Bonuses, Pay Raises: Cuts, Delays ... and some Good News.

• Position: 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...