I think 3% is pretty standard. We get 3% every year and an extra 2% every 4-5 years for cost of living. I would say depends on the field. If the guy is really good he should be compensated more than a guy who does mediocre work. I work for a municipal government so it matters not if you do a good job, you get your raise with a minimum of effort. I wish it was performance driven.

I say bump up your best guys and give the guys who are not good the minimum. (although I have found those guys who do shit work think they are the best)