Um, about that raise...

As companies cut back across the board, workers will likely get bad news in their paystub this year.

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By Jessica Dickler, staff writer

What do you think of Obama's crackdown on bank CEO pay?
  • It will force banks to act more responsibly
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NEW YORK ( -- It's not just CEOs and White House staffers who won't be seeing anything more in their paychecks this year.

Many cash-strapped companies are also reeling in their employees' pay, either through salary freezes or lower-than-typical salary increases.

"We're going through a very challenging period of time in the economy, so companies are under severe pressure to try and reduce their fixed costs," explained Ken Abosch, head of Hewitt Associates' North American consulting practice.

"Companies are looking for every nickel and dime they can find just to survive and hang on," he said, and "compensation represents one of the top expense categories."

Reducing annual raises or freezing salaries altogether are ways of "cutting expenses and improving the overall economic health of the organization," said Bob Eubank, executive director of the Northeast Human Resources Association.

In a struggling economy, Yahoo, Macy's and Estee Lauder are just a few of the firms that have recently announced a company-wide freeze on merit raises going forward.

"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.

Companies hope, Eubank said, "to cut their expenses without having to do layoffs."

But that's not always the case - Yahoo, Macy's and Estee Lauder all also announced plans to cut staff.

Still, 41% of companies have implemented, plan to or are considering implementing a salary freeze in response to the economic situation, according to a recent Towers Perrin survey.

However, because an across-the-board salary freeze is extreme, experts say, many more companies will likely choose to scale back pay increases this year to keep their costs in check.

That does not bode well for most employees gearing up for their annual review.

What can you expect in your paycheck?

Workers in the United States will get the lowest pay raise in three decades, with average increases of 3%, down 0.7% from projections made in early 2008, according to a survey by Hewitt.

While those in energy and engineering are faring slightly better, with raises near 4%, those in the auto industry may receive a raise of only 1.4%, on average.

"This makes it much more challenging for many employees to cover the basic necessities," Abosch said.

On the upside, with the inflation rate at a low 0.1%, a 3% pay increase more than covers an annual cost of living adjustment and tempers the disappointing news.

In addition, "companies, for the most part, are leaving their bonus plans intact," said Ravin Jesuthasan, a managing principal at Towers Perrin. That's because, unlike raises, bonuses do not increase a company's fixed cost.

"Bonuses have started to account for a much larger portion of earning opportunity," Abosch added, with 90% of all U.S. companies now participating in bonus plans. "Companies like that because they're only going to incur a cost if they have the business results to justify it," he said.

Despite stingy raises, the bonuses can be good news for employees too. "At least it preserves opportunity to earn a significant amount," Jesuthasan said. To top of page

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