Word has leaked out of Boston that Fidelity Investments has nixed merit-based raises for 2003. Employees were formally told of the decision in a memo circulated at the end of last week prior to the Washington's Birthday holiday. Fidelity typically provides the raises to employees in July. The firm is making its annual bonus payments for 2002.

This is the second time since the Nasdaq collapsed that Fidelity has put the kibosh on pay raises. In 2001 employees who earned a base of more than $75,000 were not given merit increases. Some observers blamed that move for an uptick in Fidelity staffers leaving. The most recent decision may not have the same impact as few firms in the industry are now hiring.

"Fidelity senior management has made the decision that there will be no merit cycle increases planned for 2003," read the memo dated February 14 from Fidelity Brokerage. "We view this action as a temporary but prudent measure required in response to current economic conditions. As business conditions improve, we will review this decision."

The move is seen as a response to both falling asset values and a small amount of net redemptions seen at the fund industry's largest firm. By holding the line on base pay, Fidelity likely hopes to avoid a third layoff. Thus far through the downturn, the firm has let go of seven percent of its workforce. Those cuts are in line with cuts industry wide and far less than those at growth equity focused firms, including Janus.  

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