Bonuses, Pay Raises: Cuts, Delays ... and some Good News. (Business Briefs).

It's no surprise at the start of a new year following a dismal year for revenue and earnings, combined with massive staff layoffs and restructurings, that current and near-future compensation will be affected. Here are reports from two sources:

Watson Wyatt Worldwide, the global consulting firm specializing in human capital and financial management, in late September surveyed 110 mid-sized and large companies in a broad range of industries.

Results show that approximately one-quarter of responding employers have delayed or reduced salary increases -- or are considering doing so -- but few employers reported plans to cut or freeze salaries. Thirty percent reduced merit pay budgets significantly -- dropping raise pools from 5.0 percent to 3.3 percent, on average.

Sixty percent expect to reduce annual bonuses for executives, while 54 percent will cut bonuses for middle managers. Just under half plan smaller bonuses to individuals and, to achieve reward plan objectives, 41 percent changed their incentive plan formulas mid-year to adjust performance targets or payouts to current realities. Also, more than 40 percent said underwater stock options are a problem and are considering overhauling their programs; those making changes are split between issuing more options at lower strike prices or canceling existing options and reissuing them at lower prices.

Rick Beal, a senior compensation consultant, said that with the impact of Sept. 11, coupled with the ongoing recession, he's not surprised that companies are chopping their compensation programs. "However, the fact that employers are opting to delay raises and reduce bonuses rather than lay off additional workers or implement pay cuts and freezes indicates that some employers expect this economic downturn to be short-lived. Companies are also concerned about worker morale and retaining valued employees down the road," Beal said.

Web: www.watsonwyatt.com

Hewitt Associates LLC, the global management consulting and human resources outsourcing firm, found economic conditions and events of Sept. 11 are prompting some companies to modify their 2002 salary increase projections.

Hewitt's 25th annual "U.S. Salary Increase Survey" -- which polled 953 organizations prior to Sept. 11 and followed up afterwards with 660 respondents -- found that, on average, 2002 projections have been reduced slightly. Executive pay in 2001 increased 4.7 percent, on average; while original 2002 projections were 4.6 percent, they have been trimmed to 4.1 percent.

The number of companies implementing variable compensation plans continues to grow. Eighty-one percent of respondents had at least one type of such a plan, up from 78 percent last year and 51 percent in 1991. Yet, despite the popularity of variable pay, more than two-thirds (68 percent) of employers don't track or don't know if these plans directly improve business results.

Hewitt believes it's essential that companies design their plans to motivate employee behavior throughout the year, by aligning daily work functions with the company's overall goals. Early and frequent communication between employer and employees is key to understanding how individuals impact the bottom line and for allowing better measurement of the plan's effectiveness.

Web: www.hewitt.com