Base salary budgets for 2009 have been reduced by many companies in response to a worsening economy and reshaping of corporate forecasts, according to a new Mercer survey of 400 mid- to large-sized employers across the US. Reductions are widespread, leading to salary freezes at one in four companies responding to the survey. Organisations that still plan increases for 2009 have trimmed these by 0.5 per cent from the level they said in October was planned for the coming year.

One in four organisations has instituted a salary freeze for 2009 and another 20 per cent are considering a salary freeze. Companies making or considering a base salary increase in 2009 – 75 percent of respondents – are budgeting 3.2 per cent overall, down almost one-half per cent from mid-October projections of 3.6 per cent.

The biggest budget decrease in the survey findings is at the executive level, where more than three-quarters (77 per cent) of respondents plan to decrease their salary budget from their 2008 projections.

Pay for performance is becoming increasingly more important. “The trend to strengthen performance management programmes to better differentiate strong from average or weak performers will only gain more traction in the months ahead. Greater differentiation of top performers allows employers to attract and retain those employees that will contribute to the company’s competitiveness and success,” says Steve Gross, worldwide partner at Mercer, Broad-based Performance and Rewards Segment.

According to Mr Gross, employees are most concerned about what this shake-out will mean to them. Clear and timely communication from senior management is essential to help employees move past paralysing uncertainty and, in the case of lay-offs, deal with ‘survivor guilt’.