As U.S. economic reports inspire cautious optimism, companies are preparing to reverse some of the benefits cuts they have made since last fall but aiming to operate with smaller staffs in the future. More than 60% say they plan to rescind a hiring freeze in the next 12 months, while 55% aim to restore salary reductions and 69% will lift salary freezes, according to a Watson Wyatt survey conducted in early June.

The looser rein on benefits reflects expectations that the economy is on the mend, or soon will be. Of the 179 companies surveyed, 24% say their results have bottomed out, up from the 13% that made that claim in April; 10% say their results are currently at bottom and another 41% expect the recession to be over by the end of this year.

However, despite the thawing of hiring freezes, 52% of companies expect the size of their staff to be smaller in three to five years than it is currently. That forecast is "primarily about maintaining lean staffing levels and trying just to drive productivity in the organization," says Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. "We're learning to do more with less." She notes that at the same time, companies are concerned about having enough workers with critical skills. Forty-five percent expect to have difficulty retaining such employees and 41% say it will be difficult to attract them.