Slack economy cuts into workers’ raises

Associated Press

NEW YORK — A growing number of companies, hunkering down after the Sept. 11 attacks, are paring workers’ annual bonuses and reducing pay raises for this year and next, new surveys show.

Cutting costs as profits wither, nearly half of employers plan smaller year-end bonuses for rank-and-file workers than in 2000, according to a poll of 110 firms done in mid-October by consulting firm Watson Wyatt Worldwide.

More than one in six companies say they have cut or frozen pay or reduced raises for the remainder of this year, according to a survey of 194 firms by Organization Resource Counselors, a management consulting firm.

Between a fifth and a quarter of all firms plan similar action next year.

Yet another survey, of 340 midsized and large companies, found one in five have scaled back or delayed pay increases. The companies, which reported in April they planned raises of 4.4 to 4.6 percent in 2002, said in early October they will shave back increases to 2.9 to 3.1 percent, according to William M. Mercer Inc.

Plans for more generous raises were based on wishful thinking that has evaporated in recent weeks, analysts said.

"What happened on September 11 is the expectation of a comeback in the fourth quarter just ended, and some companies got clobbered," said Steve Gross, a compensation consultant for Mercer.

Some of the cutbacks in pay, coinciding with large layoffs at many firms, were already likely given the downturn that began long before Sept. 11, analysts said. But the economic shock of the attacks has raised concerns about profits at many companies and spurred more of them to cut costs.

"Had we surveyed this group of people at the end of August, we probably would have heard many of the same things," said Laury Sejen, a compensation consultant for Watson Wyatt. "But I think following the 11th and some of the immediate impact that had on the economy as a whole … it just made the changes more rapid."

Many companies, still analyzing the impact of the attacks on their business prospects, have postponed decisions on bonuses and raises or could rethink plans in coming months, analysts said.

The findings of the three surveys largely echo one another, showing companies are adopting a handful of common strategies to rein in payrolls.

The findings indicate that some of the cuts announced by individual companies may indicate broader trends. In one of the most aggressive moves, Tribune Co. said this week it will cut senior managers’ pay by 5 percent and freeze wages for nonunion employees.

A relatively small group of companies say they have frozen or cut pay. The Organization Resource Counselors’ study found about 8 percent of companies have frozen pay for the remainder of this year for rank-and-file employees.

But at companies taking that action, freezes and cuts in pay are targeted particularly at top executives. The Watson Wyatt poll, for example, found 2 percent of companies have frozen or cut pay for hourly employees, professionals and midlevel managers, and the same number are considering such changes for those workers.

About 5 percent have taken that step for senior management and another 4 percent are considering doing so, the study found.

Many more firms are trimming bonuses or the pay increases planned for 2002.

In the Watson poll, 48 percent of companies said they’ll pay smaller bonuses this holiday season to rank-and-file employees, 54 percent will cut bonuses to middle managers and 60 percent will do so for top executives.

About 24 percent of companies surveyed by Organization Resource Counselors said they will trim pay raises next year for rank-and-file workers, and 30 percent said they anticipate the need for more layoffs.