3 reasons why merit raise is important

In response to these challenges, organizations are increasingly turning to innovative and flexible compensation strategies, such as merit raises. Below we describe in detail what this form is, what distinguishes it and who should receive it. We’ll also point out the benefits to the organization that come after its introduction.

What is a merit raise?

Merit raise is a salary increase awarded to employees based on their performance and productivity at work, and thus – their overall contribution to the success of the organization. Its purpose is not only to reward employees (to show their appreciation) for their commitment and work performance but more importantly to keep them motivated to complete their assigned tasks.

It is usually awarded based on periodic reviews and employee evaluations (e.g., quarterly, semiannual, annual), although there are also times when an employee stands out exceptionally and is rewarded at a particular time. Moreover, in most cases, it is a percentage increase in base salary, but in some companies, it can also take another form (such as a bonus).

Is merit raise a simple pay rise?

A merit raise is sometimes mistakenly considered an ordinary salary increase – but it’s worth being aware of the differences between the two. Ordinary salary increases are usually granted based on seniority, promotion or other criteria (e.g., the inflation rate), but unrelated to the need to evaluate their performance and productivity, as is the case with merit raises.

What’s more, ordinary raises tend to be routine and serve primarily to adjust an employee’s salary to changes in the cost of living or industry standards, while merit raise is designed to reward achievement and effort (and thus maintain commitment and motivate further work).

Who should receive a merit raise?

Who exactly should receive the raise in question will depend each time on the company’s remuneration policy, the values it places on and the employee evaluation process. Most often, however, such criteria and factors as:

• Job performance – e.g., achievement of sales targets, improved productivity, significant contributions to projects, achievements in innovation,
• The quality of work – that is, the products or services they provide, and additionally, the way they perform their duties, such as speed or timeliness,
• Creativity – people who contribute to the introduction of new ideas, processes or products can be rewarded for their innovations,
• Professional development – employees who invest in their professional development through training, courses or acquiring new skills can be rewarded for their efforts to improve,
• Contribution to the achievement of the organization’s goals – employees who make a significant contribution to the company’s strategic goals deserve raises. These could be those responsible for revenue growth, cost reduction or developing new markets,
• Showing initiative – people who are actively involved in the life of the company, take initiative, help solve problems and act outside of their duties can be rewarded for their involvement.

What are the merit raise benefits?

Why is awarding merit raise an important part of a company’s human resources policy, regardless of the industry in which the company operates? The most noteworthy reasons why this form of reward are outlined below.

1. Motivate employees to achieve better results

Merit raise is a powerful tool to motivate employees to perform better at work. People who see that their efforts and achievements are recognized and rewarded are often more motivated to perform at the highest level. What’s more, by knowing that their work has an impact on the success of the organization, they are more willing to put in extra effort and show initiative.

2. Support employee retention in the company

Awarding the form in question can also help retain talented employees in the organization. When employees receive performance raises, they are less likely to consider changing jobs or moving to competing companies. Thus, awarding such rewards can help reduce costs associated with employee turnover, especially in recruiting and training new people.

3. Improve productivity and quality of work

Employees who receive performance raises often strive for higher levels of productivity. This is because they want to show that they are worthy of the award they have just received, which can contribute to an increase in their demonstrated efficiency and productivity within the company. At the same time, this can translate into greater attention to the quality of work – they will strive to deliver products and services of the highest possible standard.

Merit raise – summary

Undoubtedly, merit raise is a tool that can effectively motivate employees to strive for better performance. However, it is crucial to award it fairly and objectively – individuals should be aware of the criteria for receiving it. Firmbee project management software, which comes with a time-tracking option, can help in this regard. Thanks to this feature, it is possible to track how much time is needed for a particular employee to perform a specific task and, on this basis, determine his performance, which is one of the basic criteria for receiving a merit raise.

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