The economic crisis is now common knowledge, even to those who avoid the media in an effort to escape hearing the latest bad news. The latest question on the table is how companies are handling the current situation, and across the globe, the answer is the same - organizations are hastily slashing budgets across a variety of areas.
Sixty-seven percent of European companies are planning to make changes to their budgets, according to Hewitt Associates, a global human resources and outsourcing consulting company. The rest of the world is not far behind, with Latin American companies at 63 percent, the Asia-Pacific region at 58 percent, and U.S. companies at 50 percent.
"What I find the most surprising is how rapidly companies are reacting to the economic downturn," says Peter Acker, North American leader of global rewards at Hewitt Associates. "Every region around the world is taking action given the economic situation."
To collect the data, Hewitt conducted surveys across 40 countries between October and December of 2008, covering more than 2,000 companies and 25 million employees.
Results showed that the Asia-Pacific region plans to make the most severe cuts in pay, with reductions to pay raises averaging between 1.7 and 5.2 percent, as compared to projections made earlier in 2008. In Latin America, companies are reducing pay raises by an average of 1 percent, and in Europe and the United States, the figures average, respectively, 0.9 percent and 0.7 percent.
"When we did the survey in July of last year, things were calm," notes Acker. "Then when the economic environment changed in September and October, and we resurveyed the group, we found that most companies had reduced their expected increases by 25 percent."
One interesting finding was that in Europe, the focus is on layoffs (69 percent) and potential hiring freezes (63 percent), and similarly, in Latin America, the hiring freeze rate is also high, at 66 percent.
Acker attributes the high layoff rate in Europe to the strength of the labor community in that region. "We believe that it is partially due to the fact that, because of the economic situation, there is a better receptivity to letting people go if you need to do so for strategy."
Meanwhile, the focus in the United States and in the Asia-Pacific region is on reducing variable pay budgets (50 percent and 64 percent, respectively), which include items such as cash, stock options, and bonuses, and focusing on performance-based rewards, which must be re-earned annually.
There is a big focus in the United States and Asia on the performance side of work, and that's how employees are accustomed to being rewarded, according to Acker.
However, retaining talent is still an overall priority throughout the world - 66 percent of companies in Latin America, 62 percent in Europe, and 59 percent in the Asia-Pacific region are setting aside a pool of money to reward high performers.
"What we're seeing in this difficult economy is that more companies are differentiating between their really top performers and their low performers," says Acker.
He also notes that companies, if they're looking at a global workforce, could cut costs in a way such that organizations can retain talent and promote growth in certain markets. The steps taken, however, should depend on each organization's particular business strategy, because there is no cure-all approach to be had.