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Raises hold steady, but not for top performers

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in Compensation and Benefits,Human Resources

After pulling back the reins on pay raises during the recession, employers have returned to handing out steady, but not spectacular, salary increases. But the one-raise-fits-all approach is dying off as more employers embrace pay for performance.

Overall salary increases are projected at 3.1% in 2016, showing modest growth from 3.0% this year and 2.9% the year before, according to the 42nd annual WorldatWork Salary Budget survey.

A survey by consulting firm Towers Watson estimates similar salary increases next year. Here are their forecasts, based on job category:

Executives     2015 - 3.2%    2016 - 3.1%

Managers    2015 - 3.0%     2016 - 3.1%

Exempt (nonmanagement)    2015 - 3.0%   2016 - 3.0%

Nonexempt hourly   2015 - 2.9%   2016 - 3.0%

“Although many reports indicate improvements in the economy, the competition for talent hasn’t heated up. Employers are able to retain the talent they need with current practices,” says WorldatWork research leader Alison Avalos.

Many employers froze pay increase during 2008 and 2009, but those have almost completely thawed by now.

“To a large extent, 3% pay raises have become the new norm in corporate America,” says Sandra McLellan, leader of the Towers Watson rewards practice.

Key trend: Employers continue to reward their best performers with significantly larger pay raises as they look for ways to retain top-performing talent.

Example: The Pentagon last month said that it will more strongly emphasize performance when making pay and advancement decisions for civilian staff.

According to the new Towers Watson report, exempt workers who received the highest performance ratings received an average salary increase of 4.6% this year, about 77% larger than the 2.6% increase given to workers receiving an average rating. Workers with below-average performance ratings received salary increases of less than 1%.

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