SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE  ACT OF 1934

      FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

 [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                         COMMISSION FILE NUMBER: 0-20724


                             WATSON WYATT & COMPANY
             (Exact name of registrant as specified in its charter)

         Delaware                                               53-0181291
      (State or other                                      (I.R.S. Employer
      jurisdiction of                                       Identification No.)
     incorporation or
       organization)


                              601 13TH STREET, N.W.
                                   Suite 1000
                             Washington, D.C. 20005
          (Address of principal executive offices, including zip code)

                         TELEPHONE NUMBER (202) 508-4600
              (Registrant's telephone number, including area code)

-------------------------------------------------------------------------------

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days:

             Yes  [X]                                      No  [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of November 4, 1996.

Common Stock, $1.00 par value                                  17,079,387
-----------------------------                                  ----------
             Class                                          Number of Shares


<PAGE>



PART I.      FINANCIAL INFORMATION
ITEM 1.      FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Thousands of U.S. Dollars, Except Per Share Amounts)

                                                           Three Months Ended September 30,
                                                              --------------------------
                                                                1996            1995
                                                              ----------     -----------
                                                                     (Unaudited)

<S>                                                                 <C>             <C>

Fees                                                          $ 127,497      $  115,962

Costs of providing services:
    Salaries and employee benefits                               62,664          62,148
    Occupancy and communications                                 18,997          15,279
    Professional and subcontracted services                      20,393          12,643
    Other                                                         5,663           4,021
                                                                --------       ---------
                                                                107,717          94,091

General and administrative expenses                               9,912          10,539
Depreciation and amortization                                     5,361           5,025
                                                                --------       ---------
                                                                122,990         109,655

Income from operations                                            4,507           6,307


Other:
    Interest income                                                 283             451
    Interest expense                                               (275)           (119)

Loss from affiliates                                             (1,305)            (80)
                                                                --------       ---------

Income before income taxes and minority interest                  3,210           6,559

Provision for income taxes                                        1,504           3,136
                                                                --------       ---------

Income before minority interest                                   1,706           3,423

Minority interest in net income of consolidated subsidiaries        (41)            (37)
                                                                --------       ---------

Net income                                                    $   1,665      $    3,386
                                                                ========       =========


Earnings per share                                            $    0.09      $     0.18
                                                                ========       =========

</TABLE>



                             See accompanying notes
                                       -2-

<PAGE>

<TABLE>
<CAPTION>
 
                            WATSON WYATT & COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (Thousands of U.S. Dollars)

                                                                            September 30,      June 30,
                                                                               1996              1996
                                                                            -----------        ----------
                               ASSETS                                       (unaudited)
<S>                                                                                <C>               <C>   

Cash and cash equivalents                                                 $      8,081       $    21,694
Receivables from clients:

    Billed, net of allowances                                                   65,327            71,431
    Unbilled                                                                    64,915            53,122
                                                                            -----------        ----------
                                                                               130,242           124,553

Other current assets                                                            20,358             6,936
                                                                            -----------        ----------
    Total current assets                                                       158,681           153,183

Investment in affiliates                                                        41,263            41,195
Fixed assets                                                                    36,415            36,466
Deferred income taxes                                                           41,983            41,983
Deferred software and development costs                                         36,717            35,746
Other intangible assets                                                          3,850             3,820
Other assets                                                                     9,635             8,426
                                                                            -----------        ----------

                                                                          $    328,544       $   320,819
                                                                            ===========        ==========

    LIABILITIES, REDEEMABLE COMMON STOCK, AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities                                  $     90,224       $    88,203
Note payable                                                                    14,800              -
Income taxes payable                                                               829            11,362
Deferred income taxes                                                           34,830            34,830
                                                                            -----------        ----------
    Total current liabilities                                                  140,683           134,395

Accrued retirement benefits                                                     84,613            81,141
Deferred rent                                                                   13,576             9,904
Other noncurrent liabilities                                                     9,073            10,635

