Posted on 01 Mar 2010
Some companies are slowly tentatively rescinding pay cuts made during the recession.
Hard-drive maker Seagate Technology and New York Times Co. are among the concerns restoring full salaries for some but not all employees. Hewlett-Packard Co. granted one-time bonuses after cutting pay, though it may not permanently reverse the cuts.
Fed Ex Corp. is resuming some raises, but from levels that were reduced by pay cuts. Computer-storage giant EMC Corp. fully restored pay in January only after monitoring financial performance for six months.
The tentative approach is part of the reason that wage growth is muted even as the economy starts to rebound. Revenue growth remains shaky, so CEOs are reluctant to increase costs. With unemployment at 9.7%, executives are also betting they can keep employees motivated and productive without boosting wages. In the past 12 months, average hourly earnings have risen 2%; in January, earnings rose 0.2%.
Thirteen percent of companies cut pay between late 2008 and October 2009, and 29% of those planned to rescind the cuts in the following 12 months, according to an October survey of 875 human-resources employees by the HR association WorldatWork. About 15% said the pay cuts were permanent.
"It's very unlikely [companies] are going all the way back to help people make up for lost ground," said Ravin Jesuthasan, a managing principal at pay consultant Towers Watson in Chicago.
Some companies are restoring pay for part of their work forces. In January, Seagate rescinded its 10% pay cut for nonexecutive staff, but it didn't end its 25% cut for executives. The same month, New York Times ended 5% pay cuts for salaried employees in New York, "barring changes in our financial outlook for 2010," and reversed a 2.5% cut at its About.com unit.
But the company, which still faces a sluggish advertising market, didn't end 5% cuts for salaried staff at the Boston Globe or 2.5% cuts at its Regional Media Group, which includes 15 daily newspapers in several states. "It was our corporate intention to let the individual business units decide whether to continue" the rollback," said Abbe Serphos, a spokeswoman for the company.
FedEx said in December that it would begin offering merit increases again this year after a bigger-than-expected bump in holiday shipping. But with profit and revenue still under pressure, the raises will be based on the reduced pay levels that followed the 5% cuts imposed a year ago, said a spokesman.
Last February, Hewlett-Packard cut salaries between 2.5% and 5% for most wage earners. Chief Executive Mark Hurd took a 20% salary reduction, and other executives took cuts of 10% to 15%.
In November, H-P gave employees a bonus equal to their cut, but a spokeswoman said the company hasn't announced whether it will rescind the salary cuts, despite a rebound in its financial performance. In the quarter ended Jan. 31, H-P revenue rose 8.2% to $31.2 billion and earnings jumped 25%, although some markets remained weak, including Europe. "We don't know if the economy is totally turned around," a spokeswoman said. "Is this a blip or is it a real recovery?"
Companies that have fully rescinded pay cuts have done so carefully. In early 2009, EMC laid off 2,400 employees, or 6% of the staff, and it wanted to cut costs without additional layoffs. Thus, in May and June, the company cut managers' pay 10% to 25%, directors' pay 15% and workers' salaries 5%.
CEO Joe Tucci pitched the pay cuts as temporary, telling employees EMC expected to rescind them by year-end. Executives at the Boston-based company scrutinized weekly order levels for the next six months to make sure they felt comfortable restoring pay.
In the third quarter, EMC exceeded its internal sales expectations by $100 million, Chief Financial Officer David Goulden said, but the company didn't accelerate the timeline to reinstate full pay.
In the fourth quarter, though, EMC again beat its sales projections, so by December, Mr. Tucci was confident he could reverse the cuts. He sent a note to employees a few days before Christmas letting them know.
The company also stopped matching employees' 401K contributions, but it began granting each employee annual stock options valued at $3,000.
"We are proceeding cautiously," said Mr. Goulden. "We're not expecting it to be all roses this year."