Vault's Careers Blog

Career advice and job search strategies for the modern careerist

Posts Tagged ‘Salary

U.S. Companies are More Likely to Lay Off Employees

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It wasn’t your imagination: almost every company was laying off over the last couple of years. According to a recent report from HR consultancy Towers Watson, some 74 percent of U.S. companies initiated layoffs, redundancies or RIFs as a means of reducing costs during the recession. That figure also happens to be higher than in any other employment market in the world.

Whether it’s a reflection of cultural differences, evidence that U.S. companies were more bloated and inefficient than their international counterparts, or just a reflection that the recession affected the U.S. economy more deeply than anywhere else, the Towers Watson report contains a couple of startling insights for those interested in the wider employment picture.

First is that U.S. companies were more likely to reduce their headcount than to take any other action to cut costs—while 74 percent of companies shed workers, just 66 percent froze hiring, with 61 percent freezing salaries.* In each of the six other geographic areas in which the survey was conducted (generating responses from 1,176 HR professionals), companies were more likely to freeze hiring, salaries or both than they were to reduce headcount.

Additionally, U.S. companies also took a higher number of cost-cutting actions—a mean of 4.5—than those in any other region

Towers Watson stats on company cost cutting in the recession

Source: Towers Watson 2010 Global Talent Management and Rewards Study

Whether all that leaves U.S. companies in a more competitive position than those overseas remains to be seen. As does evidence on whether U.S. companies cut too deeply and have a scramble for talent ahead of them as the economy recovers. But the report does have one more set of insights as to what the future may hold for companies, job seekers and careerists alike.

When asked what actions they were considering in the event of either having to further cut costs or spend additional funds on labor costs, movement on salary topped both lists. That is, a majority of HR professionals (78 percent) said they’d be most likely to reduce pay increases as a means of cutting costs, while 69 percent said they’d be most likely to increase the salary budget if they had extra cash on hand. **

Unfortunately, the figures on likely layoffs versus hires seem to reflect the current uncertainty in the market: while only 41 percent of respondents said they’d be likely to lay off employees in the event of a downturn, only 54 percent said they were prepared to hire more people if more cash became available.

So there you have it: your future paychecks are definitely dependent on the performance of the economy as a whole. The ability of the economy to create jobs, however, seems to depend on a shift in confidence among the people tasked with making the hiring decisions. And that’s a lot harder to predict.

* There’s no separate stat in the report about companies that reduced salaries: I’m left to assume that this figure encompasses both.
** These figures are global: the report doesn’t break them down by region.

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Should Profitable Companies Still Cut Salaries?

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Let’s imagine for argument’s sake that you’re one of the 90 percent of American adults who is working. Not only that, but you’ve got a job with a company that managed to make a profit even during the darkest days of the recession, and has so much cash on hand that it’s doling out generous dividends to its shareholders.

Sound like a reasonable time to ask for a raise? And even if it doesn’t, you definitely wouldn’t be expecting to be fighting against wage and benefit “givebacks,” right?

As The New York Times reported last week, employees of a Mott’s apple juice plant in upstate New York have been facing exactly that scenario since May. Plant owner Dr Pepper Snapple Group feels that “the Mott’s workers are overpaid compared with other production workers in the Rochester area, where blue-collar unemployment is high.” Accordingly, the company is seeking “a $1.50-an-hour wage cut, a pension freeze and other concessions to bring the plant’s costs in line with ‘local and industry standards.'”

Plant workers are understandably peeved by the plans, and have been on strike for more than 90 days. But the case is interesting for more than just the simple labor dispute at its heart—the Times points out that “[f]or unions across the country, the stakes are high because if the Mott’s workers lose this showdown, it could prompt other profitable companies to push for major labor concessions.”

The case is also being presented as another example of “corporate greed” running amok, with the president of the union claiming that Dr Pepper Snapple “just came in and said, ‘we have no financial need for this, but we just want it anyway because we figure we can get away with it.”

At a time of heightened focus on the growing economic stratification in the U.S., the case raises a number of interesting questions. Chief among those: whether a company that’s making a profit should be demanding givebacks from employees, regardless of local conditions.

Additionally, the case also highlights the severe income disparities between workers at the top and bottom of corporations. An employee at the Mott’s plant pulling in $15.00 an hour would make $120 for an 8 hour shift—not counting benefits—a figure that comes out to an annual salary of less than $30,000. According to Forbes, meanwhile, Dr Pepper Snapple CEO Larry D. Young pulled down a base salary of more than 30 times that figure in 2009—a total of $934,616. Factor in stock awards and other compensation, meanwhile, and his total for the year rises to some $6.5 million.

As ever, we’d love to hear your opinions: is the proposed action by Dr Pepper Snapple justified because of the local market conditions or does the attempt to effect cost savings from employee salaries despite making a profit just seem mean-spirited?

–Phil Stott, Vault.com

Written by Phil Stott

August 23, 2010 at 3:07 pm

Time to Revive Rewards

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Now that the economy is starting to turn a corner, employees who fell victim to pay cuts are itching for a return to their pre-recession salaries. Many companies are starting to show some inklings of reinstating salaries, but are doing so at a snail’s pace. While revenue growth is uncertain for the next year (at least), CEOs are wary of increasing overhead costs. According to Ravin Jesuthasan, a managing principal at Towers Watson, “It’s very unlikely [companies] are going all the way back to help people make up for lost ground.”

At the same time, a new study from Hay Group reveals that compensation and rewards are top concerns for corporate boards and senior executives, now that the recession has shaken up the playing field. As companies scramble to hire and retain top talent, it’s imperative that they find a way to reward employees appropriately. Of course, this needs to be done in a way that doesn’t lose sight of their concerns over profitability. But with such a competitive market for talent, it’s time for companies to step up to the plate.

As Nick Boulter, Hay Group’s global managing director of reward services states, “The trauma of the global downturn for multinational businesses means many are struggling to re-build profitability … Reward strategy is now driven in the Boardroom as executives recognize that the war for talent knows no boundaries, so strategies for retention, motivation, engagement and performance improvement are integral to competitiveness.”

Installing/revising variable pay programs is at the top of many companies’ to-do lists, as they offer a range of incentives (some financial, some not) for superior performance—including bonuses, global mobility and improved development opportunities. These programs also help link the performance of the individual to the performance of the company overall, thereby motivating employees to produce their best, while maximizing the company’s own profitability.

According to Hay Group’s study, the current “war for talent”—and therefore the primary recipients of company reward schemes, for now—focuses primarily on three groups of employees: high performers, high potentials and “mission-critical” roles. How’s that for incentive?

–Posted by Naomi Newman, Consult THIS

Written by Phil Stott

March 1, 2010 at 4:28 pm

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