Minority interest in subsidiaries                                                  413               362

Redeemable Common Stock - $1 par value:
    25,000,000 shares authorized;
    17,157,904 and 18,261,963 issued
    and outstanding; at redemption value                                        84,760            90,214

Permanent shareholders' equity:
Adjustment for redemption value greater than amounts paid in by shareholders   (35,232)          (37,549)
Retained earnings                                                               29,511            30,677
Cumulative translation gain                                                      1,147             1,040

Commitments and contingencies
                                                                            -----------        ----------

                                                                          $    328,544       $   320,819
                                                                            ===========        ==========

</TABLE>

                             See accompanying notes
                                       -3-

<PAGE>

<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Thousands of U.S. Dollars)


                                                                          Three Months Ended September 30,
                                                                          -------------------------------
                                                                               1996              1995
                                                                          -------------      ------------
<S>                                                                                <C>               <C>    
                                                                                    (Unaudited)
Cash flows from operating activities:
    Net income                                                            $      1,665       $     3,386
    Adjustments to reconcile net income to net cash
    provided by operating activities:
        Provision for doubtful receivables from clients                          3,610               651
        Depreciation                                                             3,161             3,279
        Amortization of deferred software and development costs
            and other intangible assets                                          2,200             1,746
        Change in working capital                                              (46,760)          (13,501)
        Change in deferred income taxes                                            -               5,819
        Loss from affiliates                                                     1,305                80
        Minority interest in net income of consolidated subsidiaries                41                37
        Other                                                                       48              (945)
                                                                            -----------        ----------
        Net cash (used in) provided by operating activities                    (34,730)              552
                                                                            -----------        ----------

Cash flows from investing activities:
    Purchases of fixed assets                                                   (3,096)           (6,085)
    Proceeds from sales of fixed assets                                              5                11
    Acquisitions                                                                  (197)           (1,325)
    Investment in software and development costs                                (2,988)           (6,371)
    Investment in affiliates                                                    (1,373)             (856)
                                                                            -----------        ----------
        Net cash used in investing activities                                   (7,649)          (14,626)
                                                                            -----------        ----------

Cash flows from financing activities:
    Net borrowings                                                              34,700            13,496
    Issuances of Redeemable Common Stock                                           135               133
    Repurchases of Redeemable Common Stock                                      (6,103)           (1,980)
                                                                            -----------        ----------
        Net cash provided by financing activities                               28,732            11,649
                                                                            -----------        ----------

Effect of exchange rate changes on cash                                             34              (102)
                                                                            -----------        ----------

Decrease in cash and cash equivalents                                          (13,613)           (2,527)

Cash and cash equivalents at beginning of period                                21,694            11,860
                                                                            -----------        ----------

Cash and cash equivalents at end of period                                $      8,081       $     9,333
                                                                            ===========        ==========

</TABLE>

                             See accompanying notes
                                       -4-

<PAGE>


<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
      CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                           (Thousands of U.S. Dollars)

                                                                                    Adjustment For Redemption
                                                                      Cumulative    Value Greater Than Amounts
                                                     Retained          Translation         Paid In By
                                                     Earnings             Gain            Shareholders
                                                   ------------       ------------       --------------
<S>                                                        <C>                <C>                  <C>    

Balance at June 30, 1996                         $      30,677      $       1,040        $     (37,549)

Net income                                               1,665

Effect of repurchases of 1,133,915 shares of
     common stock (various prices per share)            (2,831)                                  2,831

Foreign currency translation adjustment                                       107

Adjustment of redemption value for change
     in formula book value per share                                                              (514)
                                                   ------------       ------------         ------------

Balance at September 30, 1996 (unaudited)        $      29,511      $       1,147        $     (35,232)
                                                   ============       ============         ============



</TABLE>



                             See accompanying notes
                                       -5-


<PAGE>



                             WATSON WYATT & COMPANY

                   Notes To Consolidated Financial Statements
                                   (Unaudited)

