New England Economy May Outpace Nation in 2009

A new survey of 140 New England companies, Changes for Challenging Times, conducted by The Bostonian Group and Wilson Group, shows how the region’s companies are handling the unique economic challenges in 2009.  The survey reveals that while New England companies forecast declining growth rates overall, the region may outpace the U.S. GDP forecast, which projects a one percent decline in 2009.  Sixty-three percent of companies forecast some revenue growth for this year.  More telling is the reduction in the number of companies that expect revenue to decline; this dropped from 34 percent in 2008 to 28 percent in 2009.  And several industries expect above average growth this year including life sciences, technology, healthcare and education, which together form a strong foundation for the New England economy.

“The last major recession, the bursting of the tech bubble in 2001-2002, left New England’s companies in disarray.  This survey shows that CEOs are making decisions that will make or break their businesses, and the amount of confidence and direction in the execution of those decisions is critical to their success,” said Jim Blue, chairman and CEO, The Bostonian Group.  “Overall, the survey shows that while New England certainly feels the downturn of the economy, companies are in a very good position to weather the storm if they take the appropriate actions to protect themselves”.

People: Cost Reduction Measures

This year, more companies say they will resort to hiring delays or freezes to control costs.  Sixty percent of respondents reported plans to either delay or reduce hiring in 2009 whereas 50 percent actually did so in 2008.  This year, 37 percent plan to put a freeze on hiring, while last year only 29 percent did so.  Other notable differences in cost-cutting actions in 2008 and plans for the start of 2009 include:

• Freezing Pay Increases.  In 2008, approximately 13 percent of respondents froze salaries or reduced the number of people receiving pay increases, but in 2009 the same group projects an increase to 42 percent and 30 percent, respectively.
• Shifting Benefits Costs to Employees.  Thirty-three percent of companies surveyed are now considering shifting costs to employees, a 50 percent increase over last year when 22 percent did so.
• Reducing Staffing and Pay Levels.  In 2008, 25 percent of respondents conducted layoffs of executive-level staff, and 28 percent reported layoffs for operational or administrative staff.  In 2009 these numbers are projected to increase to 33 percent for all staff levels.

The survey also showed that companies across industries are taking other measures to reduce costs, including reducing travel-related expenses, using fewer consultants and eliminating office perks.  Budget cuts are expanding to HR services and R&D, while companies appear to be expanding slightly their investments in technology that is focused on increasing productivity.

Industry Segmentation

The survey revealed some noteworthy differences among industry groups, including:

• Out of all the industries surveyed, the Life Sciences sector is projected to continue to experience strong growth and pay their employees more aggressively than the industry average.  For those budgeting for salary increases, the expectation is four percent compared to the all-industry median of 3.5 percent.
• Fifty-five percent of companies in Technology indicate plans for pay increases as compared to 42 percent overall.
• Healthcare companies are increasing investments in technology, acquiring other organizations and maintaining office leases more frequently than the industry average.
• Manufacturing companies are taking more steps to reduce costs, such as reducing R&D, decreasing office space and increasing outsourcing, than the industry average.
• Retail and Consumer Goods companies are reducing costs more often than the industry average in areas such as salary freezes, layoffs and the reduction of travel-related budgets.
• More Education and Not-for-profits organizations plan to focus on pay-related cost reduction pressures by freezing pay and reducing salary increases and bonus payouts at a higher rate than other industries.
• Professional service firms are focused more on reducing operational expenses, such as travel, office perks and consultants, than decreasing staff and payroll expenses.
• Financial service companies implemented the most cost-control actions in 2008, but few plan to be as aggressive in 2009.

“We designed the survey to take a closer look at the climate within each major industry in New England with the goal of fiving companies the courage and direction to make action plans that are appropriate for their industry and implement them to the best of their abilities,” said John Mancuso, managing director of Bostonian Group’s Executive Compensation & Benefits practice.

“We believe companies need to take three critical steps,” said Tom Wilson, president, Wilson Group.  “First, act quickly and decisively by cutting costs that do not endanger core competencies.  Second, strengthen relationships with customers and critical suppliers to position the company for sales when business conditions improve.  And, third, mobilize an ‘all hands-on-deck’ approach so that everyone in the organization understands the challenges and shares the same commitment as executives.”

For More Information

For additional information and a copy of the complete Changes for Challenging Times: A Special Report of the 2008-2009 Survey on Business Conditions and Actions, please visit www.BostonianGroup.com or call John Mancuso, managing director of Bostonian Group’s Executive Compensation & Benefits practice, at 617.587.2339.