European companies predict that the rate of layoffs will slow significantly over the next six months, according to research from consultants Watson Wyatt. Some 26 per cent of Irish firms surveyed had made pay cuts, more than twice the full sample average.

The Watson Wyatt survey, which involved over 700 organisations across Europe, including 100 in Ireland, as well as Africa and the Middle East, (EMEA) found 47 per cent of companies cut their permanent workforce in the past six months while only 30 per cent expect to do so over the next six months. Similarly, hiring freezes are beginning to thaw. Some 60 per cent of companies had hiring freezes in the past six months but only 38 per cent expect to do so going forward.

However, the pattern across the region is not uniform, with 45 per cent of companies in some countries  - - such as Ireland, France, the Netherlands and the UK- - predicting reductions in the permanent workforce to continue over the next half year. The survey also found high proportions (40 to 45 per cent) of companies in certain sectors predicting further employee layoffs, most notably those in auto equipment, financial services and telecommunications. In contrast, the energy and pharmaceutical sectors appear to be relatively secure places for employment.

Pay freezes are also beginning to decline. In a similar survey undertaken by Watson Wyatt in June, 70 per cent companies reported salary freezes, this is now down to 57 per cent who have already frozen salaries or expect to do so over the next 12 months. Of the 47 per cent of organisations that have implemented a salary freeze, four in 10 have not yet decided when they will lift them, demonstrating a cautious approach to 2010.

The survey found that Irish firms had the highest rate of workforce reduction among EMEA nations, with close to 80 per cent of Irish respondents reporting changes to their organisational structure and 61 per cent confirming lay-offs. This compared to an EMEA average of 48 per cent reporting redundancies.

Almost half of Irish participants said they would continue to make reductions in their permanent employee base in the next six months.

Some 26 per cent of Irish firms surveyed had introduced pay cuts, more than twice the EMEA average. This also represented a 50 per cent increase on the number of Irish firms who reported salary cuts in a preliminary survey carried out by Watson Wyatt last June.

"The speed and depth of the downturn is reflected in the degree to which redundancies and pay freezes have been applied, but the prevalence of these actions looks set to decrease significantly during 2010," said Carole Hathaway, European head of strategic reward at Watson Wyatt.

One impact of the recession has been widespread organisational restructuring, with 58 per cent of companies having made significant changes to their structure in the last six months and 56 per cent expecting to make significant changes over the next six months. Such changes have been most prevalent in Ireland, Italy, Russia, Switzerland and the UK.

However, the Watson Wyatt survey finds that despite undertaking significant restructuring programmes, many companies have not at the same time made changes to job roles and definitions.

"Organisations across Europe have reported widespread internal restructuring to realign their business to the new economic reality,”said Carole Hathaway. “Businesses now have the opportunity to use this period of relative stability to turn their attention to embedding these changes through roles, reward, talent and engagement practices to truly reconnect their people to the business.”

According to Watson Wyatt, organisations that change their business models and core processes need to ensure that these changes are fully embedded throughout the organisation in terms of redefined roles and responsibilities. It says it is critical that organisations ensure that role accountabilities, skills and competences are still aligned to the business. Roles that have not been reviewed and that may have become disconnected from the business will mean inefficiencies, lack of focus and frustrated employees.

“As the recession begins to bottom out organisations will need to be proactive in ensuring that their people strategies can deal with an improving economy where pay budgets may still be tight and employee engagement weak but key employees will have improved alternative employment opportunities,” said Hathaway.