1.   The  accompanying  unaudited  consolidated  financial  statements of Watson
     Wyatt & Company and its subsidiaries, (collectively, "Watson Wyatt" or "the
     Company"),  are presented in accordance  with the rules and  regulations of
     the  Securities  and  Exchange  Commission  and do not  include  all of the
     disclosures normally required by generally accepted accounting  principles.
     In the opinion of management,  these  statements  reflect all  adjustments,
     consisting only of normal recurring adjustments,  which are necessary for a
     fair presentation of the consolidated  financial statements for the interim
     periods.   The  consolidated   financial   statements  should  be  read  in
     conjunction with the audited  consolidated  financial  statements and notes
     thereto  contained in the  Company's  Form 10-K for the year ended June 30,
     1996.

     The results of operations for the three months ended September 30, 1996 are
     not  necessarily  indicative  of the results  that can be expected  for the
     entire  fiscal year ending June 30, 1997.  Certain  prior year amounts have
     been reclassified to conform to the current year presentation.

2.   On March 31, 1996, the Company transferred its employee outsourced benefits
     administration  operations  including certain deferred systems  development
     costs, to a newly formed limited liability company,  Wellspring  Resources,
     LLC ("Wellspring").  Wellspring,  which is owned 50% by the Company and 50%
     by State Street Bank and Trust Company ("State Street"),  provides benefits
     and human resources administration outsourcing services. In connection with
     this  formation  of  Wellspring,   Watson  Wyatt  retained  certain  client
     contracts for  administrative  and recordkeeping  services and entered into
     agreements,  whereby  Wellspring  will provide the services to Watson Wyatt
     and those  clients  on behalf of the  Company  for a fee.  In  management's
     opinion,   these   agreements  are  on  terms  equivalent  to  those  which
     unaffiliated  parties would deem  reasonable.  Identifiable  implementation
     costs  associated  with these  long-term  contracts to provide clients with
     administrative  and  recordkeeping  services are deferred and  amortized to
     expense  ratably  over  the  estimated  remaining  life  of the  respective
     contracts  upon the  commencement  of  services  under each  contract.  The
     deferred  costs totaled $27.2 million and $25.3 million as of September 30,
     1996 and June 30, 1996, respectively.

     A portion  of the fees  received  by Watson  Wyatt  under  these  long-term
     contracts are deferred  until the applicable  services are commenced,  from
     which point the deferred  fees are  recognized  ratably over the  remaining
     life of the  contract.  The deferred  fees related to these  contracts  are
     included in other noncurrent  liabilities and totaled $5.7 million and $7.3
     million as of September 30, 1996 and June 30, 1996, respectively.

3.   Under the  Company's  stock  purchase  plan,  the Company is  obligated  to
     repurchase its Redeemable  Common Stock,  except in certain  circumstances.
     Accordingly,  the redemption  value of outstanding  shares is classified as
     Redeemable  Common  Stock  and  not  as  permanent   shareholders'  equity.
     Redeemable  Common  Stock is  equal to the  number  of  shares  outstanding
     multiplied  by the Formula Book Value per share,  which was $4.94 per share
     at September  30, 1996 and June 30, 1996.  Permanent  shareholders'  equity
     includes an adjustment for the difference  between the redemption  value of
     the Redeemable  Common Stock and the amounts  actually paid by shareholders
     for the shares.
                                      -6-

<PAGE>

4.   During the three months ended  September 30, 1996, the Company  repurchased
     1,133,915  shares of  common  stock,  at  various  prices  per  share.  The
     computation of earnings per share is based upon the weighted average number
     of shares of common  stock  outstanding  during the  period.  The number of
     shares used in the  computation  is 17,636,000 and 18,964,000 for the three
     months ended September 30, 1996 and 1995, respectively.

