OMB A-21 J, 10, a: Compensation for personal services:  "These costs are allowable to the extent that the total compensation to individual employees conforms to the established policies of the institution, consistently applied, and provided that the charges for work performed directly on sponsored agreements . . .  The employee compensation policies of the institution must be followed and must be consistently applied regardless of the funding.” 

OMB A-21 C, 3, d: Reasonable Direct Costs: (employee compensation is a direct cost), “Major considerations involved in the determination of the reasonableness of a cost are . . . the extent to which the actions taken with respect to the incurrence of the cost are consistent with established institutional policies and practices applicable to the work of the institution generally, including sponsored agreements.” 

An institution may give a salary increase to select employees even if others at the institution are not receiving an increase if an institutional policy is in place and all employees that fall under the same circumstances are treated consistently.  If it appears that an increase is being proposed for an individual without any policy to demonstrate consistent treatment and others in the same situation are not also considered for the increase, then the increase would not be allowed.