U.S. employers are planning to give workers merit increases that will average 3.5 percent next year, identical to the increase workers received this year and just slightly lower than the 3.6 percent average increase in 2007. Companies also say they plan to provide larger raises to their better-performing employees. Employees whose performance ratings exceed expectations will receive an average merit increase of 4.2 percent, while those who far exceed expectations will receive an average 6 percent increase.

"The economy is no doubt taking its toll on workers, but their 2009 merit increases appear safe -- at least for now," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. "Employees will view holding merit increase budgets steady as a positive sign that will help them offset inflation and higher energy and food costs."

Among the two out of three employers that have at least one formal contingency planning activity in place for future economic slowdowns, the most common is layoffs (52 percent), followed by plans to restructure their organization (46 percent), freeze the hiring of additional workers (39 percent), give smaller pay raises (27 percent) and freeze salaries (13 percent).

"The economic slowdown is clearly having an effect on companies worldwide and not just in the United States. If economic conditions continue to weaken, we would expect to see many companies begin to evaluate their staffing levels, pay programs and overall organizational structures and to implement some of their contingency plans," said Sejen.

A total of 1,389 employers participated in the survey, including 276 U.S. employers.