Asked how they compensated workers through a performance lens this year, respondents reported that “exempt workers who received the highest performance ratings were granted an average salary increase of 4.6 percent this year, more than 75 percent greater than the 2.6 percent increase given to those workers receiving an average rating. Workers with below-average performance ratings received an average merit increase of 1.3 percent,” Towers Watson said.

“With the job market remaining relatively soft, most companies aren’t feeling pressure to raise salaries by much more than the rate of inflation,” said Laura Sejen, global practice leader for Rewards at Towers Watson. “And the rising cost of health care doesn’t leave companies with much in their total rewards budget for pay raises.

“Still, pay remains one of the most important factors when an employee considers joining or remaining with a company, so employers need to be cognizant that they potentially risk losing employees if their compensation programs aren’t in sync with competitive market practice.”