Multi-national organisations are trying to be selective in cutting employee benefits despite tough times ahead, according to new research released by Mercer.
The global Leading Through Unprecedented Times report revealed that 81% of respondents expected a decline in their own company’s business performance in 2009.
More than a third (35%) expect significant reductions in workforce, and salary increases, bonus pay outs and pension contributions will also be hit by the credit crisis. However Patricia Milligan, Mercer’s chief markets officer, said organisations are trying to avoid severe cuts.
“Many multi-national companies have been facing rising cost pressure throughout 2008 and in recent months have been managing compensation costs and workforce levels aggressively while working to keep employees engaged and productive,” she said.
“But our survey shows that – at least as a group – most of these companies have refrained from taking severe and broad-based steps. Such drastic actions may include very deep workforce cuts, across the board salary freezes, reductions in defined contribution plan contributions, or elimination of certain health benefit programmes.”
The report surveyed 1,028 human resource and finance professionals representing organisations with operations in more than 100 countries.
Compensation: Cold but no freeze
Almost three quarters (73%) said they were likely to reduce salary increases in 2009, but only 12% reported that freezing wages at 2008 levels is a highly likely course of action, but is a stronger possibility in some industries, notably banking and technology.
Nearly two-thirds (60%) reported that they expect to reduce 2009 bonus pay outs based on 2008 performance.
Furthermore, 75% of respondents in the financial sector are likely to reduce bonus pay outs. This sector also tops the list of industries likely to make changes to variable pay programmes, with 28% stating that their company expects to make changes to such programmes.
Retirement benefits: Holding of on contribution cuts
While the majority (83%) of those surveyed do not envisage their company to reduce the level of contributions to their defined contribution pension scheme to cut costs, the remaining 17% said that they were considering the drastic action.
However, many respondents (77%) expected a review of investment and administrative fees, possibly due to pressure from regulators as well as the decline in investment values.
In a more positive move, nearly all (85%) said they were likely to enhance employee education and communication regarding investment choices, objectives and options.
Regarding defined benefits plans, changing investment strategy (46%) was the most likely method companies will take to reduce risk, rather than changing funding policies (31%).
Health benefits: Current programmes safe, employee contributions likely to rise
Recessions typically lead to an increase in health benefit utilisation by employees and, thus, an increase in the cost to employers of providing the benefits.
Despite this, 84% of respondents to the survey said their company is unlikely to eliminate any current health or group benefit programmes.
Furthermore, companies are more likely to intensify efforts to understand to the root causes of increasing cost (77%) and add wellness programmes to improve health-related behaviours and increase employee engagement (76%).