First, here’s the good news: U.S. companies’ salary budgets are growing, up an average of about 3% for 2014, so everyone has a shot at a slightly better raise this year and next than they did in 2013.
That’s nice, of course, but not everyone will have cause to celebrate. Instead of being doled out more or less evenly across the board, as they used to be, salary hikes at most companies will be all over the map, according to a report from human resources association WordlatWork, based on a detailed survey of 5,252 HR managers at companies with a total of 13 million employees.
“Low performers”—those who simply show up and do the bare minimum—may get no raise at all, the study says, average employees will see a 2.7% increase, and stars will get a bump of 4% or more.
“We’re seeing a much greater emphasis on performance-based pay,” notes Alison Avalos, WorldAtWork’s research chief. “Partly because companies learned what it takes to sustain their businesses in the hard times of the recession, when they do spend money now, they want more bang for the buck.”
That means most employers are giving out more, and often bigger, bonuses than they used to. More than half (60%) now pay “spot” bonuses for excellent performance, for instance. Of those, the study says, almost one-third (31%) reward stellar middle managers with $5,000 or more, while 27% typically pay between $2,500 and $5,000.
In a sign that the job market is heating up, more companies are also using bonuses to attract and keep top talent. Almost two-thirds (74%) now sweeten the pot for new hires, a record high in the 41 years WorldAtWork has done its annual study. About 51% of employers now use retention bonuses to entice their stars to stick around, more than double the 25% who did in 2010.
Bonus programs aren’t new, of course, but their sudden increase in popularity is. “Relatively small average raises, with more kinds of bonuses available, is the new normal,” Avalos observes, in large part because a one-time bonus payout doesn’t get baked into overhead the way a salary hike does. “From the companies’ point of view, it’s a very conservative approach.”
For individual employees, Avalos points out that the rise of variable pay is a mixed blessing. “It puts more pressure on the employee to exceed expectations,” she says. “But the chance to earn a bonus, or bigger-than-average raise, offers more opportunity, too.”