will enhance retirement benefits, boost training budgets and increase employer 401(k) contributions.

• More employees are likely to receive some kind of salary increase in 2010. Bonuses for 2009 performance will be lower than in prior years or nonexistent in almost half of the organizations.

• Almost a quarter of the survey respondents do not plan to increase executive salaries in 2010.

• Seventy percent of the survey respondents are very or somewhat concerned about talent retention heading into the new year.

SOURCE: Towers Perrin

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