Companies prefer layoffs to pay cuts

That leaves benefit cuts, which are more likely than pay cuts to escape employees' notice. Edward Kaplan, national health practice leader for Segal Co., an employee benefits consulting firm in New York, says one employer he deals with has excluded coverage for Nexium and Prevacid, the much-prescribed heartburn medicines, saying there are plenty of generic substitutes available. Those medicines account for 7 percent of the employer's drug costs.

Of course, some hard-pressed companies are cutting or freezing pay. Nortel Networks and American Express both announced salary freezes for many employees. The mayor of Columbus, Ohio, is freezing 2009 pay for himself and 400 other employees. And in Los Angeles, restaurant operator Grill Concepts is slicing top executives' pay 10 percent in an effort to avoid job cuts. Says Grill Concepts Chief Executive Officer Philip Gay: "It doesn't make you feel good when you go home at night if you've let people go."

But those are the exceptions. There's a good chance that if you keep your job in 2009, you'll get a raise. What's more impressive is that the raise is likely to be greater than the rate of inflation. That's because inflation is plummeting. The median estimate of economists for 2009 inflation is just 1.5 percent, according to a Bloomberg survey released Nov. 12.

Why raise inflation-adjusted pay in the teeth of a severe recession? After all, theory says that the price of labor should adjust to the demand for it. Theory also says that workers and employers alike should care only about pay adjusted for inflation. In reality, though, both groups tend to get anchored to certain pay hike numbers (4 percent is a favorite) regardless of changes in the rate of inflation.

That may be one reason employers haven't shaved much off their 2009 pay-hike forecasts. Amazingly, Mercer found that 2009 salary-increase budget projections for 190 U.S. companies barely declined from April to October (from 3.7 percent to 3.6 percent) despite a steep decline in projected inflation. "I wouldn't say inflation rates plus or minus are causative" in setting pay, says Laura Sejen, Watson Wyatt's practice director for strategic rewards.

Americans have a lot to worry about in 2009. But for now, pay cuts are not at the top of the list.

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