Pay raises for U.S. workers are expected to rebound in 2010, following a year in which many companies slashed raises in the wake of the recession, says a newly completed Watson Wyatt survey.

Companies are projecting median merit increases of 3.0 percent for 2010, according to the Watson Wyatt 2009/2010 U.S. Strategic Rewards survey report. The survey includes responses from 235 large U.S. employers gathered in May 2009.

Last year, before the onset of the recession, companies projected 3.5 percent merit increases for 2009. Watson Wyatt reports that now, companies say median merit pay increases will be 2 percent in 2009. However, fewer companies plan to eliminate pay raises in 2010. (According to a separate survey of nearly 900 companies conducted by Watson Wyatt Data Services, a subsidiary of Watson Wyatt, only 10 percent of companies are planning no pay raises for workers in 2010 compared to 25 percent this year.)

The Watson Wyatt survey finds that companies are giving smaller raises to employees who do not meet performance expectations. In 2009, workers who “partially met expectations” will receive median merit increases of only 0.2 percent, down from 1.5 percent in 2008. Workers who “exceed expectations” this year will receive a median 3.1 percent increase, while workers who “far exceed expectations” will receive a 4 percent increase. The recession has significantly reduced annual bonus pools as well, says Watson Wyatt. Funding for annual incentive awards dropped notably from 99 percent in 2007 to 82 percent in 2008. In 2009, annual incentive awards are expected to be funded at 75 percent, according to the report.