Yahoo nixes annual raises

The Internet search giant will not offer annual salary increases as part of an effort to keep costs in line with sales.

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By Ben Rooney, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- In another sign that the recession is hurting the technology sector, Internet search engine Yahoo Inc. said Thursday that it will forgo annual salary increases this year as part of a cost-cutting plan.

"Based on the current economic environment and our focus on keeping costs in line with revenues, we have decided that providing annual salary increases would not be in the best interests of the company or our shareholders," Yahoo said in a statement.

The company said the decision is consistent with its broader focus on strategically reducing costs, which has been underway "for some time now."

Salary increases may still occur in certain situations, such as in connection with a promotion, according to a company spokesperson.

The decision comes eight days after Yahoo named veteran technology executive Carol Bartz as the company's chief executive. Bartz replaced Yahoo co-founder Jerry Yang, who stepped down in mid-November, following an unsuccessful courtship with software giant Microsoft Corp. (MSFT, Fortune 500) last year.

In October, Yahoo announced plans to cut staff by 10%, which means about 1,500 positions. That plan was implemented after Yahoo reported its third-quarter net profit had plunged by 51% from the year before, to $54 million, or 4 cents per share.

As of last month, Yahoo had 14,300 employees.

Analysts expect Yahoo to announce further declines when the company reports fourth-quarter results next week. Earnings per share will decline 14% to 13 cents from 15 cents a year ago, according to consensus estimates compiled by Thomson One.

Yahoo (YHOO, Fortune 500) stock ended the day down 31 cents, or 2.7%, at $11.28 per share.

Trip Chowdhry, an analyst who covers Yahoo for Global Equities research, said the decision to forgo raises is "natural" given the "worsening macro environment."

Chowdhry added that he thinks Yahoo will trim its workforce by another 10% to 15% and that the salary freeze effectively means that paychecks are being decreased.

"The economy is going south," he said. "Macro conditions will continue to create problems for a while and companies will have to lay people off even if they don't want to."

Meanwhile, one of Yahoo's chief competitors, Google Inc. (GOOG, Fortune 500), announced late Thursday that fourth-quarter revenue surged 18% to $5.7 billion from $4.83 billion.

But the broader tech sector remains under significant strain as the recession drags on consumer spending and the credit crisis limits corporate tech spending.

Earlier Thursday, Microsoft said it will cut up to 5,000 jobs in the next year and a half, and announced weaker-than-expected second-quarter results.  To top of page

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