Companies React to Tough Economic Times

As the impact of the global economic crisis takes hold, a quarter of U.S. employers expect to make layoffs in the next 12 months. However, most companies are focusing on increased employee communication and smaller cost-saving measures, according to a survey by Watson Wyatt, a leading global consulting firm.

According to the survey of 248 companies conducted in mid-October 2008, more than one-third are planning to increase their communication around pay (37 percent) and benefits (35 percent). And roughly one of four is planning layoffs (26 percent), hiring freezes (25 percent) or raising employee contributions to health care plans (25 percent). While some companies also plan other changes, including travel restrictions, restructuring and reductions in training, relatively few expect to freeze salaries, reduce 401(k) matches or freeze or close their pension plan.

Employers are expecting to make staffing, pay and benefit changes in response to the financial crisis

Additionally, three out of 10 employers (28 percent) have reduced their merit pay budgets in the wake of recent financial developments. Of those employers that reduced their budgets, the projected raise is now 2.5 percent for 2009, down from 3.7 percent.

The survey also found that employees are making moves with their 401(k) plans. More than one-half of employers (53 percent) reported their employees are moving investments in their 401(k) plans out of equities. Also, about two in 10 employers (19 percent) reported more employees taking out plan loans, while slightly fewer (15 percent) reported an increase in hardship withdrawals.

"Employees are obviously concerned about the impact of the financial crisis as well, especially in relation to their 401(k) plans," said Kathryn Yates, global director of communication consulting at Watson Wyatt. "Enhanced communication from employers in areas such as pay and benefits can go a long way toward easing some of that anxiety."

For more information, visit http://www.watsonwyatt.com/HRprogramsreport.