CREDIT CRUNCH
Are companies using their limited pay budgets effectively?
European companies are currently so focused on cutting costs through layoffs, salary and hiring freezes that they may be setting themselves up for problems in the medium term, according to research from consultants Watson Wyatt.
The firm’s survey of 200 companies from across Europe and the Middle East found that 43% (52% of UK companies) have taken action to reduce permanent workers. Most have also sought to hold down salaries, with over 70% looking to reduce their budgeted pay increases in response to the current economic climate.
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“These are clearly sensible measures in these uncertain times but our concern is around how companies appear to be using their limited pay budgets,” said Carole Hathaway, European head of strategic reward consulting at Watson Wyatt.
Few companies target reward spend on key talent
The survey found that less than a third of companies are targeting their reward budget on key employees. Moreover, where this is happening, the focus appears to be on only “high performers” rather than those with “business-critical skills”.
“Despite a majority of companies claiming to have a greater focus on their key talent, few are supporting this by actually targeting their reward spend on them,” said Hathaway. “Top performers are not necessarily the same as those with business-critical skills. Few companies appear to have the reward and performance programmes that enable them to make this important distinction. But failure to reward adequately those with business critical skills – as well as high performers – can have implications on retaining these key workers when the economy recovers.”
Key survey results
The Watson Wyatt survey, which was conducted in mid-June, found that companies are taking a range of actions to engage their workforce:
A final word
“While companies are stepping up their communication on the wider business situation, they should put more specific attention on communicating changes made to pay policies, even if that’s not going to be good news.” - Carole Hathaway, European head of strategic reward consulting, Watson Wyatt.
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Watson Wyatt is the “trusted business partner to the world's leading organisations on people and financial issues”. The firm’s global services include: managing the cost and effectiveness of employee benefit programmes; developing attraction, retention and reward strategies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 34 countries and is located on the web at www.watsonwyatt.com.