Deloitte: Corporate compensation strategies driven by past pessimism rather than future optimism
New research reveals shortfalls in compensation plans and retention programs.

Fuente:   Fecha: 29.12.2009

Deloitte: Corporate compensation strategies driven by past pessimism rather than future optimism

Many companies have focused their compensation strategies to cope with the recession and not necessarily to prepare for the coming recovery, according to a new research study conducted by Deloitte titled Under Pressure: Compensation and Retention During a Turbulent Economy.

In an October 2009 survey of more than 200 executives at companies spanning a range of industries, Deloitte found that over the past year, surveyed companies have confronted the most difficult economic challenges in a generation, including how to motivate and retain key talent when a dismal economy is wreaking havoc with traditional compensation plans. This latest research indicates that across the board at the surveyed companies, pay and incentives are down with deeper cuts this year than in 2008. At the same time, respondents did not report a major effort toward retention planning or retention strategies -- with one in five reporting they could not afford to implement retention programs.

"Companies counting on a soft job market alone to retain employees may be blindsided unless they reposition themselves to keep top talent as the economy rebounds," said Michael Kesner, principal, Deloitte Consulting LLP. "Deloitte believes these preparations may play a significant role in determining which companies prosper and which get left behind as the recovery, however uneven, continues to gather strength."

Some of the key findings from the survey include:

Base Salaries
* At least 85 percent of surveyed companies will not provide standard merit increases on base salaries in 2009.

* Surveyed executives fare somewhat worse than employees, with two out of three (66 percent) seeing either no increase in base salary or a salary reduction (compared to 54 percent for employees).

* Looking ahead to next year, 30 percent of surveyed executives anticipate standard base salary increases of 3 to 5 percent for employees; 28 percent expect similar raises for executives.

* A majority of survey respondents (54 percent) plan to make smaller than normal salary increases for employees next year while 44 percent indicate executives can expect a smaller salary bump.

Annual Incentive Plans
* Consistent with the tight rein on base pay increases, more than six out of 10 executives (64 percent) surveyed reported their companies plan to award bonuses below target this year.

* Fully 20 percent reported they plan to forego bonuses altogether -- double the number of companies that cut out bonuses last year. Nevertheless, 36 percent project annual bonuses at or above target -- a strong minority but still a decline from 41 percent in 2008.

* More than half (52 percent) of the executives who participated in this survey reported bonuses will be smaller than in 2008, compared to just 20 percent who believe they will be higher.

Long-Term Incentives
* As part of their overall compensation strategies, 67 percent of the companies participating in this survey offer long-term incentives to motivate and compensate high-performing employees and executives.

* Among surveyed companies offering long-term incentives to motivate and compensate high-performing employees and executives, 64 percent grant stock options; 67 percent award restricted stock; and 45 percent offer multi-year performance plans payable in cash or stock.

* With stock prices recovering, 55 percent of surveyed executives report that the value of long-term incentives granted in 2009 will meet or exceed the value of 2008 grants.

* Nearly one-third (29 percent) of executives surveyed indicated grant values will drop from last year, reflecting the unevenness of the current recovery.

Retirement Benefits
* Nearly one in three executives surveyed (29 percent) stated their companies either decreased (9 percent) or suspended (20 percent) 401(k) matches in 2009.

Adjusting Compensation Plans to Motivate Employees
* While austerity measures dominate the corporate response to a tough economy, a sizable minority of companies report that they are taking steps now to re-balance their compensation portfolios ahead of an economic upturn.

* In addition to adjusting bonus pools and stock options, and increasing restricted stock grants, some surveyed executives are also improving base pay, paying larger bonuses and enhancing long-term incentives:

-- Increase salaries 3 to 5 percent in 2009: According to survey respondents standard merit increases will be paid for employees (15 percent) and executives (10 percent);

-- Pay annual bonus above 2009 target: Approximately 12 percent of surveyed executives expect to increase annual bonus payments above 2009 targets

-- Pay annual bonuses above 2008 levels: One in five executives (20 percent) report this year's bonus will be above 2008 levels.

-- Retain top talent: 17 percent of survey participants report they are implementing retention programs for senior executives now and 13 percent report they are doing so for middle management, 11 percent for select business units.