Corporate America may finally be done with its drive to cut costs in the HR department, according to a new survey.
Watson Wyatt Worldwide, the HR consultant that commissioned the survey, also
found that companies continue to revamp their annual bonus and long-term incentive
programs to attract and retain top performers and critical-skill workers.
The survey found that only 18 percent of the respondents expect to require
employees to pay a greater share of benefit costs next year, compared to more
than half (56 percent) that did so over the past 12 months. Other cost-management
measures that companies implemented during the past two years—such as reducing
salary increase budgets, bonus funding or staff—are also expected to decline
sharply in the coming year, the survey noted.
A total of 358 U.S. companies, representing "a broad spectrum of industries"
participated in the survey, according to Watson Wyatt.
"The difficult business environment and cost cutting of the past several
years have caused many companies to change their reward practices, especially
the mix of rewards," said Laura Sejen, national practice director for strategic
rewards at Watson Wyatt. "While fewer companies see the need for additional
cost cutting in the coming year, clearly the nature of the employer-employee
deal has shifted."
For example, in light of pending changes in accounting for stock options, more
than four out of ten (41 percent) companies have decreased eligibility for participation
in long-term incentives. According to Sejen, this weakens the link between employees’
rewards and the long-term financial performance of their companies. It also
reduces the opportunity for wealth accumulation, previously an important component
of the employment deal in many companies. The survey also noted that 39 percent
of companies are making changes to their short-term and annual incentives.
High-performers vs. low-performers. Low-performing companies—those
whose financial results are worse than their industry as a whole—are facing
profound attraction and retention challenges compared with high-performing companies.
According to the survey, low-performing companies report twice the difficulty
attracting and retaining top-performers and critical-skill workers compared
to high-performing firms.
"High-performing firms clearly do a better job of differentiating pay
based on performance," said Sejen. "They effectively use short-term
incentives, spot bonuses and other recognition plans to successfully attract
and retain top talent."
Indeed, short-term incentives, which top-performing employees rank as the second
most valued monetary reward program, offer significant reward potential. Most
companies fund short-term incentives based on their financial performance, and
according to the survey, high-performing companies funded their incentives at
108 percent of target while low-performing companies were only able to fund
incentives at 75 percent of target.
"Unfortunately, top-performing workers at financially weak companies are
suffering the consequences. These workers are receiving bonuses that are significantly
lower on average than their peers at high-performing companies at 84 percent
of funded versus 118 percent of funded respectively. And the gap only becomes
wider since low-performing companies are not able to fund their bonus pools
to nearly the same degree as financially strong companies," said Sejen.
"To create effective reward programs, companies need to understand where
their reward dollars are being allocated," said Sejen. "And the companies
that do the best job of linking rewards to business results and employee performance
to attract and retain the best workers will be the ones best positioned for