What is Merit pay?
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.
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