Average Salary Increase for 2010 Drops to 2.5 Percent

According to a recently re-released World at Work Survey, the average annual salary increase is down to 2.5 percent, .a 0.3 percent decrease from the original forecast of 2.8 percent a few months ago. So how will employers continue to reward performance in light of these paltry merit increase budgets? Here's what you can expect to see.

1. Increases in variable compensation. High performers might not receive a big bump in their base salary, but employers will continue to engage top talent by offering compensation that is not factored into the base salary such as monetary spot rewards for a job well done, milestone rewards when mission-critical projects are completed on-time and on-budget, and other perks with a monetary value such as gift cards.


2. Enhanced workplace flexibility. With less merit dollars to go around, employers are expected to offer more workplace flexibility options such as telecommuting, compressed work schedules, and job sharing to entice workers and keep them motivated.


3. More training opportunities. Employers may beef up their leadership training and career pathing initiatives in an effort to keep employees interested in their work and prime them for their next move up the corporate ladder.


4. Greater scrutiny over how merit dollars are allocated. As employers tighten their belts on merit increases, expect to see an even greater focus on performance differentiation. The performance rating system may be applied more cautiously now to make sure there is enough compensation available to reward top performers. Fewer employees will fall in the middle of the performance grading scale to make sure top performers are rewarded at the higher end.

In an economy such as this one, every employee needs to be an "A" player. What are you doing to make sure you are eligible for the best combination of compensation and perks in this new economy?