Contact:
Ann M. Egan
1 816 556 4811
ann.egan@us.wmmercer.com

American workers will remember 2001 as a year of layoffs, hiring freezes, pay reductions, corporate restructurings, and tremendous economic uncertainty. Despite hopes and projections for an economic rebound this year, a new survey suggests that 2002 could bring more of the same - although most likely in smaller doses.

The Global HR Trends web survey, conducted in January by human resource consultants William M. Mercer, Incorporated, asked more than 450 US employers about economy-related changes they had made or planned to make regarding business and human resource strategies.

Business changes
Nearly two-thirds of the respondents (64.7%) said they had implemented a cost-reduction program, and more than half (52.4%) had restructured their organization in light of the economic downturn. About one-third (32.1%) indicated they had scaled back, closed, or divested under-performing operations. Looking ahead in 2002, another 14.3% plan to implement a cost reduction program and 15.9% anticipate some sort of organizational restructuring, while 13.5% expect to scale back or exit under-performing operations. In addition, 14.5% plan to acquire other businesses as an economy-related business strategy.

Staffing measures
When asked what broad staffing measures they had implemented in 2001 to cope with the global economic downturn, four in ten respondents (39.9%) said they had instituted a hiring freeze, while 30.5% reduced headcount and 29.6% reduced average annual salary increases. One-quarter (25.1%) had frozen wages, 8.7% reduced wages, and 17.7% revised their incentive plans. Regarding planned actions in 2002, 15.7% plan to revise incentive plans and 15.2% plan to reduce average annual salary increases.

Layoffs surged in response to the economic downturn, and this was reflected in the survey findings: 17.6% of the respondents said they laid off employees in 2000 and 44.1% made layoffs in 2001. In addition, nearly one-quarter (23.4%) expect to make layoffs in 2002. Another 44.6% expect no layoffs this year, while one-third (32.0%) are unsure.

"During the second half of 2001, employers moved quickly and aggressively to cut their overall labor costs through layoffs, without making any draconian changes to their actual pay rates," says Steven E. Gross, who leads Mercer´s US compensation consulting. "Many employers trimmed back their planned pay increases, but very few cut pay outright. And even when companies did institute wage freezes, it was often targeted at certain groups of employees, such as executives, and not the overall employee population."

The increased use of variable pay also gave employers added flexibility in dealing with the economic downturn, Mr. Gross notes. "Pay-for-performance plans didn´t pay out as much in 2001 because company performance generally was poor," he says. "Still, companies took pains to take care of their highest-performing employees and people with critical skills through tactics like special recognition awards. Employers know they need these people most to recover from the recession. They can´t afford to lose their top talent."

Many companies in the survey took steps to avoid making layoffs during the economic downturn. The most popular action was to delay new hires - an action taken by 38.5% of the respondents. Other firms tried unpaid leave (15.6%) and sabbaticals (4.2%) as alternatives to layoffs.

Despite the economic difficulties, many of the respondents plan to recruit new hires during the first quarter of 2002. The most sought-after employees currently are technical/professional workers. More than two-thirds of the companies surveyed (69.7%) said they planned to recruit technical/professional employees this quarter, compared to 53.4% for nonexempt clerical/technician employees, 50.4% for management employees, 42.9% for nonunion hourly employees, and 32.6% for executives.

Pay issues
In April 2001, US employers had projected "business as usual" pay increases for 2002 as part of Mercer´s 2001/2002 US Compensation Planning Survey. However, economic conditions worsened as the year progressed, prompting many employers to revise their projections downward by October 2001, when Mercer conducted an update to this survey.

Now, Mercer´s new Global HR Trends survey, conducted in January 2002, shows that anticipated pay levels for senior employees (executives and managers) are holding steady or rising slightly, while 2002 expected pay increases for other employees continue to trend downward. (See Table 1.) Indicating their optimism for an economic recovery in 2002, however, employers are projecting higher increases for 2003 in all employee categories.

"Employers clearly see 2002 as a transition year out of the recession, but are anticipating a return to normalcy by 2003," Mr. Gross says.

The US version of Mercer´s Global HR Trends survey can be purchased online at www.imercer.com or by calling 800 333 3070. The cost is $100. In addition to the US, the survey also was conducted in other locations around the world, including Australia, Europe, and Asia. The results of these surveys have been compiled into a global report, which costs $390 and is available for purchase online at www.imercer.com/international.

Table 1:  Projected Base Pay Increases

*     Nearly two-thirds (65%) of the 340 employers surveyed in October said their pay increase budgets had not changed over the previous six months, but 28% indicated that they had adjusted their pay increase budgets, accounting for this overall drop between April 2001 and October 2001.  A very small number of these employers (2%) said they planned to freeze their pay budgets in 2002.

Source: William M. Mercer, Incorporated