More Raises To Be Tied To Performance

By ANJALI ATHAVALEY

Annual pay raises in the U.S. in 2008 are expected to stay about the same as this year’s. The catch: Your share could be even more closely tied to your performance.

A survey conducted by consultant Towers Perrin of Stamford, Conn., shows that salary budgets in the U.S. are set to increase an average of 3.9% in 2008 — the same increase employers reported in 2007. The survey of 4,000 companies in 60 countries, slated for release today, highlights a growing shift in the way companies pay employees. Rather than awarding increases in fixed pay, they are increasingly tying pay raises to employee performance, human- resources consultants say.

Performance-based pay used to be popular mostly in the financial-services sector, says Ravin Jesuthasan, managing principal and practice leader in the Chicago office of Towers Perrin, but it is now spreading to other industries. And while the trend used to be restricted to midlevel management, it is now spreading to union employees, he says.

The gap is widening between the raises awarded to top and bottom performers. Top-rated employees received an average raise of 5.6% in 2007 while the lowest-rated performers received only 1.8%, according to human-resources consultant Mercer.

Many countries in the Towers Perrin survey are expecting larger-percentage increases in salaries than in the U.S. In India, salaries are expected to rise 15% next year, compared with 14% in 2007. In China, employers are projected to award raises of 9%, up from 8% this yea.