A merit increase is a performance-based increase in an employee’s wages. A merit increase can be applied to hourly or yearly wages. If an employee is paid by the hour, he usually gets a merit increase in such a way that he gets a higher per hour rate. For example, if he gets $10 per hour, after the merit increase, he can get $11 per hour. If an employee is paid a yearly salary, the merit increase may be a percentage of his salary. The percentage depends on the company’s policies on increases.
A merit increase is different from the normal across the board raise that some companies implement on a regular basis, the aim of which is to offset factors such as increased cost of living. In this sense, a merit increase can be considered a bonus. A merit increase is dependent on the employee’s work performance and can be given on top of the standard raise.
However, it must be emphasized that there is a difference between a merit increase, or raise, and a merit bonus. The difference lies in the duration of the increase. A merit increase will affect the long term pay of the employee, who gets a higher rate from the effectivity of the merit increase. A merit bonus will simply give a lump sum in one go.
The criteria for a merit increase is typically made known to the employees, in order for them to meet targets. The factors considered are, however, different from one company to another.