5.   During  the first  quarter  of fiscal  year 1997,  the  Company  recorded a
     sublease  loss of $4.4 million  relating to the  relocation of a portion of
     its  corporate  office  space to a less  expensive  suburban  location.  On
     November  6, 1996 at the  Annual  Meeting  of  Shareholders,  the  proposed
     amendment to the Company's bylaws modifying the calculation of formula book
     value was approved by an affirmative  shareholder vote. The Company intends
     to sublease the remaining  corporate  office space and is  considering  the
     possible  relocation of two other office facilities.  An additional pre-tax
     loss of  approximately  $5.4 million will be  recognized  during the second
     quarter of fiscal  year 1997  related to the  relocation  of the  corporate
     office,  with a related reduction of occupancy expense in future years. The
     results of the vote at the  shareholder's  meeting will be disclosed in the
     Company's Form 10-Q for the period ended December 31, 1996.

                                      -7-

<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

Watson  Wyatt  &  Company,   together  with  its  affiliates  and   consolidated
subsidiaries,  (collectively,  "Watson Wyatt" or "the Company"),  provides human
resource  and  employee  benefits  consulting  and  administrative/recordkeeping
services. The Company also provides a broad range of services in risk management
and general insurance and investment consulting,  and derives fees from sales of
surveys and licensing of software.  The Company works with  organizations of all
sizes,  from the  largest  multinationals  to  public  employers  and  nonprofit
institutions.

Watson Wyatt's fiscal year ends June 30. The financial  statements  contained in
this quarterly report reflect  consolidated  balance sheets as of the end of the
first quarter of fiscal year 1997  (September 30, 1996) and as of the end of the
prior  fiscal  year  1996  (June  30,  1996),  and  consolidated  statements  of
operations,  of cash flows and of changes in permanent  shareholders' equity for
the three months ended September 30, 1996 and 1995.

RESULTS OF  OPERATIONS--THREE  MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995.

For the first three  months of fiscal year 1997 the Company  produced net income
of $1.7 million,  a decrease of $1.7 million from net income of $3.4 million for
the first three months of fiscal year 1996.  Fiscal year 1997 results  include a
sublease  loss of $4.4 million  associated  with the  relocation  of part of the
corporate offices in Washington, D.C. to a less expensive suburban facility.

Fees for the first  three  months  of fiscal  year  1997  total  $127.5  million
compared to $116.0  million for the first three  months of fiscal year 1996,  an
increase of $11.5 million, or 10%. Revenue growth has occurred across most lines
of business, including the Company's Asia/Pacific and Latin American operations.

Salaries and employee benefit expenses for the first quarter of fiscal year 1997
were $62.7  million,  an increase of $.6 million,  from $62.1  million the first
quarter of fiscal year 1996.  The  increase in costs is  attributable  to normal
annual salary increases offset by the sale of the Minneapolis outsourcing center
and the formation of Wellspring.

Occupancy  and  communication  expenses  during the first quarter of fiscal year
1997 totaled $19.0 million,  an increase of $3.7 million, or 24%, from the first
quarter of the prior year.  The  increase is due to the $4.4 million in sublease
losses  recorded in the first quarter of fiscal year 1997  slightly  offset by a
decrease due to the sale of the Minneapolis outsourcing center and the formation
of Wellspring.

Professional  and  subcontracted  services  relating to consulting  offices were
$20.4 million  during the first quarter of fiscal year 1997, an increase of $7.8
million,  or 61% over fiscal year 1996.  The increase is primarily  due to costs
for outsourced benefits administration clients.

Other costs of providing services, which include travel and hotel, publications,
and general office  expenses,  were $5.7 million for the first quarter of fiscal
year 1997, an increase of $1.7 million, or 41%, from the first quarter of fiscal
year 1996.

General and administrative ("G&A") expenses for the first quarter of fiscal year
1997 were $9.9 million, a $.6 million, or 6%, decrease from the first quarter of
fiscal year 1996.  The Company has reduced its overall G&A  function and related
expenditures, which is reflected in the slight decrease between years.

