The move to reduce pay is just one of a raft of cost-cutting and precautionary measures the US retailer has enacted as it readies itself for a rocky year.

The operator of mid-range department stores said on Thursday that earnings had fallen 9.9 per cent to $430m, or $1.93 a share, total sales fell 4.3 per cent to $6.39bn and sales in stores open at least a year, a key retail measure, dropped 2.3 per cent.

Analysts had expected earnings of $1.77 a share but cuts to incentive pay and lower pension costs helped JC Penney to reduce its cost of sales by 11 per cent, or $187m.

JC Penney said it had reduced its plans for capital spending in anticipation of a slowing US economy and now expects to open 36 stores this year, 14 fewer than originally planned.

The company has also sought to cut its inventories through aggressive promotions and price cuts.

US consumers are struggling with higher energy costs and falling home prices, as well as a rapidly weakening economic environment that is threatening jobs.

Recent surveys have suggested that consumer confidence is plummeting.?"It continues to be a very challenging retail environment," said Mike Ullman, chairman and chief executive, in a call with analysts. "The economic climate and retail environment have not shown any signs of near-term recovery."

Clothing for women and children were the company's best performing lines, while jewellery and expensive products for the home were the weakest.