2009 Compensation Plans Hit Hard by Economic Downturn
December 10, 2008

Since the global economic crisis erupted in mid-September, many companies have gone back to the drawing board to revise initial 2009 compensation budgets established in the summer and early fall.

Results from a recent Culpepper Trends Survey reveal that 35 percent of companies plan to decrease their original 2009 salary increase budgets. Nine percent plan to eliminate previously planned increases and freeze salaries (Figure 1).

About one out of four companies indicated that they will not change initial budgets established before the economic crisis unfolded. Nearly one-third of companies were still undecided on whether or not they will change their 2009 salary increase budgets.

Key Survey Findings:

• Since September, companies have cut their global salary increase budgets for 2009 by over 25 percent. Average base salary increases for 2009 now stand at 3.08 percent, with salary range structure increases at 2.03 percent.

• The percent of companies planning to freeze salaries in 2009 has increased from 2 percent to 11 percent.

• Nearly one out of five companies plan to delay salary increases from three months to a year.

• Four percent of companies cut salaries in response to the downturn, and another six percent are considering cutting salaries in 2009.

• Most companies are planning to set targeted short-term incentives for 2009 at the same level as 2008.

• Most companies with underwater stock options have taken no action or are undecided on how to address the problem.

2009 Budgeted Base Salary Increases 
Since September, base salary increase budgets for 2009 have fallen dramatically. The average global budgeted base salary increase has dropped over 25 percent from 4.18 percent to 3.08 percent (Table 1).

The percentage of companies planning to freeze salaries has risen sharply from two percent to nearly twelve percent, with nearly one out of four small companies up to 100 employees planning to freeze salaries.

2009 Budgeted Salary Range Structure Increases 
Since September, average budgeted salary range structure increases have dropped by 38% from 2.80 percent to 2.03 percent (Table 2). The percentage of companies not increasing salary range structures has more than doubled from 13 percent to 28 percent.

Delaying Salary Increases
Eighteen percent of companies are taking a wait-and-see approach with the economy and plan to delay salary increases from three months to a year (Figure 2).

Twenty-one percent of companies were undecided on whether or not they will delay salary increases in 2009.

Salary Cuts
The vast majority of companies have not cut salaries and do not plan to cut salaries in 2009.
Only four percent of companies have cut salaries in response to the economic downturn (Figure 3).

Six percent of companies were undecided on whether or not they will cut salaries in 2009.

For companies cutting salaries, the average amount was 10 percent of base salary.
Responses ranged between 2 and 20 percent.

Revise Compensation Budgets Wisely
With a prolonged economic downturn looming, it is critical for companies to carefully manage their compensation expenses. Companies that freeze or cut salaries or pay below market rates will risk losing valuable employees and will struggle to attract the best new talent. On the other hand, companies that pay too much will risk damaging their financial health and ability to hire the employees they need to thrive in difficult market conditions.

A modest investment in current market data will help you allocate your compensation dollars wisely and in the right places. Culpepper Compensation Surveys provide the data you need to establish competitive and effective compensation plans. Comprehensive data is provided on base salaries, salary structures, incentives, allowances, total cash compensation, equity-based compensation, pay and benefits practices, as well as job descriptions.