What is Merit pay?

Whether you're a beginner or an expert, you will find this Glossary useful.

Merit pay refers to a performance-related pay which provides bonuses or base pay increases for employees who hit the target or perform their jobs effectively, according to measurable criteria over a predetermined period of time.

what-is-merit-pay


Merit pay definition

Merit pay refers to a performance-related pay which provides bonuses or base pay increases for employees who hit the target or perform their jobs effectively, according to measurable criteria over a predetermined period of time.


Advantages and disadvantages of merit pay

Commonly-cited advantages of merit pay include

- increased effectiveness as a reward is tied to performance

- better company standards due to the recruitment of employees with the skills and confidence to work within a performance-related pay system

- increased retention of key employees who benefit from a pay system that rewards

- enables the employer to differentiate the high performers by giving them a higher pay

- if exceeding targets/expectations employees can be rewarded fairly.

- merit pay system is subjective and may be biased

- employees develop a tendency to expect consecutive pay raises

- competition between employees and acting in self-interest rather than in the interest of the company


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