Source: WorldAtWork.org

Feb. 12, 2009 — One-quarter of U.S. companies surveyed has instituted a salary freeze, a number that may rise to one-third by the time 2009 budgets are finalized.

According to a new Mercer survey, the worsening economy is to blame for the reshaping of corporate forecasts. The Mercer survey found that organizations that still plan increases for 2009 have trimmed these by 0.5% from the level they cited in October.

“Although not all companies considering a freeze will take this step, by the time all 2009 budgets are final, we expect to see one in three organizations freezing wages at 2008 levels,” said Steve Gross, global leader of Mercer’s broad-based performance and rewards consulting business. “It’s not an easy message to communicate to employees, but we think managers will be aided by the unprecedented context of these difficult decisions — including low inflation and high unemployment.”

Three-quarters of respondents are making or considering a base salary increase this year and are budgeting 3.2% overall, which is down nearly 0.5% from mid-October projections of 3.5%. In a survey three months ago, 24% of respondents planned to reduce their base pay budgets from their April projections by 0.5% and 18% planned to increase their budgets from their April projections to an average of 3.8%. Twelve to 18 months ago, just 5% of companies planned to freeze salaries for all or a portion of their staff, according to Mercer.

The Mercer survey found that 77% of respondents plan to decrease the salary budgets at the executive level from their 2008 projections.

“Given lackluster corporate performance and recent pressure from regulators, shareholders and the President, it’s not surprising to see that over the past few months, more than one-third of participants who reported executive salary data went from a 2009 planned base salary increase for their executives to a freeze,” commented Mr. Gross. “In 2009, executives are less likely to get a salary increase than rank and file workers.”

Mercer also found that pay for performance and employee engagement are becoming increasingly more important.

“The trend to strengthen performance management programs to better differentiate strong from average or weak performers will only gain more traction in the months ahead,” Gross said. “Greater differentiation of top performers allows employers to attract and retain those employees that will contribute to the company’s competitiveness and success.”

Survey Methodology
Mercer’s 2009 US Salary Budget Planning poll was conducted Jan. 22-29. It includes responses from more than 400 mid-size and large employers across the United States, and provides an update to Mercer’s 2008/2009 U.S. Compensation Planning Survey, conducted in April and October 2008.

Companies Granting 2009 base salary increases by employee group