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Compensation and Retention in a Turbulent Economy

Under pressure


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Throughout the past year, companies have confronted the most difficult economic environment in a generation. The recession may have officially ended, but there are signs the nation’s economic recovery has been uneven at best.

Among the many challenges executives have faced, a primary concern has been how to motivate and retain key talent when a dismal economy is wreaking havoc with traditional compensation plans. In fact, our recent survey revealed that pay and incentives are down across the board with deeper cuts in 2009 than 2008.

Deloitte conducted a survey in October 2009 of more than 200 U.S. executives at companies spanning a range of industries to explore this issue. The survey, which updates Deloitte’s September 2008 study, "Retention Strategies during Difficult Economic Conditions," revealed that, for the survey participants:

  • While the macro-economic outlook may have brightened, the recovery has been uneven – and pessimism about the past, rather than optimism about the future, appears to be driving corporate compensation strategies.
  • Every component of compensation remains under pressure – from base pay, bonuses and retirement plans to stock options and restricted stock grants.
  • Companies appear to have little appetite for modifying compensation plans in order to increase payouts to employees, even to top talent. Retention programs remain a relatively low priority for companies in many industries that believe employees “are lucky they have jobs” in a tough economy.
  • Some companies, however, are holding compensation packages steady or even increasing them, positioning themselves for a turn in the economy when the talent market heats up. Organizations that adjust their compensation and retention strategies now stand to benefit as the recovery takes hold.

Company's business outlook

Among the other notable findings:

  • At least 85 percent of surveyed companies will not provide standard merit increases on base salaries in 2009.
  • Six out of 10 executives (64 percent) surveyed reported their companies plan to award bonuses below target this year.
  • Nearly one in three executives surveyed (29 percent) stated their companies either decreased (9 percent) or suspended (20 percent) 401(k) matches in 2009.

Companies counting on a soft job market alone to retain employees may be blindsided unless they reposition themselves to keep top talent as the economy rebounds.

To learn more about the survey results and their implications, download the attached document below.

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