Raises Smaller than Expected

Hit hard by the sluggish economy, employers are cutting back on pay hikes and bonuses, a survey finds.

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To cope with the weakening economy, many employers plan to cut costs by scaling back on pay raises and bonuses, according to Hewitt Associates.

More than 40 percent of 411 employers recently polled said they were revising salary budgets and spending strategies in wake of the economic downturn, the Illinois-based human resources consulting firm said.

As a result, pay increases for hourly and salaried employees at these companies are projected to be the lowest since the Sept. 11 terrorist attacks.

Two-thirds of the employers reporting cost cuts said they planned to reduce bonuses by more than 10 percent this year, with 40 percent expecting to maintain the cutbacks into 2009. At the same time, more than half said they were also considering a hiring freeze or layoffs, the survey found.

Yet despite tough economic times, 38 percent of employers polled said they were setting aside a portion of salary increase budgets for star workers, including some that reported creating discretionary incentive pools.

"As these pressures continue, we expect to see an increased emphasis on variable pay to motivate employees and help them cope with growing economic pressure," Ken Abosch, the firm's compensation consulting expert, said in a statement. "The bottom line is that variable pay is a smarter way to manage a business in a good or bad economy," Abosch said.

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