What is a Merit Increase and Why They Matter?

By hrlineup | 26.04.2020

There are general workers, good workers and great workers. In an organisation, when you have a team of people doing the same job and one or two of them stand out due to performance, it is worth rewarding their efforts. Rewarding these efforts serves several purposes including motivating the workers themselves and revealing to the team members that hard work pays off. This is where a merit increase becomes essential.

What is a merit raise?

A merit raise is a reward that is planned for high performing and productive employees. They are a key part of human resource operations, especially with compensation planning. This type of raise also considers the efforts that employees have made to improve while they are working. For a merit raise to make sense, it is important that there are clear criteria on how an employee can get one. This enables the employees within the organisation to work towards meeting the goal for a merit increase.

Why Choose a Merit Raise?

There are advantages and disadvantages of a merit increase. The advantage is that when it is done right, then the entire team will be motivated, and their productivity will increase. Furthermore, it may help tremendously in fostering teamwork. It also offers employers the opportunity to control their costs by deciding how many employees they can reward within the year.

The disadvantage comes in who is rewarded, and how many times. The person who is chosen should be deserving without question. Ideally, it would be better to reward a number of people with a merit increase. Over time, other employees may become disgruntled or resentful if they do not receive the increase. An annual merit increase should target a significant number of employees and should have key performance indicators. As with any other compensation methods, a merit salary adjustment should be done every year.

In some cases, a company is not willing to offer a merit increase. This is because doing so may cause an anomaly, resulting to a worker receiving a salary that is above their salary range. This could affect other employees who are doing the same job, as they may feel marginalised. Rather than choosing a merit raise that will elevate the earnings of the employee moving forward, a merit bonus may be offered instead. A merit bonus is normally offered once a year.

Merit raises matter because they give employees something to work towards. They also require a company to create a framework that evaluates the work done by all the employees. One proven result of offering merit increases is that good employees become more loyal and are likely to stay with the company for the long term. When rewarding or offering a raise to a worker, the merit raise offers encouragement. As a method of increasing motivation, it is cheaper to offer a merit raise than it is to explore other options that require for the entire work force to be compensated.