The majority of small businesses around Ireland have frozen pay rates, saying it was necessary to sustain employment, and many plan to continue to do so in 2012.

The quarterly pay survey from the Small Firms Association (SFA) found that three quarters of respondents froze pay rates in 2011, with 69 per cent intending to continue that policy next year.

Some pay increases were implemented, but these rises were linked to productivity and innovation. Thirteen per cent of those who participated in the survey said they had increased basic pay, with the average rise amounting to 2.5 per cent. About 22 per cent said they would in increase basic pay in 2012 by an average of 3 per cent, provided business continued to grow.

"Basic pay increases are more likely to occur by exception on productivity and innovation grounds," said SFA director Patricia Callan.

"Of the companies expecting to implement a basic pay increase in 2011, 56 per cent expect increased productivity in the next three months, 76 per cent expect process improvement, 42 per cent increased workforce flexibility and 69 per cent new product or service development."

In contrast, 7 per cent of small firms have cut basic pay by an average of 10 per cent, citing difficult trading conditions and the need to save jobs, with 3 per cent planning further cuts in 2012.

"Jobs must be top priority - both the maintenance of existing ones and the creation of new ones. It is better to have more people at work on reasonable pay, than hundreds of thousands on the live register," said Ms Callan.

"While there is little or no wage growth in the Irish economy, moving forward it is imperative that if any pay increases are implemented that they are clearly linked to productivity gains, if competitiveness is to be restored."

The survey questioned 592 companies employing 12,750 people.