Special researches

  • 11.01.2011

    Wage policy in the industrial business: pre- and post-crisis performance

    We continue to present the results of our studies of the impact of the crisis on economic activity in the country. Salary is an important indicator of success as an individual enterprise and the economy. In May 2010 we conducted a special survey in the project "Business Surveys", where business leaders have put the issue of wage policy. They included business attitudes to reduce payroll payment as tool for declining shadows, usage of rate schedule in industrial enterprises, introduction of minimum hourly rates, the impact of change of payroll on enterprises’ wage policy, and review of pre-and post-crisis wages policy in enterprises. Below there is an overview of wage policy before, during and after the crisis.


    In our study there were three trends that are important given the impact of the crisis on economic activity. The first - an indication of economic recovery is to reduce the number of companies, which is a reduction of wages to pre-crisis level. However, it should be noted here that the process of recovery probably will not come quickly, companies have not started a salary increase just as it was before the crisis, by contrast, the proportion of firms with consistently increased wages has decreased sharply during the crisis, now still remains unchanged. The second is that in post-crisis period the dominant policy of wages in enterprises was the policy of "wage, depending on your business results" (whereas before the crisis dominated "consistent salary increases). Third - this is much worse compared to the other, the situation in small enterprises - are virtually abandoned the policy of successive wage increases (although this approach to the crisis here was also dominant) reoriented on "maintenance of a stable salary" and "salary, depending on the result the enterprise."


    Figure 1. The answers to the question "Question "How can you determine the wage policy for your company? “ % of enterprises in each of the periods


    Source: IER Surveys


    Below is a more detailed analysis of wage policy in the business before, during and after the crisis.


    Before crisis. In the pre-crisis period almost half (43.7%) pointed to the consistent growth in wages, 14.5% identified their wage policy as the maintenance of a stable salary, 3.9% shows a reduction of wages. It should be noted that 37.5% of respondents indicated that wages in this period depended on the outcome of the work.
    In general, the following picture approaches to wage determination was typical for companies of all sizes, although each group has its own peculiar characteristics. Thus, among large enterprises consistent growth in wages was the dominant policy (53.2% of respondents reported this), no manager of large companies reported no reduction in wages in the pre-crisis period. Dependence on the outcome of wage work often used for medium enterprises. Among small businesses a little more than applied to other "lower wages", "maintenance of a stable salary and a bit less - the other two approaches.


    Crisis. During the crisis (from the fall of 2008 and the spring of 2010) policy on enterprise wage changed. Significantly decreased number of firms, where wages consistently increased (from 43,4% to 14,9%). At the same time the number of firms with or attempted to maintain the existing level of fees afterlife (22,4%) or had to cut it (22,4%). The share of firms where wages depend on the performance, remained virtually unchanged (38.9%).
    Among the enterprises of different sizes the biggest changes have occurred in large enterprises. The worsening financial and economic state enterprises contributed to a sharp reduction in wage growth consistent policy (from 53.2% in the crisis period to 14.5% in the crisis). Additionally, large companies rather than other reoriented the policy of "salary depending on performance". The number of large companies that used this policy increased (from 35.1% to 44.7%), while among small and medium enterprises of such little changed.


    Figure 2. Politics salaries in enterprises of different sizes before, during and after the crisis,% of enterprises


    Source: IER Surveys


    Post-crisis. According to the managers interviewed in the second half of 2010 wage policy to a company again suffer changes. Although it remained unchanged share of firms even in times of crisis, continued sequential growth in salaries (15.3% of respondents) and the share of firms that are targeted at maintaining the existing level of wages there are two important changes that suggest the adaptation of enterprises to the economic realities of today:

    • First, a group of firms with continued reduction of wages dropped to crisis level (2.7%)
    • Second, in the number of enterprises, where wages depend on the performance of companies (56.9%).

    These trends to some extent typical for companies of all sizes. Meanwhile, survey results indicate that the situation in small enterprises has its peculiarities. In particular among them recorded the lowest share of firms with the restoration of a consistent policy of wage increases (8.8%  in contrast to 17.3% for medium and 20.5% for large) and the largest share of firms with stable retention policies comply with the salary (33.0% to  for 22.4% medium and 16.4% for large).


    Salary depending on your business results - the dominant policy after the crisis. Importantly, the prevalence of the policy of "wage, depending on your business results" after the crisis was about the same for small, medium and large firms (respectively 56.0%, 55.1% and 60.3%). It is likely that this policy is most appropriate in the current economic conditions. Large companies have started to use it, even during the crisis. Besides, a number of large enterprises, where use of this approach to wage continues to increase (from 35,1% before the crisis to 44.7% during the crisis and 60.3% after the crisis). Medium-sized enterprises to the crisis often than others, used this approach and began to use it more actively (by 34.8% to the crisis, 32.2% during the crisis, 56.0% after the crisis). Among small businesses, also reported a significant increase in part of those who use such policies (respectively 37.5%, 38.9% and 56.9%). While it no small or medium enterprises, not increased use of such a policy - then these companies have resorted to reducing wages.


    The full survey report is available only in Ukrainian.

    Authors:  Kuziakiv Oksana
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