The economy is improving and unemployment is at its lowest point since the financial crash, but wages remain relatively flat.
A new survey of 1,500 large and mid-sized employers conducted by HR consulting firm Mercer shows that the average corporate budget designated for pay raises will only be 2.9 percent next year. That's barely an increase from last year's 2.8 percent budgets.
However, the study reaffirms past evidence that pay raises are increasingly linked to performance, rather than tenure. While across-the-board wage hikes are on the decline, those identified at top performers in workplaces can expect bigger pay raises than in the past.
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In 2015, "top performers" received an average base pay increase of 4.8 percent, while average workers got a 2.7 percent boost. The lowest performers saw their pay rise an average of 0.2 percent.
The trend toward merit pay really geared up in response to tight budgets during the recession, said Mary Ann Sardone, a partner in Mercer's talent practice. Companies have since gotten into the habit of keeping annual pay increases low, instead focusing on rewarding top employees with bonuses.
"As they have become more comfortable holding the line on fixed cost increases with respect to salary budgets, we're seeing a steady rise in the use of short-term incentives as a mechanism for rewarding performance to supplement rather low pay raises," she said.
Companies are also increasingly boosting workers' salaries through promotions. For executives, promotional pay increases rose to 9.1 percent of overall base pay from 8.4 percent the previous year. For other workers, promotional pay — which 41 percent of organizations budget separately from merit raises — rose to 7.7 percent of base pay, compared to 6.9 percent last year.
"Employers are finding ways to deliver pay increases through other means like promotions, which reflects the growing trend of focusing on careers and sustained performance, not a one-year snapshot and reward," Sardone said.
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