Companies are cutting that powerful motivational tool, incentive compensation. What's a manager to do?
At Axcelis Technologies, Kevin O'Connor had bad news for the Massachusetts-based company's 2,000 employees: "We won't be paying out bonuses for 2001," announced the senior vice president for human resources, first in an all-employee meeting, and then in a letter that spelled out the glum details. Faced with a tough technology marketplace, Axcelis - a developer of tools used by semiconductor manufacturers - simply didn't meet the benchmarks for awarding bonuses. Unlike 2000, when employees got anywhere from 4 percent of base pay to 50 percent, this year O'Connor reported that the results added up to one big goose egg. But that's just the beginning of the bad news: "We know that if we don't handle this right, we'll face a big morale problem," says O'Connor. "Employees need help in accepting this."

Axcelis isn't alone, not hardly. Collectively, about $40 billion in "variable compensation" - that is, bonuses - will be lost in early 2002, predicts Goldman Sachs in a recent report on U.S. economic outlook. More glum research comes from consulting firm Andersen, which, in a survey of companies, found that about 50 percent anticipated awarding no bonuses and another 25 percent expected any bonuses that might be awarded to be less than half of the initial target numbers.

The upshot? "Many employees are in shock," says David Hofrichter, principal and national compensation practice leader of Buck Consultants, a Mellon consulting company. Unmotivated workers are an increasing worry. And well-managed companies recognize this, Hofrichter adds, and are taking steps to defuse employee upsets.