What Is a Merit Increase?
What Is a Merit Increase?

What Is a Merit Increase?

The business world is filled with jargon and technical terms that can be difficult to negotiate. With so many terms around to describe what might, on the surface, seem like the same thing, it can be challenging to understand the differences.

This is no different with terms such as ‘merit increase’, ‘raise’, ‘regular raise’ and ‘raise with inflation’.

In this article, we take a look at what a merit increase is and what it could mean for you or your company.

What Is a Merit Increase?

A merit increase is essentially a wage rise that is given to employees as a form of recognition for outstanding performance.

Merit increases are often decided by using a combination of internal criteria, the budget of the company and an understanding of an employee's value within the job market.

They are often used as part of an incentive package to reward employees who perform well and also act as motivation for other employees who wish to achieve their own merit increase.

Companies who make use of merit increases often notice increases in employee retention, engagement and productivity, as well as overall employee satisfaction.

What Is the Difference Between a Raise and a Merit Increase?

Although they may seem very similar, a merit increase is not the same as a raise. There are some key differences:


Generally, a raise is distributed to all employees either at the start of the new tax year or occasionally bi-annualy.

Normally, a wage raise will happen to account for increased cost of living rates, national wage increases, inflation or to fulfill contractual obligations.

Employees will often automatically gain a wage increase after a set amount of time working for a company – for example, after an introductory or trial period – or at the start of the new tax year when budgets have been reassessed.

This type of wage increase is not incentivised and therefore is not a reflection of personal performance or ability.

Merit Increase

A merit increase is an incentivised form of wage increase.

To be eligible for it, employees will need to fulfill criteria that are set out by their company.

The criteria may include fulfilling specific targets or performing well in certain areas, as well as other specifications such as attendance, attitude to work and how well they work as part of a team.

These wage increases are not given to all employees and rely on evaluations and feedback from other staff members or clients.

They therefore act as a motivational target for employees.

It is important to note that a merit increase is not the same as a bonus, although both may be as a result of exceptional performance. Bonuses are one-off payments, whereas a merit increase is an overall increase in salary.

How Do Companies Use Merit Increases?

There are many reasons why a company may offer merit increases to its staff.

Reasons may include:

  • Staff retention – When employees feel as though they are appreciated, they are less likely to move on to other positions. Offering incentives such as merit increases helps individuals to feel that their contributions are being noticed and recognized.

  • Motivation – Having something to aim for is well known to motivate people into action. Offering a reward for work that is well done or goes above and beyond expectation is a good way of encouraging people to hit their targets. If staff members know that there could be a merit increase at the end of their hard work, then they will automatically want to be more productive.

  • Improvements in staff mood – Feeling recognized and appreciated improves mood and overall feelings of happiness within the workplace. This then spreads to other areas such as employee rapport and helps to improve the working environment overall.

  • Increased employee satisfaction – If an employee or a team feels as though their hard work is noticed, then they are happier to work. Gaining satisfaction in their work will help to improve the business as a whole. Clients and customers will see that the business has a happy work environment and potential future employees will be more inclined to want to join the company.

How Do Merit Increases Work Best?

In principle, merit increases are a fantastic way to motivate staff members and increase productivity. When they are implemented properly, they are an effective form of reward, reduce staff turnover and increase employee satisfaction.

There are, however, a few things that help merit increases to achieve their aims more easily:

Clarity of Requirements/Aims

It is always easier to meet a target if you know exactly what that target is.

Making sure that employee handbooks and information related to incentives are clear, concise and up to date means that employees will always know what they need to do to achieve their targets and gain merit increases and other rewards.

For example:

If an employee handbook is filled with complex jargon or technical language, employees will not be inspired to read through it or may not fully understand what they need to do to meet relevant requirements. It is much better to have short, clear information that sets out requirements in a concise way.


It is vital to make sure that the awarding of merit increases is consistent. If the criteria have been met by all employees, then all of them should benefit.

If employers are inconsistent in the way that they award merit increases and other incentivised rewards, then it will foster feelings of favoritism and negative emotions within employees.

This will affect the overall rapport of the workplace and potentially have the effect of reducing productivity.

For example:

If three employees have met the criteria for a merit increase, then all three of them should be rewarded during their annual reviews or employee evaluations.

If two employees are awarded and not the third, it will lead to questions as they will have all worked hard to meet their targets.

It may mean that the individual who was not given a merit increase will not want to work as hard to meet the next set of targets, as they will not feel that their work is valued.

If this continually happens where other people are awarded, then it can lead to employees looking for work elsewhere.


