Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to Save Money, 2nd Edition

Chapter 4

Compensation Costs

CUTTING COMPENSATION COSTS

More than ever, controlling compensation costs is crucial to the fiscal health of your organization. IOMA surveyed nearly 500 compensation and HR professionals to uncover the best compensation cost-control methods they have come up with and actually used in their organizations. The top three approaches include reducing merit pay increases, implementing hiring freezes and reductions, and distinguishing sharply between high and low performance (see Exhibit 4.1). Survey respondents were allowed more than one answer because, of course, there are many ways to cut costs.

Exhibit 4.1 Top Ways to Cut Compensation Costs

Source: IOMA

Reduced Merit Increases

Reducing the size of merit increases was the top method of controlling compensation costs for nearly half of the respondents (see Exhibit 4.2). At companies with 1,800 to 6,999 people, the number came to 53.5%, while at firms with up to 199 people, it was 41.9%.

Exhibit 4.2 Categories in which Companies Had the Most Success in Controlling Costs during the Past Year, by Number of Employees

Reducing merit pay increases was an especially popular move among business services firms (at 56.8%); wholesale/retail trade firms (54.3%); and transportation, communications, and utilities firms ...