U.S. Employers Grow More Optimistic

Major U.S. employers are growing more optimistic, with few planning additional layoffs and many planning to reverse course in coming months on cost-cutting initiatives such as salary freezes, according to a new survey. But recent cuts in health-care benefits may become permanent.

The survey of human-resource executives at 175 mostly midsize and large U.S. firms by consulting firm Watson Wyatt Worldwide Inc. found that 33% plan to unfreeze salaries within the next six months and 79% within the next year. In a similar June survey, only 17% of respondents planned to unfreeze salaries within six months. Roughly 60% of the companies responding to the new survey had frozen salaries.

Of the smaller group that cut salaries, 44% of respondents said they plan to restore those cuts in the next six months, and 66% in the next year. More than 70% of the employers with hiring freezes said they plan to resume hiring within the next year. Respondents said they plan to lay off fewer than 2% of their workers in the next year, down sharply from past surveys.

"This is further evidence that companies think the worst is behind them and they're starting to look forward again," says Laura Sejen, global practice director strategic awards at Watson Wyatt. "What we don't know is have they made firm commitments at the management level or have they communicated to employees they're going to unwind these programs. It could certainly change."

The survey, conducted online earlier this month, is in line with recent reports of slowing job losses. The U.S. Labor Department said Friday that employers eliminated 247,000 jobs in July, down from an average of 556,000 in the first six months of the year. The unemployment rate fell slightly to 9.4%, from 9.5%, though economists said that largely reflected a drop in the number of people looking for work.

The Watson Wyatt survey found employers will be slower to restore changes in benefit programs -- and many recent changes to health-care plans may become permanent. Roughly two-thirds of respondents that had increased employee health-care costs say they don't plan to reverse those increases. Forty-one percent of respondents increased deductibles, co-pays or out-of-pocket maximums, while 40% increased the percentage of premiums that employees pay. These changes are" looking more permanent," says Ms. Sejen.

The news for retirement programs was more mixed. Nearly half of respondents said they plan to restore cuts in company contributions to retirement programs in the next year, and 64% envision restoring those cuts within 18 months. Of those, 67% said they will restore contributions to their prior level, but 21% will vary contributions based on corporate profits.

Many employers see the recession as bottoming out, adds David Wise, a senior consultant at consulting firm Hay Group Inc. "Most companies want to go into fiscal 2010 with the layoffs and salary freezes behind them," he says. But he warns that companies will remain conservative. "The worst thing a company can do after tough times is loosen the reins before the horse is ready to run," he says.