Recession Forcing HR Program Changes

WASHINGTON, DC, December 18, 2008 -- The number of companies implementing cost-cutting measures, including layoffs, hiring and salary freezes and smaller pay raises, has risen sharply in just two months, according to a new survey by Watson Wyatt, a leading global consulting firm.

Watson Wyatt's latest survey found that more than one in five companies (23 percent) plan to make layoffs in the next 12 months, and almost two in five (39 percent) have already done so -a sharp increase from only 19 percent of companies who had done so in October. The number of companies with hiring freezes jumped from 30 percent in October to 47 percent this month, with an additional 18 percent planning a hiring freeze in the next 12 months. Furthermore, the number of companies that have already implemented salary freezes jumped from 4 percent in October to 13 percent currently. The survey was conducted during the week of Dec. 8, 2008, and includes responses from 117 companies across a variety of industries.

"As the economic downturn has both broadened and deepened, companies in almost every industry can no longer stay the course," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. "The need to contain costs has resulted in stronger measures that are ultimately affecting more workers."

The Recession Is Causing Companies to Change a Broad Array of HR Programs

                                                     Change       Change
                          Change        Change      planned in   planned in
                        already made  already made  the next 12  the next 12
    Action                (Dec)          (Oct)      months (Dec) months (Oct)

    Add/increase
     restrictions
     in travel policy       48%           34%          16%           21%
    Hiring freeze           47%           30%          18%           25%
     Layoffs/reduct-
     ions in force          39%           19%          23%           26%
    Downgrade/cancel
     holiday party          35%           19%           8%           18%
    Increase benefits
     communication          32%           35%          35%           35%
    Eliminate/reduce
     seasonal workers       28%           17%          16%           18%
    Organization-wide
     restructuring          23%           14%          21%           23%
    Eliminate/reduce
     training               23%           10%          18%           18%
    Raise employee
     contribution to
     health care premiums   20%           21%          17%           25%
    Increase pay
     communication          16%           18%          43%           37%
    HR function
     restructuring          14%           15%          21%           19%
    Salary freeze           13%            4%          19%           12%
    Mandatory holiday
     shutdown               13%            6%           5%            2%
    Reduce/eliminate
     other employee
     programs               12%            8%          12%           11%
    Salary reductions        5%            2%           6%            4%
    Early retirement
     window                  3%            4%           6%            5%
    Reduce employer
     401k/403(b)
     match                   3%            2%           7%            4%
    Reduce workweek          2%            4%           6%            4%

Companies are taking a number of different actions to help them manage costs. Findings show that almost two-thirds of companies have already taken five or more of the actions in the table above.

"All indications are that 2009 will be a difficult year for both companies and ultimately employees," said Sejen. "It will be up to employers to find an effective way to manage this challenge by balancing their financial situations with the likely impact on employee engagement."

Other findings:

• Those companies that have already made or are planning to make layoffs indicated that this strategy would affect approximately 5 percent of their employee population.
• Sixty-one percent of employers reduced their planned merit increase for next year from 3.8 percent to 2.5 percent.
• Almost six in ten employees (59 percent) have moved their 401k or 403(b) investment mix out of equities, compared with just over half (53 percent) in October. The number of employees taking loans has jumped from 19 percent to 27 percent in the same period.
• Short-term incentive funding has not changed substantially from October -from a median of 100 percent funded last year, current STI funds stand at 80 percent funded.

For more information, visit www.watsonwyatt.com/HRprogramsupdate

About Watson Wyatt

Watson Wyatt (NYSE, Nasdaq: WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,600 associates in 32 countries and is located on the Web at www.watsonwyatt.com.

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