Employers avoiding "too deep, too far" salary budget cuts
08 April 2009 8:12am
Employers across Australia are trimming their salary budgets, but with more precision than has been seen in previous downturns, a Mercer study has found.
Mercer's 2009 Market Issues Survey, conducted with 352 companies in January, shows that employers then expected salary increases this year to drop from five to four per cent.
Since then, due to worsening market conditions, estimates might have fallen to around three per cent, based on polls at its informal forums around the country.
But while salary budgets are a target of cost-cutting organisations, the majority (71%) are limiting their cuts to specific areas.
Only 11 per cent of the organisations surveyed plan to freeze salaries at 2008 levels in at least one segment of their workforce, and just two per cent are applying across-the-board freezes, Mercer found.
David Abusah, Mercer's broad-based performance and reward leader, says that while employers have reacted quickly to deteriorating market conditions, "[they] are not taking a broad-brush approach to cost-containment measures such as blanket workforce reductions, hiring, or wage freezes and are being targeted and differentiated in where they reduce their spend".
"The immediate reaction by Australian organisations has largely been a cautious one with most companies resorting to low disruption and surgical cost-containment options, rather than a cost-crunching or slashing approach," he says.
The study shows that only one per cent of employers are implementing across-the-board job cuts, compared to 16 per cent planning to make cuts in one or more business divisions, and just 10 per cent are planning total recruitment freezes (compared to 36% in one or more areas).
"Lessons learnt in past downturns have seen employers being cautious not to cut too deep or too far this time around. Instead they are being targeted in their decisions around workforce reductions, hiring freezes and reward spend reductions," Abusah says.
When implementing remuneration budget cuts, he says, employers must:
understand business and talent imperatives and align reward decisions accordingly;
consider reward programs holistically and ensure that reactive 'solutions' don't fracture the reward coherence;
adopt a surgical (e.g. specific workforce segment), less invasive and more creative approach (e.g. reduced hours) to cost management;
focus cuts on low value/high cost reward components to minimise disruption and maximise impact;
ensure your remuneration function can deliver on requirements; and
communicate changes and assess the impact.
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