Recession Results in Drastic Moves by Organizations to Reduce Labor Costs, Says New Hay Group Global Survey

PHILADELPHIA--(BUSINESS WIRE)--The number of U.S. organizations decreasing overall staffing levels has nearly doubled in the past four months, according to management consulting firm Hay Group’s latest Reward in a Downturn Survey. When Hay Group conducted a similar study in November 2008, only 19% of U.S. respondents reported planning layoffs. However, only four months later, that number has jumped to 34% for U.S. respondents. Organizations are also turning to wage freezes and modest salary increase budgets to reduce labor costs. According to Hay Group’s survey, 37% of U.S. organizations have instituted a wage freeze for their employees – and more than half of U.S. respondents report their executives will receive no salary increase this year. A total of 2,000 organizations from 88 countries across six continents participated in Hay Group’s latest survey.

“In these extraordinary times of economic uncertainty, organizations should take care to make contractions strategically and surgically to ensure that the talent base is still onboard and engaged when the economy turns around.”

“Organizations have been swift and decisive in their actions to reduce labor costs during these trying economic times,” said Tom McMullen, U.S. Reward Practice Leader for Hay Group. “When we conducted a similar study a year ago, only 16% of U.S. respondents expected their business results to be significantly worse than targeted levels. Today, that number has jumped to 40% for U.S. respondents, and we’re seeing organizations substantially tightening their belts as a result.”

Hay Group’s survey also found that the impact of the downturn is indeed a global issue – significantly affecting high-growth economies in Asia, Eastern Europe and South America, as well as the more developed economies in North America and Europe within the past four months. Unlike Hay Group’s November survey, the percentage of organizations expecting business results to be worse than targeted or budgeted levels is now largely consistent around the globe.

Other key findings from Hay Group’s Global Employee Pay and Staffing Survey:

Retirement program reductions: One fifth of organizations with either defined benefit or defined contribution retirement programs are reporting that they are considering changes to the value of these programs. Of organizations making changes to their defined contribution plans, the vast majority (78%) of U.S. respondents report they are considering decreasing the benefit levels of these plans.
Long-term variable pay value significantly drops: Many organizations have stated that the value of their long-term incentive programs have dropped substantially – by a median of 40% in the U.S. and 30% globally. Approximately 32% of U.S. respondents indicate they are considering or making changes to their long-term incentive programs. Of those organizations, approximately half report they will be granting lower values of options, shares and units per employee in 2009.
HR programs hitting the chopping block: Training and development programs are being decreased or eliminated by 22% of U.S. respondents. Companies are also cutting overtime wages (21%) and the use of contract laborers (32%).
Employees worry about job security the most: Not surprisingly, respondents report their employees’ primary concern is around job security, with 92% of U.S. organizations saying this is a top concern for employees. Management, however, listed the ability to retain top talent and employees with critical skills (91% of U.S. employers), and the ability to maintain an engaged and motivated workforce (90% of U.S. employers) as top concerns.
Renewed focus on severance programs: Nearly 40% of surveyed companies either made or considered changes to their severance programs in the last year, according to another Hay Group study conducted in February 2009. Of these companies, 39% considered making their programs more generous rather than less.

“Organizations in crisis mode often rush to cut costs through overly simplistic one-size-fits-all reductions in headcounts and salary budgets,” said McMullen. “In these extraordinary times of economic uncertainty, organizations should take care to make contractions strategically and surgically to ensure that the talent base is still onboard and engaged when the economy turns around.”

Additional information about Hay Group’s Reward in a Downturn survey can be found on our website.

ABOUT THE SURVEY

A total of 2000 organizations from 88 countries across 6 continents participated in Hay Group’s Global Reward in a Downturn survey in March 2009 – 511 respondents were from the U.S. This is the third survey in the series, with the first conducted in March 2008 and the second in November 2008. Data collected in the research survey includes organizational changes to base salary increases, short-term and long-term incentive programs as well as changes to other reward-related programs (e.g. benefits plans, staffing and work rules programs and training and development programs). Typical respondents to the survey include top HR and reward executives within medium to large size organizations across a wide range of industries.

For more information, or to arrange for an interview please contact Mitch Kent, Global head of PR for Hay Group, 215.861.2315 or mitch.kent@haygroup.com.

ABOUT HAY GROUP

Hay Group is a global consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective, and motivate them to perform at their best. With 88 offices in 47 countries, we work with over 7,000 clients across the world. Our clients are from the private, public, and not-for-profit sectors, across every major industry and represent diverse business challenges. Our focus is on making change happen and helping people and organizations realize their potential.