Human Resources: U.S. Employers Keeping Pay Raises Steady for 2009, Watson Wyatt Survey Finds

WASHINGTON, D.C., July 23, 2008 — At a time when energy costs are soaring
and the U.S. economy is slumping, there is some good news for workers. U.S.
companies are planning to keep pay raises steady next year, according to a
forthcoming report by Watson Wyatt Worldwide, a leading global consulting
firm. The survey also found that one-third of companies have not made any
workforce contingency plans in the event the economy continues to falter.

In its survey, Watson Wyatt found that U.S. employers are planning to give
workers merit increases that will average 3.5 percent next year, identical
to the increase workers received this year and just slightly lower than the
3.6 percent average increase in 2007. Companies also say they plan to
provide larger raises to their better-performing employees. Employees whose
performance ratings exceed expectations will receive an average merit
increase of 4.2 percent, while those who far exceed expectations will
receive an average 6 percent increase.

“The economy is no doubt taking its toll on workers, but their 2009 merit
increases appear safe — at least for now,” said Laura Sejen, global
director of strategic rewards consulting at Watson Wyatt. “Employees will
view holding merit increase budgets steady as a positive sign that will
help them offset inflation and higher energy and food costs.”

The Watson Wyatt survey also found that 33 percent of respondents have not
made any formal contingency plans for future economic downturns. Two out of
three U.S. employers, however, have at least one formal contingency
planning activity in place. The most common is layoffs (52 percent),
followed by plans to restructure their organization (46 percent), freeze
the hiring of additional workers (39 percent), give smaller pay raises (27
percent) and freeze salaries (13 percent).

Contingency Planning Activities

Activity Percent of U.S. Employers
Layoffs 52%
Organizational restructure 46%
Hiring freeze 39%
Smaller salary raises 27%
Salary freeze 13%
Early retirement window 9%
Reduced workweek 8%

“Given the ongoing economic uncertainty, we were surprised by the finding
that so many companies do not have any contingency plans,” said Sejen. “We
know from previous recessions and economic slowdowns that those companies
that have contingency plans in place will be in a much better position to
weather the storm and bounce back when the economy improves.”

Globally, a vast majority of employers in Asia-Pacific, Europe and Latin
America have contingency plans in place. More than eight in 10 employers in
Asia-Pacific (84 percent) and Europe (80 percent) have established
contingency plans, and seven in 10 (70 percent) of Latin American employers
have plans. Six in 10 Canadian employers (60 percent) have adopted a
contingency plan to be implemented in the event of further economic decline.

“The economic slowdown is clearly having an effect on companies worldwide
and not just in the United States. If economic conditions continue to
weaken, we would expect to see many companies begin to evaluate their
staffing levels, pay programs and overall organizational structures and to
implement some of their contingency plans,” said Sejen.

The results are based on Watson Wyatt’s Global Strategic Rewards® Survey to
be released later this year. A total of 1,389 employers participated in the
survey, including 276 U.S. employers.

About Watson Wyatt

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the
world’s leading organizations on people and financial issues. The firm’s
global services include: managing the cost and effectiveness of employee
benefit programs; developing attraction, retention and reward strategies;
advising pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 7,000 associates in 32
countries and is located on the Web at www.watsonwyatt.com.

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