Where I work now there is no incentive as all are given a customary cost of living raise...which is ridiculous. Let people earn their raises...now that’s an incentive to perform!Cost of living isn't really a raise, it's an adjustment so you can buy the same amount of food, fuel, clothing and so on, that you bought last year for the same number of hours of work. If they didn't give it to you, it would be a pay CUT. Now anything in excess of inflation should be earned as you note, I agree.
I understand this..but it is nonsense to give raises to keep up with inflation. This is no different than subsidizing industries. It is another entitlement which the employeer is obliged to give rather than the determination to award those who are productive. If one feels the crunch in a "pay cut" because the cost of living has risen, then they need to consider what they can do to change this equation...put out more and ask what the requirements are which the management wants to see in order to compete and earn more. Otherwise...move on to another company who does reward performance.