Towers Perrin Study Shows 40% of Companies Making Major Cuts to 2001 Bonuses; 2002 Salaries Also Widely Affected

    NEW YORK--Dec. 21, 2001--In the first extensive look at how executive bonus plans will be paying out for 2001 performance, a 350-company Towers Perrin study has revealed that 40% of companies expect to make substantial cuts to executive bonuses paid in 2002 compared with levels paid in 2001.
    Thirty percent of the companies are cutting the overall level of bonuses significantly, by more than one-quarter, compared to the levels paid for year 2000 performance. Ten percent will pay no bonuses at all. Forty-one percent of the companies are paying within plus or minus 25% of what they paid in 2000. "These figures are for companies' entire executive bonus plans," said Allen Jackson, the principal in charge of data and technology for Towers Perrin's Executive Compensation practice. "Far more companies are cutting 2002 bonuses for selected executives, or even the whole top executive team."
    Additionally, about one-fourth of the companies are considering changing the design or calibration of their bonus plans.

    Companies Continue to Cut Merit Budgets

    As reported in a Towers Perrin press release on cost containment issued on December 12, companies generally have taken an increasingly conservative approach to 2002 salary increase budgets. "Companies cutting 2002 merit budgets have done so by an average of 0.6% to 3.7%, or below the 4% level cited in some earlier studies," said Jackson, who is based in Stamford, Connecticut. "This suggests that developments have had an even more stringent effect on corporate purse strings than what was previously expected.
    "A quarter of the companies that are cutting have frozen top management salaries and 15% have done the same for exempt and nonexempt employee populations," Jackson added. As reported in the December 12 press release, the largest cutbacks are in the troubled high-tech, entertainment and media, financial services, metal manufacturing and professional services businesses. Industries doing better economically, including health services, petroleum and pharmaceuticals, have seen less or no change.
    "The recession and events of September 11 have led to layoffs and have fostered additional cost-cutting measures at companies in a number of industries," noted Jackson. "One of the consequences is that almost half of the companies we surveyed are looking toward their pay and bonus programs for additional savings. Another consequence is that many companies feel performance does not justify the bonuses paid in the last several years."
    Towers Perrin's annual Compensation Data Bank (CDB) currently has over 1,500 participants. Of these, 350 responded to this pulse survey capturing the state of corporate budgets for bonuses and merit-based salary increases. This is just one of a number of surveys Towers Perrin completes over the course of a year to determine the most current pay trends.
    Towers Perrin is one of the world's largest management and human resource consulting firms. It helps organizations manage their investment in people to achieve measurable performance improvements, focusing on human resource strategy and service delivery, benefit and compensation design and implementation, employee and organizational communication, HR technology and outsourced HR administration. The firm has worldwide revenues of over $1.4 billion and over 9,000 employees and 78 offices in 74 cities worldwide.