A merit increase is a salary increase given to an individual employee in recognition of their performance, as distinct from a cost-of-living adjustment that applies to everyone regardless of individual results.
What it means
Merit increases are usually informed by the performance appraisal cycle and are typically differentiated - a higher performance rating earns a larger increase, within a budget the organisation sets for the round.
Where it fits in
A merit increase changes an employee's basic salary going forward through payroll, usually effective from a defined date each year, and the new figure must still sit within the role's pay grade unless an exception is approved.
Key rules
- A pay rise tied to individual performance, not given across the board.
- Differentiated by performance rating within an overall increase budget.
- Informed by the performance appraisal cycle.
- Updates the employee's basic salary in payroll from an effective date.
