DEFINITION of 'Salary Freeze'

The action of a company suspending salary increases for a period of time. By freezing salary increases for a given period, management is hoping that the company will be able to produce better bottom line results by keeping fixed costs controlled. The downside of a salary freeze for a company is that employee morale will typically take a hit and the firm may end up losing valuable employees due to compensation issues.

BREAKING DOWN 'Salary Freeze'

A salary freeze typically occurs when a company is experiencing financial difficulties. It may choose to freeze salaries temporarily in order to minimize layoffs. Once the company is in a better financial position, the salary freeze would likely be lifted.

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