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Employees who want a hefty pay raise or bonus will need to sweat a little more to get them.

More companies are basing bonuses and pay raises on job performance, according to new research. Employers are expected to hand out annual pay raises of 3.8% for 2008, about the same as in 2007, according to a report to be released today by New York-based Mercer Human Resource Consulting. The study was based on online questionnaires filled out by 982 midsize and large companies.

Mercer's findings reinforce a report that was released earlier this week by WorldatWork, a human-resource association in Scottsdale, Ariz., which found that employers are expected to boost base pay by 3.9% next year.

Top-performing employees are more likely to see bigger pay raises than lower-rated workers, according to Mercer. The highest-rated employees, who make up 12% of the work force, got an average pay increase of 5.7% this year. The lowest-rated workers, who make up 3% of the work force, got only a 1.7% pay increase. Executives, by contrast, are being rewarded with bonuses based on their previous year's performance that equaled 47% of their base pay. That's up seven percentage points from 2006.

Trade and service workers took in bonuses based on their performance in 2006 equal to 9% of their base pay, an increase of only four percentage points from the previous year.

The industries that are offering the biggest raises this year include engineering and mining, real estate and construction, and professional services -- all of which saw increases in base pay above the national average in 2007. Industries that are seeing pay raises below the national average include retail, education, transit and warehousing.

Employers have turned to tying pay to performance to shore up costs and to try to retain their best workers. "There is a limited amount of money that people have, and they are trying to get a better return on those compensation dollars," says Steve Gross, Mercer's global-reward practice leader.

Bonuses help employers in several ways, says Christian Ellis, a senior vice president with Sibson Consulting in New York. For one thing, he says, "companies like to move away from fixed costs to variable costs." By offering bonuses, employers are able to minimize costs during lean times. Also, some employers consider group performance instead of individual performance, because it can be easier to judge a business unit. When executed properly, bonus programs can be excellent motivators and lead to an improved business, Mr. Ellis says.

The challenge for employers is determining who gets bonuses and pay increases, and how much they should get, says Ravin Jesuthasan, a managing principal with Towers Perrin in New York. Companies have to figure out which employees are the top performers, how much of their profits they should share with them, and whether those employees who make significant contributions to the company are getting their fair share of rewards.

Employees are increasingly being compared not only with other workers in their department; they are being judged against all employees in the company. Still, Mercer found that many of the companies it surveyed gave out higher raises to top performers in certain departments, such as information technology, than to those in other departments.

As the work force reaches capacity, a war over talent has emerged, and many employers are now using signing bonuses to woo top prospects. The top industries doling out signing bonuses are IT, finance and administration, and marketing and sales, Mr. Gross says.

Many employers are also offering more flexibility in the workplace to keep this top talent, says Alison Avalos, practice leader at WorldatWork. More companies continue to offer telecommuting, flex time and compressed workweeks to keep workers happy and motivated. More employers are trying to meet the demands of the work force, Ms. Avalos says. "It is an employee market right now."