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Want a Raise? Better Be a Top Performer

With the economy still uncertain, employers are saving what money they have for the workers whom they can’t afford to lose.

Firms will open their pay spigots next year, but not by much and not for everyone. Base salaries will rise between 2% and 2.5%, up from the 2010 average hike of 1.5%. But even more than in the past, employers will weigh performance in giving out higher salaries.

Average and subpar workers, especially at companies that cut pay during the recession, are likely to be disappointed. “It’s still a buyer’s market out there,” says Ken Abosch of Hewitt Associates, a benefits consulting firm.

But top performers will do better as employers offer more cash incentives, hoping to stop their best employees from leaving as the economy -- and the job market -- improves. In the thick of the recession, businesses focused on career development, training and other nonmonetary perks to reward employees. But now they know their best workers will start demanding compensation increases. “The focus has returned to ‘show me the money,’” says Jeanie Adkins of Mercer, a consulting firm.

To stretch their payroll dollars, employers are shifting to more “variable pay” -- bonuses, cash incentives, stock options and so on -- which may or may not be paid out, depending on employee performance. Twenty years ago, that kind of compensation accounted for less than 4% of total payrolls. Today, it’s nearly 12%. “The name of the game in compensation growth is in incentives and bonuses,” says Abosch.