Experts say pay-for-performance alive and well

U.S. employers are reporting a 2.5% average salary budget increase across all employee categories for 2010, which means many employees may expect a base pay raise of around 2.5% before the year is over. However, the size of the raise changes when employee performance is factored in. Low performers can expect to see minimal increases of up to 0.7% or nothing at all; middle performers might expect a nominal base pay raise of 2.4%; and high performers may expect an average of 3.7% (54% higher than a middle performer). Surveyed employers reported that roughly 24% of employees are rated as high performers, while most are classified as middle performers.

Those were just a few of the conclusions drawn from the annual WorldatWork 2010-2011 Salary Budget Survey, the largest survey of its kind, with more than 2,497 respondents representing 15.5 million U.S. employees.

"With underfunded salary budgets this year, employers want the most bang for their buck," said Anne C. Ruddy, president of WorldatWork. "They are no longer averse to withholding merit increases for poor performers so they can afford to grant meaningful increases to better performers."

The survey also found that one in three companies has a separate promotional budget as standard practice. A promotion could mean an additional increase of 7%-8% in the promoted employee's base salary.

In addition, a top performer can expect to benefit from an employer's variable pay program. For 2010, employers are budgeting an average of 5% to 12% for variable pay, depending on employee category: for example, exempt, non-exempt salaried, and hourly, officers/executives.

"In this economy, being an average performer just doesn't cut it anymore," said Alison Avalos, research manager for WorldatWork. "Companies expect performance and are willing to reward employees based on organization success, individual performance, or both. Pay-for-performance is alive and well."