The waiting game appears to be over. Over the last six weeks, as the coronavirus pandemic’s impact took hold, firm after firm held back on plans both for cutting staffs and for salary changes. Now, they have decided they have no choice.
According to an exclusive Korn Ferry survey of nearly 4,000 executives, firms are furloughing staffs at a rate three times greater than layoffs. And about 15% of global organizations are instituting salary cuts, up from just 4% when they were first surveyed in late March. Salary freezes, meanwhile, have doubled over the last month, from 12% of organizations surveyed in late March to one in five in late April.
“It’s not pretty out there,” says Tom McMullen, senior client partner and leader of Korn Ferry’s North American Total Rewards practice. “And it’s definitely uglier in some sectors than others.”
To be sure, the moves are not surprising given the outbreak’s impact on business. According to the survey, organizations around the world expect an average top-line decline of between 15% and 30%, with the precise impact varying by industry. Leisure and hospitality, retail, technology, and industrial organizations are being hit harder, for instance, while banking and healthcare are being hit but less dramatically.
The survey—covering pay, benefits, and other issues—is the firm’s second since late March. Around 4,000 organizations in 98 countries and 23 sectors responded to the most recent one.
Among the most closely watched corporate decisions, of course, has been deciding between furloughs versus layoffs. In the United States alone, some 30 million people have filed for unemployment. Still, even with such historic totals, the survey found that only 7% of organizations took such a step—compared to 22% that have instituted furloughs globally. In furloughs, an employee doesn’t get paid but is retained on staff, keeps benefits like health insurance, and in some instances can receive government assistance. The survey also found nearly eight in 10—76%—are still not considering layoffs.
According to Don Lowman, global leader for Korn Ferry’s Rewards and Benefits practice, the use of furloughs may reflect a battle for talent that many firms are anticipating post-pandemic. “Organizations are eventually going to have to bring workers back, so they want to hang on to their top and high-potential talent as much as possible,” he says, noting that even in a crisis there is a market for recruiting—and poaching—high-caliber talent.
The risk of losing top talent could help explain why executive-level employees took pay cuts sooner and deeper than the rest of the firm, shielding middle managers and others. Survey results show that 67% percent of executives have taken both a salary cut and reduction to short-term incentives and annual bonus plans, significantly more than any other group. “With the pandemic still ongoing, previous annual performance targets are useless now,” says Lowman. “The question organizations are debating is if they should take a fully discretionary approach to annual incentives or try to come up with specific targets for the second half of the year.”
Organizations are still trying to figure out what to do about long-term incentives, however, with about 20% saying they are not considering any immediate action. Long-term incentives are, after all, based on long-term performance, usually measured over the course of three years or more, says Lowman.
“While performance this year will certainly be impacted, it is just one year,” he says.
To read the complete COVID-19 Rewards & Benefits survey, click here.