Never let it be said that I like to dwell only on bad news. As a longtime member of America’s workforce, I’ve been zinged, zapped and zipped by the Big, Bad Recession just like everyone else. And that’s why I am grateful for whatever positive workforce-related news that I can find.
Here’s what I’m talking about, courtesy of global consulting firm Watson Wyatt Worldwide and its latest survey on the “Effect of the Economic Crisis on HR Programs”: The number of employers planning to reverse salary cuts and freezes and restore matching contributions to 401(k) plans has increased in the past two months, according to a survey that was conducted this month with 175 large, U.S.-based employers.
Key findings include:
• Some 33 percent of employers that froze salaries plan to unfreeze them within the next six months, up from 17 percent two months ago.
• Forty-four percent say they plan to roll back salary cuts in the next six months, compared with 30 percent two months ago.
• Twenty-four percent of employers plan to reverse reductions to 401(k) match contributions in the next six months, versus 5 percent in June.
• Seventy-one percent of respondents have made some changes to their 2010 health care plan because of the economic crisis. The most commonly reported changes include increasing deductibles, co-pays or out-of-pocket maximums (41 percent) and increasing the percentage of premiums paid by the employee (40 percent).
In other words, although salary freezes may start coming off, increases in employee costs for health care benefits this year are probably going to stick around.
“Some employers are seeing the light at the end of tunnel and feeling optimistic about the prospect of improved business results,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt, in a news release about the survey. “However, even as some of the program cuts are rolled back, many employees are facing smaller raises, lower bonuses and higher health care costs.”
That’s a sobering reality to keep in mind. Yes, there are signs that the recession has bottomed out and that things will start getting better, but it is going to be a long, slow climb back. We will all continue to feel the pinch for months—and as I pointed out yesterday, perhaps even many years—to come.
This won’t be surprising to anyone working in this Year of Living Dangerously during the Big, Bad Recession, but Hewitt Associates just released a survey showing just how badly the economic downturn has affected raises and salary increases.
Would you believe that 2009 salary increases were the lowest in 33 years?
• Salary increases hit a record low in 2009 at 1.8 percent for salaried exempt employees, down from 3.7 percent in 2008. This is the first time that base salary increases dropped below 3 percent since Hewitt started tracking the data in 1976.
• Executive employees saw only a 1.4 percent salary increase in 2009, and the 2010 projection is 2.6 percent.
• Nearly half the companies Hewitt surveyed (48 percent) froze salaries in 2009, up from 2 percent (yes, that’s 2 percent) the year before. Only 13 percent of companies anticipate a salary freeze next year, but more than two-thirds of those organizations also had a freeze in 2009.
• Variable pay in 2009 was the highest level on record. Variable pay spending for salaried exempt employees was 12 percent in 2009, up from 10.8 percent in 2008. For 2010, companies are budgeting variable pay bonuses at 11.8 percent.
“Even during past economic downturns, we have not seen such dismal salary increases as we did this year,” said Ken Abosch, the leader of Hewitt’s North American Broad-Based Compensation Consulting business, in a statement that seemed of accurately capture the dismal nature of things. “It truly is unprecedented.”
A long time ago in a workplace far, far away, I had a boss who was as hard-line as they come when it came to the notion of taking a new job with less pay. “I have never, ever taken a job for less money,” she told me on more than one occasion, “and I never will.”
Her point was simple: You should never undersell yourself, no matter what. You never take a job for less money even if it’s temporary, or good for your career in the long term, or perhaps even because it’s something you always wanted to do. You never do it, she reasoned, because you devalue yourself and because your salary arc should always be moving up, not down. That’s how she always did it, she said, and she shook her head in amazement the day I walked in and told her I was leaving to take a better position with a smaller organization—for about 30 percent less pay.
That was the first time I took a new job with a cut in pay, but it wasn’t the last. Don’t get me wrong: I never took less money because I really wanted to. It was always because I thought there was some short-term upside to doing so, or because I really, really needed a job and was willing to take less salary to get it.
Burns adds this: “According to the survey of 500 [Chicago-area] job-seekers, 85 percent expressed a willingness to accept a pay cut of up to one-fifth. Considering that 4.4 million Americans have been unemployed for 27 weeks or more, the firm says, it’s obvious that many are not acting on their professed willingness to work for less.”
Should we be surprised that “only” 85 percent of job seekers are pragmatic enough to recognize that there is a glut of talent on the market during this big, bad recession, and that taking less pay may be what’s needed if you really want a job? I’ve been around long enough to recognize that getting 85 percent of people to agree on anything is virtually impossible, so getting eight out of 10 unemployed workers to admit that they would take less to get back and working is pretty amazing in my book.
The bigger issue, as I pointed out in my latest Last Word column, is this: Many organizations, according to The Wall Street Journal, are ignoring people who are out of work and are still going after “passive” candidates (i.e., people with jobs) when they have a job to fill, “reasoning that these survivors are the top performers.”
