By NISHA RAMCHANDANI

THE majority of local companies seem set on cutting salary planning budgets and variable compensation payouts, as concerns about the uncertain economy put pressure on cost reductions.

According to the Hewitt Singapore Economic Impact Survey conducted in October, 63 per cent of companies in Singapore expect to or have already implemented changes to their salary increase budget/policies.

A total of 65 local companies were polled, out of which 37 were from the manufacturing sector, 25 from the service sector and three were multi-industry organisations.

Salary increase projection for 2009 stood at 3.8 per cent - down 30 per cent from 5.4 per cent in an earlier projection exercise conducted during June-September period.

The top two reasons for changes to salary planning budget were concerns about the broader economy (78 per cent) and cost reductions (62 per cent).

A majority of companies (74 per cent) also expect to tweak variable compensation payouts such as bonuses, although the impact will be felt more strongly next year.

For 2008, 67 per cent of companies expect to reduce them slightly (by less than 10 per cent) and 28 per cent to reduce them significantly (by more than 10 per cent).

However in 2009, only 38 per cent expect a slight reduction and 58 per cent are forecasting a significant cut. In contrast, only six per cent expect to significantly increase (by more than 10 per cent) payouts this year, while only four per cent expect to do so next year.

The study also revealed that companies are counting on top performers to pull through tough times. So while 57 per cent of companies are putting a hiring freeze in place, some 69 per cent still plan to hire strategically when there is a need to do so.

Richard Kantor, Hewitt's regional talent and organisation practice leader for Asia-Pacific, said: 'High quality talent continues to be a scarce and valued resource in this region. Smart organisations are using this time of turbulence to selectively recruit some of the very best talent.'

In the Asia-Pacific, 60 per cent of participants reported that they still have strategic hiring practices in place.

And instead of turning to salary cuts, companies are contemplating other policies such as reducing the number of promotions or lengthening the time between salary increases.

Stella Hou, Hewitt's regional practice leader for broad-based compensation in Asia-Pacific, said: 'We are on the threshold of what could be the beginning of a longer term rebalancing of salaries following rapid increases year after year in many fast-growing developing markets.'

However, when it comes to rewards, companies are more likely to invest in their top performers.

On top of differentiated cash rewards, other retention approaches for top performers include companies granting discretionary restricted stock and/or stock options (60 per cent).

'Companies that take care of their workforce over time, take extra efforts to reward and keep top performers, and substantially increase the productivity of the 'rest' stand an even better chance of mitigating the downside while positioning for the upside.

'It also appears that employees are willing, generally, to stay with companies that provide clear growth opportunities and a visible career path,' Ms Hou added.

This article was first published in The Business Times on November 18, 2008.