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February 09, 2009
Planned Average Pay Increases for 2009 Drop Markedly
A new survey indicates that many U.S. employees will see lower or nonexistent salary increases in 2009.

The Towers Perrin survey, conducted in January 2009, among over 510 midsize and large companies, sought to find what U.S. businesses are planning to address in the current economic crisis. Many respondents indicated that they would be giving out smaller raises—and in some cases would be implementing pay freezes—as well as smaller bonuses.

Respondents indicated that the average pay increase for 2009 will be 3.0%, down from the 3.7% increases that were planned as of October 2008 (as found in a previous Towers Perrin survey). In addition, four in 10 respondents were contemplating salary freezes. Meanwhile, over half (54%) of companies plan to pay smaller bonuses for 2008 performance than they did last year, according to the survey.

“Our latest survey of compensation practices finds that most companies are holding the line on salaries by cutting their 2009 merit increase budgets, freezing salaries or even cutting base pay in some instances,” Ravin Jesuthasan, a Towers Perrin Managing Principal, said in a press release. “In addition, many employees will see smaller bonuses for 2008 performance, commensurate with their companies’ reduced financial results in a challenging economy.”

But the survey also found that, by and large, companies are “resisting draconian measures” that might cause high performing talent to look for employment elsewhere.

“Most companies appear to be taking careful approaches to cost reduction in the current economic crisis, avoiding slash-and-burn pay and staffing reductions to the extent possible,” Jesuthasan said. “In fact, as organizations continue to look for ways to reduce costs, many -- approximately 62% of respondents -- are concerned about the potential impact on their ability to retain high performing talent or those in pivotal roles. To address this concern, many are turning to salary increases and other forms of cash rewards even as they contemplate reducing such expenses for the rest of their workforce.”

Other actions that have been taken or are being contemplated among responding companies include a reduction in staffing levels and hiring freezes or reductions (reported by 74% of respondents) and targeted staff cuts focusing on less critical roles and poor performers (cited by 58% of respondents).

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