                                      -8-
<PAGE>

Depreciation and  amortization  expense of $5.4 million for the first quarter of
fiscal year 1997 represents an increase of $.4 million over the first quarter of
fiscal year 1996. The increased  expense is primarily due to the amortization of
capitalized software costs.

Income before  income taxes and minority  interest of $3.2 million for the first
three months of fiscal year 1997  resulted in a tax  provision of $1.5  million.
This  compares to a provision of $3.1  million on $6.6 million of income  before
income  taxes and  minority  interest  for the first three months of fiscal year
1996. The effective tax rates for the three months ending September 30, 1996 and
September 30, 1995, were 47% and 48%, respectively.

LIQUIDITY AND CAPITAL RESOURCES.

The Company relies primarily on funds from operations and short-term  borrowings
as its source of  liquidity.  The Company  believes  that it has access to ample
financial resources to finance its growth as well as support ongoing operations.
The  Company's  cash and cash  equivalents  at  September  30, 1996 totaled $8.1
million,  compared to $21.7 million at June 30, 1996. The Company had borrowings
outstanding  under its line of credit of $14.8 million at September 30, 1996 and
no borrowings at June 30, 1996.

CASH FROM  OPERATIONS.  For the first  three  months of fiscal  year  1997,  the
Company had cash outflows from operations of $34.7 million,  compared to inflows
from  operations  of $.6 million for the first three months of fiscal year 1996.
The  cash  outflows  in 1997 are due to an  increase  in bonus  and  income  tax
payments,  an  increase  in funding of the  Wellspring  operations  and a slight
reduction in client collections.

The Company's  operating  cash flow is generally  stable and typically  does not
fluctuate widely within an economic cycle. The Company's ratio of current assets
to current  liabilities  remained constant at 1.1 at September 30, 1996 and June
30, 1996.

CASH FROM INVESTING ACTIVITIES. Investing activity cash outflow was $7.6 million
for the three  months of fiscal year 1997,  versus  $14.6  million in 1996.  The
decrease in  investing  cash  outflows is due to lower levels of  investment  in
client software systems and the acquisition of HRE, Inc. in fiscal year 1996.

Anticipated  commitments  of funds for the  remainder  of  fiscal  year 1997 are
estimated at $37 million, which includes expected purchases of fixed assets, 50%
of the future  capital  requirements  of  Wellspring,  and 50.1% of the  capital
requirements of WWHE.  Operating cash flows should, in combination with the line
of credit described below, provide for the Company's ongoing cash needs.

The Company also has a revolving  credit line which  matures on January 5, 2001.
Thirty-three  million  dollars of the credit line is available to the Company as
revolving credit for operating needs at September 30, 1996.

CASH FROM FINANCING  ACTIVITIES.  Cash flow provided by financing activities was
$28.7  million for the first  three  months of fiscal  year 1997,  versus  $11.6
million in the  preceding  year.  The increase is due primarily to the increased
level of borrowing in fiscal year 1997.

                                      -9-

<PAGE>


PART II.   OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Watson Wyatt is from time to time a defendant in various lawsuits which arise in
the  ordinary  course of  business.  These  disputes  typically  involve  claims
relating to employment  matters or the rendering of professional  services.  The
management  of the Company does not believe that any such  currently  pending or
threatened  litigation  is  likely  to have a  material  adverse  effect  on the
business or financial condition of Watson Wyatt.


ITEM 2. CHANGES IN SECURITIES

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K

a.    Exhibits

      None


b.    Reports on Form 8-K

      None



                                      -10-
<PAGE>





SIGNATURES



Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated:  November 8, 1996

Watson Wyatt & Company
(Registrant)




/S/ A. W. Smith, Jr.                         /S/ Barbara L. Landes
-------------------------                    --------------------------

Name: A. W. Smith, Jr.                       Name: Barbara L. Landes
Title: President and Chief                   Title: Vice President, Finance and
       Executive Officer                            Chief Financial Officer


                                      -11-

<PAGE>