At some firms, raises make welcome return

Despite downturn, investing in morale

At Winchester Hospital, workers had pay restored. Kelley Nunnelley (left) conferred with nurses Cherry Frost and Christine Callahan this week. At Winchester Hospital, workers had pay restored. Kelley Nunnelley (left) conferred with nurses Cherry Frost and Christine Callahan this week. (Essdras M Suarez/ Globe Staff)
By Katie Johnston Chase
Globe Staff / January 16, 2010

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Some companies are doing the unexpected during tough times: giving employees more money.

When the economy went into free fall in 2008, businesses did what they often must do - cut jobs. But many also took drastic measures to minimize layoffs and stay afloat. They cut salaries, stopped contributing to employee retirement funds, and forced workers to take unpaid time off. And though 2010 will no doubt be another challenging year, some companies have been just as swift to undo those reductions, restoring pay and benefits and even handing out raises.

In March, amid declining patient revenues and a deteriorating investment portfolio, Winchester Hospital executives decided to take two vacation days from each employee and stop putting money into 403(b) retirement accounts, among other stopgap measures - affecting about 2,000 workers. Manage ment said that when things started looking up, benefits would be the first thing restored.

And sure enough, when patient numbers and investment returns started increasing, the hospital did just that. In addition, the hospital deposited all the payments it had missed last year into employees’ retirement accounts. “It’s like it never happened,’’ said chief executive Kevin Smith. The hospital also sent each worker a check for between $25 and $100 with a card reading: “When we needed you most . . . you were there.’’

When the nurses and mammography technicians at the breast care center found out at a meeting what the hospital planned to do, they cheered. “I actually got goose bumps,’’ said site manager Pat Selleck-Graham, an employee since 2001.

With economic recovery far from certain, companies could easily delay the decision to restore pay and benefits, and many are. The national unemployment rate is 10 percent, and 85,000 jobs were lost in December; most employees probably are not looking to jump ship. But more than half the businesses that dropped or decreased their contributions to retirement funds are planning to reinstate company matches this year, according to a survey of 90 plan sponsors by the investment consulting firm Callan Associates.

“The employees that are still at companies are probably the most productive employees that they really want to keep, and they don’t want a resentful workforce,’’ said Eric Rosengren, president of the Federal Reserve Bank of Boston. “So one way to avoid that is to say once the crisis is gone, we’re going to restore your benefits and make sure that you’re happy.’’

For executives at the 60-person Boston advertising agency Partners+Simons, that meant restoring the salaries of employees who took 5 or 10 percent pay cuts in 2009 and reimbursing them retroactively for the amount they lost from their pay last year. By early this month, salaries had been brought back to previous levels, with the exception of the firm’s three partners, who took 20 percent pay reductions.

“I was very focused on trying to get us to a point where I could make people whole by the end of last year,’’ said chief executive Tom Simons, who added that he hopes to restore 401(k) matches soon as well. “I feel like I’ve got an emotional contract with these people.’’

Some employees were amazed by the company’s actions, given the still unsettled economy. “It was surprising because they didn’t have to do it as quickly as they did it,’’ said Anthony Henriques, a 40-year-old creative director at Partners+Simons and the sole breadwinner for a family of four. “Companies in these times could take advantage of people if they wanted to.’’

Executives at Teradyne Inc., a North Reading maker of semiconductor testing equipment, have also rescinded the 10 percent pay cut imposed a year ago on the 2,900 employees who remained after a layoff of 900 workers worldwide. Since then, revenues have improved sharply, and even though they are still below last year’s levels, executives felt compelled to share the company’s success with employees, said spokesman Andy Blanchard.

“All indications are we’re through that storm, and therefore we should restore the pay cuts that were put in place to get us through this storm,’’ he said.

Some companies are going well beyond making up for last year’s cutbacks. Eighty-six percent of companies nationwide plan to give raises this year, up from 70 percent last year, according to a study done by the outsourcing and investment services firm Mercer LLC.

Companies in sectors that are seeing improved profitability should consider handing out pay raises again, said Peter Handal, president of Dale Carnegie Training, which offers business training around the world.

“If the environment is beginning to turn in that particular industry, and you don’t give pay increases,’’ Handal said, “then you risk losing the good people in your company because they’ll be hired away by your competitors.’’

Sensata Technologies Inc., which supplies sensors and controls to the automotive and appliance industries, laid off 100 employees last year at its Attleboro facility, but is planning to reinstate raises this year. Beth Israel Deaconess Medical Center - which avoided major layoffs last spring by freezing wages, reducing benefits, and accepting monetary donations from department heads - also hopes to restore annual salary increases in April if current revenue projections hold up.

Chelmsford-based Kronos Inc., which laid off 250 of its 3,300 employees, is again giving raises as well. They won’t be as substantial as in the past, said the software company’s chief executive, Aron Ain, but it is a necessary action for recruiting and retaining valuable employees. Early last year, Billerica semiconductor equipment maker Entegris Inc. laid off 20 percent of its 2,800-member global workforce, closed a manufacturing facility, sliced salaries, reduced hours, suspended 401(k) matches, and introduced unpaid furloughs. But after revenues crept back up last summer, the company did away with these reductions and is now planning to reinstitute raises and bonuses.

“We could have waited multiple quarters until we felt a little better about it,’’ said Joe Murphy, senior vice president of human resources. But, he said, it’s vital to keep up with the market upturn and keep employees motivated: “You have to run the business in a responsible way.’’

Katie Johnston Chase can be reached at