What is a merit increase process?

A merit increase process is a method of determining how frequently to offer merit increases, the percentage of increase, and who qualifies for the merit increase. To implement a data-driven merit increase process, HR leaders must assess employees’ merit eligibility, internal and external value, and establish a merit allocation strategy.  

Why should HR leaders care about the merit increase process?

A thorough merit increase process is an essential element of a smoothly-functioning company ecosystem. Properly planning the merit increase process enables companies to reward high-performing employees with competitive salary increases that boost retention, engagement, and productivity.

What can HR leaders do to facilitate a smooth merit increase process?

To execute a merit increase process that aligns with the budget and considers employees’ internal company and external market value, HR leaders can use these tactics:

  • Design a compensation philosophy. Adhering to an official compensation plan ensures that organizations base their merit increases on standard, consistent methods. A written compensation philosophy keeps a company from veering off course, ensuring that every merit increase awarded strengthens the company in return.
  • Determine the criteria to earn a merit increase. Incorporating a dynamic performance review system helps HR evaluate individuals’ progress, strengths, and weaknesses. Based on performance evaluation data, HR leaders and managers can collaborate to develop challenging yet attainable objectives for their workers. Ideally, these goals will motivate employees to improve their work performance while maintaining a work-life balance. 
  • Analyze the merit systems. HR leaders and compensation managers can collaborate to determine the type of merit matrix that fits their business. They should ask themselves: should the merit matrix be solely performance-based or depend on employee rank within their pay range? By what percentage will salaries increase? Will high-performing employees receive a higher percentage salary increase? 
  • Choose a merit matrix. HR leaders should consider the message the merit matrix system conveys to employees. The way a company awards its employees illustrates its priorities. For example, offering top-performing employees a higher merit increase percentage than others may inspire lower-performing employees to improve their work ethic.
  • Involve employees. HR managers should effectively communicate the merit increase standards and the merit allocation strategy to employees. Transparency in these matters gives employees essential information to guide them forward in their career progression.  

How can an effective merit increase process improve company culture?

A merit increase process must fit the budget and offer fair work-performance rewards. By clearly explaining the merit increase system to employees, HR can boost motivation and engagement. Employees who feel empowered to control their career path and better their work performances can contribute to building a thriving, dynamic company culture.