And although the Journal’s evidence of this practice was largely anecdotal, it is par for what I read and hear from all too many recruiters. In their minds, finding that great passive candidate is the Holy Grail, regardless of much it might cost, how futile it might be to actually lure a candidate away from a solid job, and despite how many other eminently hirable unemployed candidates might be eligible.
Tom Gimbel, chief executive of the LaSalle Network, told the Tribune that part of the problem in the recruiting market now is that salaries were over-inflated in pre-recession days and that “job seekers must acknowledge the fact that they have been overpaid, and once they do that, they will secure a job that meets these new expectations.”
Sure, some unrealistic people have priced themselves out of the market. But when an overwhelming 85 percent of the unemployed say that they’d take a job for 20 percent less than they made before, then maybe it’s time to stop blaming the out-of-work people for their predicament and focus on the real issue: a shattered economy that looks like it’s going to stay shattered (at least in terms of job growth) for a long time.
Here’s a great example of what I’m talking about, courtesy of the San Jose Mercury-News: “One of the accounting tricks used to close [California’s] $26 billion budget deficit is increasing income tax withholding schedules by 10 percent. That is, whatever is withheld for state income tax from your paycheck today will increase by 10 percent come January; you’ll get back any excess payments when you file your tax return in early 2011.”
A spokesman for California’s state Finance Department notes that this “in no way changes any working Californian’s tax liability or taxes owed” and that workers can “increase their allowances to compensate—so long as they do not underpay overall.” But as the newspaper notes, by doing this the state is trying “to shoehorn an extra $1.7 billion of personal income tax receipts into the current 2009-10 fiscal year. Essentially, the state is looking for an interest-free loan from working Californians.”
No workers or taxpayers got a chance to question or challenge this action, although as the Los Angeles Times points out, “the 24-hour session leading up to final passage of the budget Friday afternoon turned into a slow-moving train wreck … lobbyists for major interest groups were present throughout the night, seeking to influence the process. With hundreds of pages of legislative language passed with little time available for review, few knew what the fine print might contain.”
That’s how California workers got saddled with 10 percent more tax withholdings come January 1, and it shows just how dysfunctional the legislative process is out here in the Golden State. It also shows how now, days after the latest budget “fix” was approved, the impact of the middle-of-the-night budget-making finally becomes clear.
What can workers do about this? Nothing really, except fiddle their W-4 exemptions and tax withholdings to compensate for the extra 10 percent hit they’ll take next year. Of course, most people don’t do this, and the cynical part of this middle-of-the-night sausage-making is that no matter how riled up workers might get, few will actually follow through and take the time to do anything about it.
And, here’s the scary part of all of this: If the state of California can stick workers with a higher tax withholding in order to float the state a tax-free loan, what’s to stop other budget-challenged states from doing the same?
Nothing, of course, and I would be shocked if other states don’t look at this latest “trend” from out here on the Left Coast and decide, no matter how kooky it seems, that it makes a lot of sense for them to help balance their budgets on the backs of workers too.
One great thing about the large management and HR consulting firms is that they do a lot of interesting surveys, and this recent one by Watson Wyatt is no exception.
Here’s what I’m talking about: “Raises for U.S. workers are expected to rebound in 2010, following a year in which many companies slashed raises in the wake of the recession,” according to the Watson Wyatt 2009/2010 U.S. Strategic Rewards survey report that was just released.
Like most surveys done by the big consultants, this one is broad, deep and timely. It covers 235 U.S.-based employers that span all industries and have a minimum of 1,000 employees each. And, the survey was done pretty recently—from April 6 to May 15.
The key survey finding is that “companies are projecting median merit increases of 3.0 percent for 2010”; that compares with the 3.5 percent merit increase that companies originally projected last year for 2009, before the onset of the recession. Of course, that original 3.5 percent increase went down the toilet with the economy, and as the Watson Wyatt report notes, “Now, companies say median merit pay increases will [only] be 2 percent in 2009.”
That really surprises me, because I thought that a lot more than just 25 percent of companies deep-sixed raises during the Big, Bad Recession of 2009. In fact, that 25 percent figure sounds absolutely incredible when you consider all you heard about furloughs, salary cuts, buyouts, layoffs and all manner of workforce cuts this year.
I’m also surprised by the notion of 3 percent raises for 2010, because as much as I wish it were so, I question whether businesses will actually feel confident enough in the economy to go that far when they start their 2010 budget planning here soon. My feeling is companies will be a lot more conservative than that, especially since no one really knows if we have hit bottom on the downturn yet.
“This has been a very difficult year for both employers and their workers,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt, in a gigantic understatement. “But there is some good news on the horizon. Employers plan to give larger raises next year, and many plan to reinstate previously cut pay raises as planning for an eventual economic recovery continues.”
Well, I really hope there is good news on the horizon, as Laura Sejen believes, but I’m not ready to jump on that bandwagon just yet. Color me skeptical that the economic recovery is as close at hand as she says it is.
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