Pay raises for US employees are expected to hold steady at 3% in 2017, according to a survey released today by Willis Towers Watson. The survey also found that employers continue to reward their best performers with significantly larger pay raises as they look for ways to keep their top talent and strengthen their pay-for-performance cultures.

The survey found virtually all respondents, 98%, plan to give employees raises next year, with salaries for exempt nonmanagement employees to increase 3.0%. That’s the same increase they received in each of the past three years. Employers are also planning 3.0% average salary increases for management and nonexempt employees. Executives can expect slightly larger raises at 3.1% in 2017, although those are smaller than the average increase executives received this year and in 2015.

“Given the continued low rates of inflation and the ongoing pressure on profit margins, employers remain cautious when it comes to budgeting salary increases,” said Laura Sejen, managing director, rewards, at Willis Towers Watson. “While most companies are feeling little pressure to increase budgets relative to what we've seen in recent years, many are starting to question how those budgets are spent and whether their conventional approaches to salary planning are delivering a good return on that 3% investment. In fact, some employers are challenging the use of the annual cycle, while others are changing the criteria for determining the amount of individual increases.”

According to the survey, exempt employees who received the highest performance ratings were granted an average salary increase of 4.6% this year; employees receiving an average rating were granted increases of 2.6%. Companies gave salary increases of less than 1.0% to workers with below-average performance ratings.

The survey also found that annual performance bonuses, which are generally tied to company and employee performance goals, are projected to hold steady or decline slightly in 2017 for most employee groups. Exempt employees are projected to receive bonuses that average 11.6% of salary, roughly the same amount companies budgeted for this year. Conversely, discretionary bonuses, generally paid for special projects or one-time achievements, are projected to increase slightly compared to bonuses awarded last year. Discretionary bonuses for exempt employees are projected to average 5.6% of salary, slightly more than the 5.3% average bonus awarded in 2015.

“Incentives tied to individual and company performance continue to play a greater role in an employee’s total rewards package,” said Sandra McLellan, North America practice leader, rewards, at Willis Towers Watson. “Unlike salaries, incentives are variable and give employers much greater discretion in rewarding employees for performing at superior levels. During times when employees have greater opportunities to seek employment elsewhere, employers need to evaluate their total rewards strategies and programs to ensure their top employees don’t take their skills elsewhere.”

The Willis Towers Watson Data Services Salary Budget Survey was conducted between April and July 2016, and includes responses from 967 companies representing a cross section of industries.