25% of companies plan salary freeze

Fewer employees will get raises in 2009 than in 2008, according to survey of employers. Least likely to get raises: CEOs.

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By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- About a quarter of businesses have frozen workers' salaries for 2009 in the wake of a pessimistic economic outlook, according to a survey released Monday.

Outsourcing and consulting firm Mercer said 25% of organizations surveyed said they have already decided not to raise their employees' pay, and another 20% are considering a salary freeze this year. A year ago, just 5% of companies planned to suspend raises for their staff.

Mercer predicted that one in three companies will have frozen wages at 2008 levels by the end of 2009.

"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," said Steve Gross of Mercer.

Those companies that plan on offering raises to their employees will give smaller-than-expected pay increases, Mercer said. The average expected salary bump at those businesses was just 3.2%, down from a planned 3.6% according to an October study.

The news comes as many employers are opting to slash jobs rather than reduce or freeze pay. Announced layoffs so far this year have already topped 300,000, and the Labor Department reported on Friday that employers slashed 598,000 jobs in January - the single highest monthly job-loss total since December 1974.

Executive compensation: Mercer also reported that executives are far less likely to get a salary increase than other employees in 2009. According to the survey, just 61% of companies are planning to raise their executives' pay, and 77% of respondents plan to decrease the level of executive compensation from their October projections.

Only 69% of employers plan to raise salaries for employees in managerial positions.

Last week, President Obama and Treasury Secretary Geithner announced their plan to cap executive pay at companies receiving government bailout funding. The new rules will cap annual cash compensation at $500,000 for those CEOs.

Obama lashed out at Wall Street executives in late January for receiving $18.4 billion in bonuses in 2008 after corporate profits tumbled, dragging down retirement funds and the overall financial sector.

"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," said Gross.  To top of page

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