Economic pressures are forcing Canadian companies to make multiple adjustments to compensation programs, according to survey findings released today by global professional services firm Towers Perrin.

But while modifications mean lower — or no — 2009 salary increases and lower bonuses, to date companies are more likely to consider highly targeted, strategic reductions and cuts to other discretionary spending rather than the mass workforce reductions that occurred in previous economic downturns.

The survey of 246 Canadian organizations of all sizes from a range of industries conducted in January 2009 provides insights into how Canadian organizations are addressing workforce and compensation issues in light of ongoing economic uncertainty.

“Our research suggests that organizations are being more strategic in their response to economic adversity by taking steps to retain their best talent at the same time as they cut costs,” says Fiona Macdonald, managing principal, Towers Perrin.

To date, only 7% of respondents have made significant reductions in head count, although another 18% are planning or considering staffing cutbacks of this magnitude. Far more common approaches are hiring freezes (taken or contemplated by 74% of respondents) and targeted staff cuts focusing on less critical roles and poor performers (57%). Also common are reductions in discretionary spending on travel and entertainment (taken or contemplated by 79% of the respondents), employee events (70%) and training (49%). At the same time, more than half (61%) of companies are concerned about retaining high-performers and people in pivotal roles, and are considering actions such as retention awards, salary increases and higher bonus payouts for this group.

Forty-one per cent of Canadian companies have imposed or are contemplating salary freezes. Those not freezing 2009 salary budgets are now budgeting 3.1%, down from 3.9% originally planned. In total, including companies with a salary freeze, budgets are now 2.3%. Salaries for senior executives are more likely to be frozen than any other group.

Almost all companies are letting their bonus plans and formulas play and pay out for 2008 performance. At the professional and executive levels, the financial results are driving lower bonuses for 54% of participants, with some paying none.

Compensation committees are struggling to set incentive plan targets in light of 2009 budgeted/planned results that are significantly below 2008 levels, coupled with considerable market uncertainty. Sixty one per cent say the financial crisis has affected their approach to setting 2009 performance targets under annual incentive plans, while a smaller percentage (31%) say the crisis has affected how they set goals for long-term incentive plans.

“Depressed share prices are posing serious complications for many companies in determining 2009 long-term incentive plan grants” says Macdonald. “A minority are granting a fixed number of options or shares, and those will have a lower theoretical value, given the dramatic decline in share prices.”

Towers Perrin notes that many professionals and executives may have been planning an early retirement, financed by a long career, their equity holdings in their employer’s stock and through their retirement programs and savings. The drop in the stock market has decimated many people’s individual personal financial savings, including the pension values for those with Defined Contribution pension arrangements, and the significant value of in-the-money stock options has largely been wiped out.

“‘Freedom 90’ has replaced ‘Freedom 55’. But the real issues for employers are: how to get these seasoned professionals re-focused on the enormous challenge ahead; what to do with the succession plans that are now stalled; and how to get those no longer up for the challenge out when the financial consequences will be significantly different than their recent expectations,” concludes Macdonald.