Harvard University's largest faculty plans to freeze salaries for professors and non-union staff next year as the world's richest university grapples with a funding shortfall brought on by the financial crisis.

A letter from deans of the Faculty of Arts and Sciences to department heads said at least €81 million must be cut from the budget, which is strained by a projected 30 per cent drop in the Ivy League school's endowment in the year to June 30.

"Faced with budgetary pressure of this magnitude, we have decided to curtail sharply most incremental expenditures," the deans wrote in the letter, dated Monday and posted on the Harvard Crimson newspaper's website.

Harvard's Faculty of Arts and Sciences will also postpone almost all current tenure-track and tenured searches, the letter said, a setback for one of the world's most coveted academic prizes that confer a job for life.

Searches would resume when the financial situation turns around, the letter said.

Harvard reported on December 2 that its endowment had lost 22 per cent, or €6.1 billion, in the last four months and was on track for its worst returns in 40 years.

The university relies on its endowment to cover about 35 per cent of its operating budget.

Harvard president Drew Faust told faculty, students, staff and alumni on November 10 the university needs to reduce spending - raising the prospect of cuts to programs and compensation - but that she would resist big tuition increases.