Summary
- Implementing merit increases, which are performance-based salary adjustments for exceptional contributions, is a proven strategy to enhance employee engagement.
- Unlike general pay raises, merit increases specifically reward individual achievements
- While merit increases boost motivation, they may also lead to bias in performance evaluations
- To implement merit increases effectively, organizations should establish clear criteria, hold regular one-on-one meetings, and utilize structured performance reviews, all of which can occur within the right performance management platform
According to Mercer in its 2023 Inside Employees’ Minds study, employees who say they are paid fairly are 85% more engaged and 62% more committed to their organization, as compared to employees who believe they are paid unfairly.
To achieve high levels of employee engagement, implementing merit increases is a proven strategy. Though employee motivation and engagement are not solely reliant on compensation or bonuses, these elements are significant contributors. Employees universally are seeking tangible recognition of their efforts and performance.
What is a Merit Increase?
Merit increases are performance-based salary adjustments given to employees who demonstrate exceptional contributions to their organization. Unlike general pay raises, merit increases are explicitly designed to reward individual achievements.
By recognizing and financially compensating high performers, merit increases serve as a direct acknowledgment of an employee’s greater impact and alignment with organizational goals.
Merit Increase vs. Pay Raise
Though sometimes used interchangeably, there are distinct differences between merit increases and pay raises. The following bullet points detail these distinctions.
- Pay Raise- Pay raises are general salary adjustments that may be offered for reasons like inflation, cost-of-living increases, or company-wide policy changes.
- Merit Increases- Merit increases specifically highlight individual performance, rewarding those who exceed expectations or deliver results above and beyond what is required of their role or job description.
For example, an organization may grant a standard pay raise to adjust for market changes but reserve merit increases only for employees who excel in driving key projects or embodying company core values. This targeted approach not only incentivizes excellence but also reinforces the positive workplace behaviors and outcomes that align with organizational priorities.
Merit Increases: Pros and Cons
The recipients of merit increases rarely view them as negative but it is important to note that there are potential downfalls of instituting this strategy in an organization. The following list highlights the major pros and cons of merit increases.
Benefits:
- Boosts Employee Motivation and Retention: Rewarding outstanding contributions shows employees that their work efforts are truly valued and it promotes a culture that embraces high performance.
- Fosters a Culture of Accountability: Merit increases emphasize the importance of individually measurable results. Recognizing both performance and core values promotion of employees shows the company places a high value on personal effort and encourages everyone to uphold the same standard.
Pitfalls:
- Bias in Performance Evaluations: Without clear criteria, merit increases can quickly become subjective, leading to potential favoritism or other forms of bias. If performance standards are not clearly documented and communicated, managers are more likely to lean on personal experience or the ‘recency effect’ (only remembering recent interactions with the employee) when assessing performance.
- Challenges in Consistency: Ensuring merit increase fairness across teams and departments requires set standards, consistent documentation, and calibration of performance assessments from higher-level leaders.
How to Give Merit Increases
To implement merit increases effectively and in line with your organization’s values, consider the following strategies:
- Establish Clear Criteria: Develop transparent performance metrics tied to individual and organizational goals/objectives. Ensure that these metrics have been communicated well before any formal performance assessment.
- Hold Frequent One-On-Ones: Managers should have scheduled, frequent one-on-one meetings with their direct reports throughout the year to ensure any performance or behavioral issues are being addressed in real-time. This helps to alleviate any confusion or unmet expectations when formally evaluating performance.
- Implement Structured Reviews: Regular and objective performance evaluations reduce ambiguity and ensure fairness across the board.
- Communicate Expectations: Openly share evaluation criteria and provide feedback to employees. Having these conversations face-to-face between managers and employees helps to foster trust and clarity.
- Leverage Strategic Tools: Performance management software solutions enable organizations to make data-driven, unbiased decisions regarding merit increases. Digital tools increase accountability and ensure there are no blind spots when awarding things like merit increases.
How the WorkDove Performance-Values Matrix Supports Merit Increases
The WorkDove platform offers an effective tool for informing and managing merit increases: the Performance-Values Matrix (PVM). The PVM evaluates employees based on two key factors, performance and core values, and places them into the appropriate place on the matrix. The PVM offers a holistic evaluation because it takes into account the employee’s individual work efforts and their contribution to driving the organization’s core values forward. These two separate scores provide deeper insight into the employee’s overall impact.
Key Benefits of WorkDove’s PVM:
- Reduced Bias: Clear and objective data reduces the risk of favoritism in merit decisions.
- Enhanced Transparency: Employees visually see and understand how their contributions are evaluated based on communicated expectations.
- Stronger Alignment: Linking rewards to both performance and values reinforces the organization’s culture and greater mission. It empowers employees to fully embrace the positive culture the organization is working to foster.
With WorkDove’s PVM, leaders can evaluate the performance and value fit of employees, teams, and managers. Users can easily drill down and roll up the data by department and other factors. This tool makes it possible to generate powerful reports to recognize and reward star employees and quickly assess if the right people are in the right seats.
Final Thoughts
Merit increases are a powerful tool for driving engagement and operationalizing a high-performance culture. However, their success depends on clear criteria, consistent evaluation, and transparency. Tools like WorkDove provide the structure and insights needed to ensure fair and impactful merit increase decisions.
Ready to transform your performance management process? Explore how WorkDove can help your organization recognize and reward excellence while aligning with your strategic goals.
