Revised Pay Budgets Slashed

In the past two weeks a couple of major studies of what companies are doing with regard to their 2009 pay budgets are revealing concerning how quickly and deeply business conditions and the labor market have deteriorated.

In a study just completed by Hewitt Associates, merit budgets for 2009 have dropped to only 3%, compared to 3.6% to 3.8% from the same study done in the summer of 2008. And when companies with frozen and/or cut pay rates are taken into account, Hewitt expects overall pay levels to only increase only 2.5% next year (if you're lucky enough not to be laid off before then).

According to the the Hewitt study, 50% of employers have already reduced their pay spending plans for 2009 and 25% say they are considering cuts and/or further reductions. (Just today, FedEx announced a 5% pay cuts for all salaried staff and 7.5% to 10% cuts for executives).

In the just published Culpepper December 2008 Pay Practices & Policies Survey (www.culpepper.com), 35% of participating companies have already reduced their salary increase budgets, another 12% have or plan to freeze salaries, and another 31% are undecided which course they will take in regard to recent economic and business developments. Only 23% of participating companies anticipate making no changes to their salary increase plans.

The Culpepper study is geared more towards technology and life science companies, while the Hewitt Associates study is more cross-industry and skewed towards larger firms.

In the Culpepper study, the average base salary increase for 2009 is budgeted at 3.08% and the average budgeted pay structure increase for next year is only 2.08%. Both of these data points are down significantly from earlier projections for 2009.

In the current environment it is likely that further reductions will take place, even though the 2009 projections are already the lowest pay increase budgets in at least 15 years.