Benefits December 12, 2008

More Companies See Grim Days Ahead

December 12, 2008 (PLANSPONSOR.com) - The number of organizations that expect business results to be significantly worse than targeted levels for 2008 has more than doubled since March, according to the latest Hay Group global study.
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A Hay Group news release said 31% anticipated the dramatic business dropoff in the latest research, up sharply from the 12% who gave that indication in March 2008.

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However, 62% of organizations indicate that business results are staying about the same and are expected to be close to 2008 targets, the news release said.

The study found that retail is one of the hardest hit sectors, with 63% of retail respondents expecting poor business results due to reduced consumer spending and a tightened credit market. Other industries, such as oil and gas, have been able to weather the downturn more successfully; some 19% of oil and gas respondents expect business results to be significantly better than targeted levels, Hay Group said.

Generally, according to Hay Group, companies’ top concerns include:

  • retaining top talent and critical skills,
  • maintaining and affording competitive pay,
  • maintaining employee engagement and motivation,
  • career development and training opportunities, and
  • recruiting top talent and employees with critical skills.

“While not all regions, countries and industries are impacted equally, many organizations are feeling at least some effects of the downturn,” said Nick Boulter, Hay Group global managing director, client development and reward services, in the news release. “With next year’s economic outlook uncertain, organizations are wary about increasing the fixed cost of base salaries. Many are opting to err on the side of caution by deferring or reducing salary increases or freezing salaries, and are reviewing their reward programs to focus on retaining high performers.”

Nearly half (48%) of organizations globally are decreasing or freezing existing staffing levels, up from 20% in March. For those planning layoffs, median staffing level decreases are approximately 7.5%. Only 3% of organizations globally are planning to bring on staff, Hay Group said.

The news release said the study also found that:

  • Most employers are keeping benefits programs relatively intact including health and retirement plans.
  • One of the biggest areas for cuts is base salary increases with 65% of respondents making changes or considering changes to their previously established base salary increase budgets for 2009 (See Salary Increase Plans not Deterred by Economic Uncertainty ). Of those organizations, 58% are decreasing their budgets and 24% are freezing or considering freezing salaries for all employees.
  • Training and development programs are being decreased or eliminated by 16% of organizations responding to the survey (See Finance Training not on Front Burner for Many Co's. ).
  • Companies are also cutting overtime wages (11%) and the use of contract laborers (17%).

More information on the latest study is available here .

Investing December 11, 2008

DC Participants Flee Equities in Q308

December 11, 2008 (PLANSPONSOR.com) - Defined contribution plan activity rose as participants reacted to economic turmoil by reallocating their portfolios away from equity assets to fixed income funds, according to The Callan DC Index report for third quarter.
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A Callan press release said total Index turnover reached 1.13% for the quarter ended September 30, 2008 – well above the quarterly historical average of 0.78%. Stable value, money market, and domestic bond funds collectively captured nearly 80% of inflows. Target-date funds were the only exception to participants’ flight to fixed income with an inflow of 18.6%.

Callan said inertia among younger investors, who comprise a large share of target date fund participants, was in effect in the third quarter and a strong correlation exists between portfolio size and investor activity.

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The Index, down 8.04%, outperformed the average 2030 target date fund, which lost 11.6% in the third quarter. High equity allocation in 2030 target-date-funds – 85% compared to 66.7% in the typical DC plan – proved a significant liability this quarter, the press release said.

The Index also outpaced the average corporate defined benefit plan, which returned -8.35% for the quarter.

The Callan DC Index tracks the asset flows and performance of approximately 70 participant-directed plans comprised of more than 800,000 participants and $50 billion in retirement assets.

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