What is a merit increase?

A Merit Increase is a type of pay raise awarded to an employee based on their individual performance. Unlike cost-of-living adjustments or across-the-board raises, a merit increase is directly tied to how well an employee has met or exceeded expectations.

Key aspects of merit increases include:

• Performance-Based: The primary driver for a merit increase is the employee's performance review. Strong performance leads to a higher chance of receiving a significant merit increase.
• Discretionary: Employers have discretion in determining the size and distribution of merit increases. This depends on budget availability, company performance, and individual employee contributions.
• Motivating: Merit increases are designed to motivate employees to improve their performance and contribute more effectively to the organization. It is seen as a reward for hard work and dedication.
• Competitive Advantage: Offering competitive merit increases can help companies attract and retain top talent by demonstrating that high performance is valued and rewarded.
• Performance Appraisal plays a key role in determining merit increases, as it objectively assess the employee's contribution to the company.
• Compensation Strategy of the company influences the distribution of merit increases.
• Typically are given annually during the annual Salary Review process.