Economic pressures are forcing many companies to take a hard look at their compensation and incentive programs to find ways to cut costs. However, many are still up in the air about making any major changes.

That's according to the results of an online survey of human resource executives and staff at more than 450 companies by Towers Perrin.

For example, even though 85 percent of respondents report that their company’s shares are trading more than 15 percent below last year’s levels, and almost 60 percent report that their stock price has declined by 30 percent or more, over half of the companies say that no final decisions have been made on how their long-term incentive grant methodology may need to be adjusted to reflect the change in stock price, Towers Perrin notes. Even fewer have decided how or if they will address underwater stock options.

John England, a Towers Perrin managing principal and a leader of the firm’s executive practice globally, says the findings and the firm’s recent consulting experience suggest that most companies are “still grappling with all of the governance, retention, and motivational implications of the economic crisis for their executive compensation programs.”

Just over half (53 percent) of the survey respondents have decided to leave their long-term performance targets unchanged despite recent events. Another 42 percent are considering the implications of making adjustments, and only 5 percent are already planning to make adjustments to reflect the new economic realities.

More than half of survey respondents forecast lower bonuses for 2008 performance than for 2007.

England says that, “Many of the tried-and-true incentive compensation rules of the road will be re-examined for a current fit with the realities of today’s environment, particularly for high-potential executives and those in pivotal roles who are always in demand.”

Meanwhile, nearly half of those polled say their company is somewhat or very likely to reduce pay/merit increase budgets, and 39 percent are considering a reduction in annual incentives and bonuses.

In the companies most adversely affected by economic and market turmoil, Towers Perrin says compensation and rewards cutbacks are targeted for all levels—from the senior executive ranks to line workers. For example, when comparing expected 2008 bonus payouts with those from 2007, respondents noted that any changes or reductions in compensation will be roughly the same for senior executives, middle managers, supervisors, and non-management staff.

A quarter of the companies surveyed expect bonuses will drop more than 25 percent year-over-year across the board, while 39 percent of those surveyed believe 2008 bonuses will stay about the same as last year’s for all employee groups.

Companies are considering other steps to cut discretionary costs. More than half (58 percent) acknowledge they’re somewhat or very likely to scale back this year’s holiday party and other employee events to save money, while 74 percent plan to cut spending on travel and entertainment, and 47 percent plan to cut training budgets.

More than half of respondents (54 percent) are somewhat to very concerned about turnover of their high-performing and business-critical employees as a result of the way the organization handles the economic crisis. To address the issue, 30 percent are considering cash retention awards and 41 percent are considering targeted salary increases to help retain and motivate top performers.