While it is important to be clear and consistent with the requirements and application of merit increases, it is also vital for companies to be adaptable.

There may be times when requirements need to be reconsidered or adjusted to allow for changes in the company's budget or to keep in line with competitors.

For example:

If your business is in a highly competitive area, then it is a good idea to keep an eye on what it’s offering to employees in the form of merit increases. If competitors are offering considerably more to their staff members or have fewer requirements, consider adjusting your policies so that they are more in line.

This will help to increase staff satisfaction as they will know that they are just as valued as the employees of other companies.

What Is a Merit Increase and Why Is It Important?
What Is a Merit Increase and Why Is It Important?

Applicable to Everyone

Rewards and recognition should be available to everyone within a company. This helps to ensure the smooth running of every area and makes sure that nobody feels that their role is less important than somebody else's.

For example:

If employees see that their bosses are achieving merit increases and other rewards while they are not, it will lead to feelings of despondency and staff may be less inclined to work to the very best of their ability. Ensuring that there are attainable targets for every employee will help to avoid dissatisfaction.

Top Tips to Make Merit Increases Work for You

There are a few things that you can do to make the most of the merit increases that your company offers.

As an Employee

If your company offers merit increases as part of their incentives package, then you may be wondering how to achieve one for yourself.

While you will obviously have to meet whatever requirements have been set out by your company, there are some ways that you can make sure you are doing everything you possibly can to tick every box:

  • Keep up to date with policies – It is always easier to achieve something if you know where the goalposts are. Make sure that you read through your company's policies and check when they are changed. This should set out the requirements for being awarded a merit increase and gives you something to work towards.

  • Watch what others are doing – If someone else in your office seems to be constantly achieving merit increases while you get left behind, consider what it is that they are doing differently to yourself. To gain a merit increase, strict criteria need to be met, so it could be that you are missing something. If you are really unsure what it is that another person is doing differently, consider asking for the opportunity to shadow someone who has more experience. This will help you learn firsthand any skills that you might perhaps be missing.

  • Reflect on previous work – If you have perhaps been awarded a merit increase in the past but don’t seem to be able to get another one, consider what the difference is between then and now. Have you changed the way that you do things? Is there something that you could be doing better? Reflecting is a useful tool to help guide your future actions; lessons can be learned and inspiration can be gained. It is easier to reflect on past work if you ensure that you keep a record of any significant achievements or moments.

  • Don’t be afraid to sing your own praises – In a busy work environment, managers aren’t always able to keep track of each person's individual accomplishments (although these should always be recorded somewhere). Don’t be afraid to talk about it when you have done something well or achieved a goal. This helps to make sure that the manager notices you and can reflect well in annual review situations. Of course, while it is good to talk about accomplishments, it is important not to come across as being boastful or arrogant.

As a Manager

As a manager, it is important to ensure that the morale of your team is as high as possible.

Being able to award merit increases and other rewards are important ways of keeping up morale and making sure that your team is performing as well as it can.

There are some things you can do to ensure you are rewarding your staff as often as possible:

  • Be aware of your company's policies – It is always a good idea to keep policies fresh in your mind, especially if they have been recently changed. Regularly checking through policy documents can help you to spot someone who deserves to be rewarded but had previously been missed.

  • Keep achievement reports up to date – All employee achievements should be recorded so that they can be reflected on during annual reviews and performance meetings. Keeping these files up to date will help you to have all of the relevant information at the right time.

  • Make sure that merit increases are attainable – While it should be an incentive to encourage performance, it is important that the criteria for eligibility are still attainable. Having a merit increase that is almost impossible to achieve will have the exact opposite effect on employees than intended, by making them despondent and less inclined to exert extra effort as they will not see the point in doing so.

  • Make it worthwhile – Most employees will know if their company is doing particularly well and they will be aware that it is down to their hard work. If your company has had a very good year and is considering rewarding employees with a merit increase to recognize their successes, make sure that it is worth it. Although any increase is nice, employees may feel dissatisfied by very small increases when they know that the company has achieved record figures or significant milestones.

Final Thoughts

Although they may seem very similar to other forms of monetary reward offered by companies, merit increases can create improvements in working habits and staff mentality in a way that general wage increases don’t.

Whether you are an employee looking for ideas on how to achieve your next merit increase, or an employer who wants clarity on what offering merit increases can mean for your business, there are plenty of things to consider.

Offering, targeting and attaining merit increases can dramatically increase productivity and rapport within the workplace, encouraging employees to work to the very best of their abilities towards communal goals.

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