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Salary Freezes Thaw

Still, the buyer's market for talent means companies will focus on what they can afford. Plus Google hires first CFO; Amazon taps former GE CFO.
Lisa YoonSeptember 4, 2002

With the specter of recession hovering over the economy, company executives have held their pay-increase budgets in a death-grip during the past year. But according to Mercer Human Resource Consulting’s 2002/2003 U.S. Compensation Planning Survey, their grip is beginning to loosen, as employers become cautiously optimistic about a rebound.

According to the survey, 17 percent of employers implemented salary freezes for 2002, compared with only 6 percent for 2003.

Still, companies aren’t throwing caution to the wind regarding salary raises. Overall, employers budgeted for 3.4-percent and 3.8-percent pay increases for 2002 and 2003 respectively, including those that implemented freezes. That’s down from 4.4 percent in 2001 and 4.2 percent in 2000.

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Now that it’s a buyer’s market for talent, companies have naturally been more judicious in spending their compensation dollars. “During a labor shortage, employers focus externally on what they have to pay to remain competitive,” says Mercer consultant Steven Gross. “[Now] companies are looking at what they can afford.”

Accordingly, salary-freeze trends have followed industry performance. The most freezes occurred in the software/services and telecom businesses. Meanwhile, those in more recession-resistant industries, such as utilities and healthcare, only rarely experienced freezes.

Perhaps one of the more surprising survey findings addresses who in the company has been taking the hits. Despite the recent hoopla over stratospheric pay packages for top brass, the Mercer survey shows that executive salaries were the first to be affected by salary freezes. Fifteen percent of survey respondents that put a freeze on salaries, froze executive salaries; while 8 to 10 percent froze pay for rank-and-file employees and middle managers.

The labor supply may have shifted in employers’ favor. But don’t overdo it, warns Gross. “Employers need to make sure their belt-tightening measures don’t destroy future business value,” he says. “As they make these difficult decisions, they should keep in mind their critical business functions and hard-to-replace employees.”

CFOs on the Move

The search is over. Search engine Google Inc. hired George Reyes as CFO, the company’s first finance chief in its three-and-a-half-year history. A former finance executive at Sun Microsystems Inc., Reyes worked with then chief technology officer Eric Schmidt, now Google chief executive. Reyes left Sun after 14 years as VP and treasurer to become interim CFO at fiber optic company ONI Systems Corp., acquired in June by Ciena Corp. Vacant CFO post had been seen as hurdle on road to initial public offering, though Google company spokesman claims company has no immediate plans to go public. Company expects to draw on Reyes’ experience in international markets … Amazon.com Inc. tapped General Electric Co. executive Tom Szkutak as its new CFO, succeeding Warren Jenson. Szkutak currently CFO of GE’s lighting business. GE said Thursday it would combine its lighting and appliance businesses into one unit, GE Consumer Products. Szkutak was not among the executives named by GE to run the new division. Jenson left Amazon in March, shortly after the retailer turned its first quarterly profit. Became CFO of video-game publisher Electronic Arts Inc. in June … American Science & Engineering Inc. announced on Friday that its chief financial officer Andrew Morrison died. Morrison joined AS&E in June 2001. The company did not disclose the circumstances of his death, or say who would take over the post of CFO.

Editor’s Note: Compare working capital at Amazon and GE with the CFO PeerMetrix interactive scorecards.

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